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 DECEMBER 31, 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: 3,905,587 shares of common
stock, no par, at February 11, 2000.
<PAGE>
MEASUREMENT SPECIALTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(INFORMATION ABOUT INTERIM PERIODS IS UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
<S> <C>
PART I . FINANCIAL INFORMATION . . . . . . . . . . . . . . . 3
Item 1. Financial Statements. . . . . . . . . . . . . . . . 3
Consolidated Balance Sheets, December 31, 1999
(Unaudited) and March 31, 1999. . . . . . . . . . . . . . 3
Consolidated Statements of Operations (Unaudited),
Three and Nine Months Ended December 31, 1999 and 1998. . 5
Consolidated Statements of Shareholders' Equity,
Nine Months Ended December 31, 1999 (Unaudited)
and Year Ended March 31, 1999 . . . . . . . . . . . . . . 6
Consolidated Statements of Cash Flows (Unaudited),
Nine Months Ended December 31, 1999 and 1998. . . . . . . 7
Notes to Consolidated Financial Statement . . . . . . . . 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations . 14
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . 18
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 18
The following exhibits are included herein: . . . . . . . 18
Exhibit 27 Financial Data Schedule. . . . . . . . . . . . 19
Other items are omitted because they are not
required or are not applicable. . . . . . . . . . . . . . 19
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
2
<PAGE>
MEASUREMENT SPECIALTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(INFORMATION ABOUT INTERIM PERIODS IS UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
PART I . FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS, DECEMBER 31, 1999 (UNAUDITED) AND MARCH 31, 1999
<TABLE>
<CAPTION>
MEASUREMENT SPECIALTIES, INC
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
------
(DOLLARS IN THOUSANDS)
DECEMBER 31, MARCH 31,
1999 1999
------------- ----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . . . . . . . . . . $ 4,925 $ 2,711
Accounts receivable, trade, net of allowance for doubtful
accounts of $313 (Dec 1999) and $257 (Mar 1999). . . . . 7,692 4,918
Inventories. . . . . . . . . . . . . . . . . . . . . . . . 6,495 4,662
Deferred income taxes. . . . . . . . . . . . . . . . . . . 658 580
Prepaid expenses and other current assets. . . . . . . . . 850 259
------------- ----------
Total current assets . . . . . . . . . . . . . . . . . . 20,620 13,130
------------- ----------
PROPERTY AND EQUIPMENT . . . . . . . . . . . . . . . . . . . 8,398 6,061
Less accumulated depreciation and amortization . . . . . . 3,893 2,801
------------- ----------
4,505 3,260
------------- ----------
OTHER ASSETS:
Goodwill and other intangible assets, net of accumulated
amortization of $376 (Dec 1999) and $218 (Mar 1999) . . . 1,909 1,898
Deferred income taxes. . . . . . . . . . . . . . . . . . . 21 21
Other assets . . . . . . . . . . . . . . . . . . . . . . . 173 226
------------- ----------
2,103 2,145
------------- ----------
$ 27,228 $ 18,535
------------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
MEASUREMENT SPECIALTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(INFORMATION ABOUT INTERIM PERIODS IS UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MEASUREMENT SPECIALTIES, INC
CONSOLIDATED CONDENSED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
---------------------------------------
(DOLLARS IN THOUSANDS)
DECEMBER 31, MARCH 31,
1999 1999
-------------- -----------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long term debt. . . . . . . . . . . . $ 750 $ 550
Accounts payable . . . . . . . . . . . . . . . . . . . . 6,689 4,067
Accrued compensation . . . . . . . . . . . . . . . . . . 1,116 897
Current portion of product warranty obligations. . . . . 310 290
Income taxes payable . . . . . . . . . . . . . . . . . . 1,275 539
Accrued acquisition costs. . . . . . . . . . . . . . . . 275 508
Accrued expenses and other current liabilities . . . . . 950 514
-------------- -----------
Total current liabilities. . . . . . . . . . . . . . . 11,365 7,365
-------------- -----------
OTHER LIABILITIES:
Long term debt, net of current portion . . . . . . . . . 2,675 3,250
Borrowings under bank line of credit agreement . . . . . - -
Product warranty obligations, net of current portion . . 161 302
Other liabilities, including deferred income taxes . . . 91 76
-------------- -----------
2,927 3,628
-------------- -----------
Total liabilities. . . . . . . . . . . . . . . . . . . 14,292 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 3,905,587 (Dec 1999) and
3,663,787 (March 1999). . . . . . . . . . . . . . . . . 5,502 5,502
Additional paid-in capital . . . . . . . . . . . . . . . 1,106 308
Retained earnings. . . . . . . . . . . . . . . . . . . . 6,329 1,733
Currency translation and other adjustments . . . . . . . (1) (1)
-------------- -----------
Total shareholders' equity. . . . . . . . . . . 12,936 7,542
-------------- -----------
$ 27,228 $ 18,535
-------------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
MEASUREMENT SPECIALTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(INFORMATION ABOUT INTERIM PERIODS IS UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED), THREE AND NINE MONTHS ENDED
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
MEASUREMENT SPECIALTIES, INC
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNT)
FOR THE THREE FOR THE NINE
MONTHS ENDED DEC 31, MONTHS ENDED DEC 31,
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . $15,960 $13,928 $43,426 $28,265
Cost of goods sold . . . . . . . . . . . . . . 8,807 7,978 24,166 16,975
-------- -------- -------- --------
Gross profit . . . . . . . . . . . . . . . . 7,153 5,950 19,260 11,290
-------- -------- -------- --------
Other expenses (income):
Selling, general and administrative. . . . . 4,076 3,460 11,601 7,788
Research and development . . . . . . . . . . 924 916 2,537 2,112
Customer funding of research and development (393) (319) (1,223) (604)
Interest expense (net) and other income. . . 56 236 217 291
-------- -------- -------- --------
4,663 4,293 13,132 9,587
-------- -------- -------- --------
Income before income taxes . . . . . . . . . . 2,490 1,657 6,128 1,703
Income tax provision . . . . . . . . . . . . . 622 397 1,532 406
-------- -------- -------- --------
Net income . . . . . . . . . . . . . . . . . . $ 1,868 $ 1,260 $ 4,596 $ 1,297
-------- -------- -------- --------
Earnings per common share
Basic. . . . . . . . . . . . . . . . . . . $ 0.49 $ 0.35 $ 1.22 $ 0.36
-------- -------- -------- --------
Diluted. . . . . . . . . . . . . . . . . . $ 0.43 $ 0.34 $ 1.07 $ 0.36
-------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
MEASUREMENT SPECIALTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(INFORMATION ABOUT INTERIM PERIODS IS UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY, NINE MONTHS ENDED DECEMBER 31,
1999 (UNAUDITED) AND YEAR ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
MEASUREMENT SPECIALTIES, INC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED MARCH 31, 1999 AND THE NINE MONTHS ENDED DECEMBER 31, 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
241,830 common shares issued upon exercise of options 798 798
Net income for the period ended Dec 31, 1999 4,596 4,596
---------- ------
BALANCE, DECEMBER 31, 1999 . . . . . . . . . . . . . . 5,502 1,106 6,329 (1) 12,936
------ ---------- ---------- ------------ ------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
MEASUREMENT SPECIALTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(INFORMATION ABOUT INTERIM PERIODS IS UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED), NINE MONTHS ENDED DECEMBER
31, 1999 AND 1998
<TABLE>
<CAPTION>
MEASUREMENT SPECIALTIES, INC
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
FOR THE NINE MONTHS
ENDED DECEMBER 31,
------------------
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 4,596 $ 1,297
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and Amortization . . . . . . . . . . . . . 1,097 895
Warranty expense. . . . . . . . . . . . . . . . . . . . (121) -
Deferred Income Taxes . . . . . . . . . . . . . . . . . (78) -
Net changes in operating assets and liabilities:
Accounts receivable, trade. . . . . . . . . . . . . . (2,774) (1,606)
Inventories . . . . . . . . . . . . . . . . . . . . . (1,833) (134)
Prepaid expenses and other current assets . . . . . . (591) (3)
Other assets. . . . . . . . . . . . . . . . . . . . . 53 (56)
Accounts payable, trade . . . . . . . . . . . . . . . 2,622 738
Accrued expenses and other liabilities. . . . . . . . 1,184 423
-------- --------
Net cash provided by (used in) operating activities . . . 4,155 1,554
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment . . . . . . . . . . . . (2,342) (592)
Acquisition of business, net of cash acquired . . . . . . . - (3,985)
-------- --------
Net cash used in investing activities . . . . . . . . . . (2,342) (4,577)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under bank line of credit agreement. . . . . . . - 7,435
Repayments under bank line of credit agreement. . . . . . . - (7,456)
Procceds of long term debt. . . . . . . . . . . . . . . . . - 4,000
Repayments of long term debt. . . . . . . . . . . . . . . . (375) (100)
Proceeds from exercise of options and warrants. . . . . . . 776 76
-------- --------
Net cash provided by (used in) financing activities . . . 401 3,955
-------- --------
Effect of exchange rate changes on cash and cash equivalents. - (8)
-------- --------
Net change in cash and cash equivalents . . . . . . . . . . . 2,214 924
Cash and cash equivalents, beginning of year. . . . . . . . . 2,711 303
-------- --------
Cash and cash equivalents, end of period. . . . . . . . . . . $ 4,925 $ 1,227
-------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
MEASUREMENT SPECIALTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(INFORMATION ABOUT INTERIM PERIODS IS UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
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 nine months ended December 31, 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 disclosure 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.
Intangible assets:
Goodwill representing the excess of the cost over the net tangible and
identifiable intangible assets of the acquired business is amortized on a
straight-line basis over 15 years. Other intangible assets are amortized over a
period of 3 to 5 years.
Whenever events or circumstances indicate that the carrying amount of an asset
may not be recoverable, management assesses the recoverability of the asset. It
is possible that the actual cash flows that result will be insufficient to
recover the carrying amount of certain of these intangibles. No impairment loss
was required for 1999 and 1998.
Revenue recognition:
Revenue is recorded when the products are shipped and the Company provides for
allowance for returns based upon historical and estimated return rates.
Research and development:
Research and development expenditures are expensed as incurred. Customer funding
is recognized as earned.
8
<PAGE>
MEASUREMENT SPECIALTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(INFORMATION ABOUT INTERIM PERIODS IS UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
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
June 15, 2000. 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 intended to hedge its
interest rate risk associated with long term debt. The Company believes that
adoption of SFAS 133 will not have a material impact on its financial position
or results of operations.
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 December 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 Nine months
ended Dec 31: ended Dec 31:
---------------- ----------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Sales. . . . . . . . . . . . $15,960 $13,928 $43,426 $30,687
Net income (loss). . . . . . 1,868 1,260 4,596 188
Earnings (loss) per share
Basic. . . . . . . . . . $ 0.49 $ 0.35 $ 1.22 $ 0.05
Diluted. . . . . . . . . $ 0.43 $ 0.34 $ 1.07 $ 0.05
</TABLE>
9
<PAGE>
MEASUREMENT SPECIALTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(INFORMATION ABOUT INTERIM PERIODS IS UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
3. INVENTORIES:
Inventories are summarized as follows:
<TABLE>
<CAPTION>
DEC 31, 1999 March 31, 1999
------------- ---------------
<S> <C> <C>
Raw Materials . $ 1,829 $ 1,378
Work-in-process 1,230 420
Finished goods. 3,436 2,864
------------- ---------------
$ 6,495 $ 4,662
------------- ---------------
</TABLE>
4. LONG TERM DEBT:
At December 31, 1999, there were no amounts outstanding under the Company's
bank line of credit agreement. The agreement provides for a maximum amount
available of $5.0 million until the agreement's expiration on September 30,
2001. 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. 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 the current Fiscal 2000, 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. 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
$4,000 term loan agreement with the Company's principal bank. As of December
31, 1999, $3,425 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:
<TABLE>
<CAPTION>
Principal
Fiscal Year Repayments
- ------------ ----------
<S> <C>
2000 $ 175
2001 800
2002 950
2003 1,000
2004 500
</TABLE>
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 ($2.9 million as
of December 31,2000) with a fixed rate of 8.32%. The notional amount of the
Swap decreases as follows:
<TABLE>
<CAPTION>
Principal
Fiscal Year Repayments
- ------------ ----------
<S> <C>
2001 $ 700
2002 900
2003 1,000
</TABLE>
10
<PAGE>
MEASUREMENT SPECIALTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(INFORMATION ABOUT INTERIM PERIODS IS UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
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, 1999. 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
December 31, 1999, this subsidiary's restricted net assets approximated $536.
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.
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 ENDED DEC 31, 1999 For the Three months ended Dec 31, 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. . $ 1,868 3,828 $ 0.49 $ 1,260 3,591 $ 0.35
Effect of dilutive securities. 531 92
---------- ----------- ---------- ---------- ----------- ----------
Diluted per share information. $ 1,868 4,359 $ 0.43 $ 1,260 3,696 $ 0.34
---------- ----------- ---------- ---------- ----------- ----------
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED DEC 31, 1999 For the Nine months ended Dec 31, 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. . $ 4,596 3,766 $ 1.22 $ 1,297 3,587 $ 0.36
Effect of dilutive securities. 549 94
---------- ----------- ---------- ---------- ----------- ----------
Diluted per share information. $ 4,596 4,315 $ 1.07 $ 1,297 3,638 $ 0.36
---------- ----------- ---------- ---------- ----------- ----------
</TABLE>
11
<PAGE>
MEASUREMENT SPECIALTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(INFORMATION ABOUT INTERIM PERIODS IS UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
7. STOCK OPTION PLANS:
Total number of Stock Options granted to employees during the nine months to
December 31, 1999 were 41,225.
8. SUPPLEMENTAL DISCLOSURES OF CASHFLOW INFORMATION:
For the nine months ended December 31, 1999 and 1998, payments of interest
expense approximated $231 and $146.
9. 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.
10. 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.
The following is information related to industry segments:
<TABLE>
<CAPTION>
Three months Nine months
ended Dec 31: ended Dec 31:
--------------------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales
Consumer Products . . . $11,608 $11,216 $33,146 $23,488
Sensors . . . . . . . . 4,352 2,712 10,280 4,777
-------- -------- -------- --------
Total. . . . . . . . $15,960 $13,928 $43,426 $28,265
-------- -------- -------- --------
Segment Profitability
Consumer Products . . . 2,938 2,600 8,648 4,824
Sensors . . . . . . . . 1,300 277 2,615 598
Unallocated expenses. . (1,693) (984) (4,918) (3,427)
Interest expense. . . . (108) (167) (309) (232)
Other (expenses) income 52 (69) 92 (60)
-------- -------- -------- --------
Income before taxes. 2,490 1,657 6,128 1,703
-------- -------- -------- --------
</TABLE>
12
<PAGE>
MEASUREMENT SPECIALTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(INFORMATION ABOUT INTERIM PERIODS IS UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
11. SUBSEQUENT EVENT:
On January 5, 2000 the Company acquired, for cash, certain assets comprising the
ultrasonic garage parking system business of Exeter Technologies, Inc. Pursuant
to the acquisition agreement, the Company made an initial payment of
approximately $625 and is required to pay additional consideration based upon
future sales. The additional consideration is equal to 15% of net sales in
year one, 10% in year two and 5% in year three. No payments are to be made
after year 3. The acquisition will be accounted for under the purchase method
of accounting. The company has not yet completed its allocation of the purchase
price to tangible and intangible assets but estimates that intangible assets
will aggregate approximately $800 which will be amortized over an average life
of 7 years.
13
<PAGE>
MEASUREMENT SPECIALTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 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, and the risk factors listed from time to time in the Company's SEC
reports. The Company is involved in an active acquisition program. Forward
looking statements may not include the impact of acquisitions, which could
affect results in the near term.
RESULTS OF OPERATIONS (IN THOUSANDS)
Revenues for the three months ended December 31, 1999 increased by $2,032 or
14.6 percent to a record quarterly level of $15,960 compared with $13,928 for
the third quarter of Fiscal 1999. The net income for the third quarter was
$1,868 in Fiscal 2000 compared to $1,260 for Fiscal 1999. This is the highest
quarterly income in the Company's history. For the first nine months of Fiscal
2000, revenues increased $----15,161 or 53.6 percent to $43,426 from $28,265
during the first nine 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 third quarter ended December 31, 1999, sales of the Consumer Products
segment increased by $392 or three percent, to $11,608 for this year from
$11,216 in the prior year. The increase resulted from higher U.S. sales from
strong consumer spending, and expansion of product offerings. For the nine
months ended December 31, 1999, Consumer Products revenue grew to $33,146, a
$9,658 or 41 percent increase from $23,488 in the prior year's period. 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, as well as increased sales to the Company's primary U.S. OEM customer.
Sales of the Sensors segment for the quarter increased to $4,352 in third
quarter of Fiscal 2000 from $2,712 in the prior period, primarily due to higher
volume across all product lines. Sensor sales for the nine months ended
December 31, 1999 were $10,280 versus $4,777 in the prior fiscal year's period.
The increase of $5,503 or 115% is due to the PiezoSensors acquisition and the
same factors discussed for the third quarter.
Due to the higher sales volume, product mix, and ongoing cost reduction efforts,
gross profit for the third quarter increased by $1,203 to $7,153 in Fiscal 2000
from $5,950 in Fiscal 1999, with the gross profit percentage increasing to 44.8
percent compared to 42.7 percent in the prior year. For the nine months ended
December 31, 1999, gross profit was $19,260 or 44.4 percent compared to $11,290
or 39.9 percent in the prior year comparable period. For both the quarter and
nine 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
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.
14
<PAGE>
MEASUREMENT SPECIALTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(INFORMATION ABOUT INTERIM PERIODS IS UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Selling, general and administrative ("SG&A") expenses for the third quarter
increased by $616 or 17.8 percent to $4,076 in Fiscal 2000 compared to $3,460 in
Fiscal 1999. For the first nine months of Fiscal 2000, SG&A expenses were
$11,601 versus $7,788 in Fiscal 1999, an increase of $3,813 or 49%. 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 third quarter of
Fiscal 2000, research and development expenses were $924 versus $916 in Fiscal
1999. For the nine months ended December 31, 1999, Research and Development
expenses were $2,537 compared with $2,112 for the same period of the prior
fiscal year. The increase for both the quarter and nine month period was due to
the impact of the PiezoSensors acquisition. However, net Research & Development
expenses for the third quarter of Fiscal 2000 were reduced to $531 compared to
$597 in the prior year's quarter. Research & Development, net was also lower
for the nine month period ended December 31, amounting to $1,314 for Fiscal
2000, versus $1,508 in Fiscal 1999. The Company received significant funding of
development costs from customers, amounting to $393 for the third quarter of
Fiscal 2000 and $1,223 for the nine month period versus $319 and $604 for both
in the prior year's quarter and nine 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 nine month period of FY 2000 and FY 1999, the Company recognized a tax
provision of $1,532 and $406 respectively, at an estimated effective annual
income tax rate of approximately 25 percent for Fiscal 2000. The estimated rate
of tax is based on the proportion of pretax profits expected to be earned
during fiscal year 2000 in each of the countries in which the Company
operates. The foreign tax rates in effect during fiscal year 2000 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 $9,255 at December 31, 1999, compared to
$5,765 at March 31, 1999, reflecting the increase in Accounts Receivable due to
higher revenues. At December 31, 1999, the Company's current ratio was 1.8.
Cash increased to $4,925 at December 31, 1999 compared to $2,711 at March 31,
1999. Operating activities provided $4,155, primarily from net income and
increases in accounts payable, offset by increases in accounts receivable.
Investing activities used $2,342 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
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).
15
<PAGE>
MEASUREMENT SPECIALTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(INFORMATION ABOUT INTERIM PERIODS IS UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Fixed asset purchases for the first nine months of Fiscal 2000 of $2,342, 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 December 31, 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.
On January 5, 2000 the Company acquired, for cash, certain assets comprising the
ultrasonic garage parking system business of Exeter Technologies, Inc. Pursuant
to the acquisition agreement, the Company made an initial payment of
approximately $625 and is required to pay additional consideration based upon
future sales. The additional consideration is equal to 15% of net sales in
year one, 10% in year two and 5% in year three. No payments are to be made
after year 3. The company has not yet completed its allocation of the purchase
price to tangible and intangible assets but estimates that intangible assets
will aggregate approximately $800 which will be amortized over an average life
of 7 years.
At December 31, 1999, there were no amounts outstanding under the Company's bank
line of credit agreement. The agreement provides for a maximum amount available
of $5.0 million until the agreement's expiration on September 30, 2001.
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 the current Fiscal 2000, 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 December
31, 1999, $3,425 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:
<TABLE>
<CAPTION>
Principal
Fiscal Year Repayments
- ------------ ----------
<S> <C>
2000 $ 175
2001 800
2002 950
2003 1,000
2004 500
</TABLE>
16
<PAGE>
MEASUREMENT SPECIALTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(INFORMATION ABOUT INTERIM PERIODS IS UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
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 had an initial notional amount of $3.5 million ($2.6 million as
of December 31, 1999) with a fixed rate of 8.32%. The notional amount of the
Swap decreases as follows:
<TABLE>
<CAPTION>
Principal
Fiscal Year Repayments
- ------------ ----------
<S> <C>
2001 $ 700
2002 900
2003 1,000
</TABLE>
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 December 31, 1999, this subsidiary's restricted net assets
approximated $536.
17
<PAGE>
MEASUREMENT SPECIALTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(INFORMATION ABOUT INTERIM PERIODS IS UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
THE FOLLOWING EXHIBITS ARE INCLUDED HEREIN:
(3.1) Park Zone Product Line Acquisition Line Agreement
(27) Financial Data Schedule
OTHER ITEMS ARE OMITTED BECAUSE THEY ARE NOT REQUIRED OR ARE NOT APPLICABLE.
During the three months ended December 31, 1999, the company did not file any
reports on Form 8-K.
18
<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: February 14, 2000 Joseph R. Mallon Jr.
Chief Executive Officer, and
Chairman of the Board of Directors
/s/ Kirk J. Dischino
-----------------------------
Date: February 14, 2000 Kirk J Dischino
Chief Financial Officer
19
<PAGE>
MEASUREMENT SPECIALTIES, INC.
-----------------------------
PRODUCT LINE ACQUISITION AGREEMENT
----------------------------------
THIS AGREEMENT, made as of January 5, 2000 by and between Measurement
Specialties, Inc., a New Jersey corporation (the "Buyer"), Exeter Technologies,
Inc., a Delaware corporation (the "Company") and Dr. Michael Yaron, an
individual and the principal shareholder of the Company (the "Parent").
WHEREAS, the Company desires to sell certain of its assets comprising its
ultrasonic garage parking system business (the "Business") to the Buyer and the
Buyer desires to acquire such assets on he terms as set forth herein.
NOW, THEREFORE, in consideration of the mutual promises herein contained
and other good and valuable consideration, the parties agree as follows:
Section 1. Sale of Business, Properties and Assets.
--------------------------------------------
1.1 Acquired Assets. At the closing, which shall take place
----------------
simultaneously with the execution of this Agreement (the "Closing"), the Company
will sell, transfer, assign, convey and deliver to the Buyer, and the Buyer will
purchase, accept and acquire from the Company, all of the business, properties
and assets (whether real or personal, tangible or intangible property and
wherever situated) of the Company related to or otherwise usable in connection
the Business as currently conducted by the Company (the "Acquired Assets"),
including, without limita-tion:
(a) all information with respect to customers of the Business;
(b) all interest and rights to all names and marks used in the
Business, including the right to use the names listed on
Schedule 1.1 in connection with Buyer's conduct of the
Business and in Buyer's corporate or trade name, and all
patents, know-how, trade secrets, copyrights, confidential
information and other proprietary rights including, without
limitation, U.S. Patents and U.S. Trademark Registrations
listed on Schedule 1.1;
(c) all tangible personal property located at the Com-pany's
offices and elsewhere related to the Business, including all
manufacturing equipment and molds for castings of components
as listed in Schedule 6.7;
(d) all inventory, including all components, work-in-process and
finished goods inventory; and
(e) all open customer purchase orders.
<PAGE>
1.2 Excluded Assets. The following assets shall not be pur-chased by
----------------
Buyer and shall not be considered a part of the Acquired Assets hereunder:
(a) the Company's cash, deposits and accounts receivable;
(b) the Company's Minute Book, corporate documents and its books
and records;
(c) any automobiles, real property or leases;
(d) claims for refund of any tax paid by the Company prior to
Closing.
(e) the Company's furniture, equipment and fixtures other than its
tools and molds used in conjunction with the Manufacturing of
Park-Zone
Section 2. Purchase Price and Liabilities Assumed.
------------------------------------------
2.1 Purchase Price for the Acquired Assets. The purchase price (the
-----------------------------------------
"Purchase Price") for the Acquired Assets shall consist of three elements
payable as follows:
(a) $500,000.00 via wire transfer at closing;
(b) $125,000.00 payable in accordance with the Escrow Agreement
as per Schedule 2.1; and
(c) additional consideration payable in accordance with Section
2.2 below.
2.2 Additional Consideration. In addition to the funds payable at the
-------------------------
time of execution of this Agreement, Buyer shall pay to the Company additional
consideration with respect to the Net Sales Price of all products of the
Business acquired by Buyer hereunder and all direct derivatives thereof
(collectively, the "Products") sold by Buyer within three (3) years from the
date of this Agreement at the following rates:
Year Rate
--------- --------
1 15%
2 10%
3 5%
>3 0%
Payments hereunder shall be based upon the Net Sales Price of all Products sold
by the Buyer within the applicable period and shall be payable quarterly within
Twenty-two (22) days of end of each calendar quarter commencing March 31, 2000.
Payment shall be accompanied by a written statement detailing all sales of the
Product and the calculations used in determining the Additional Consideration
due. In no event shall Buyer be obligated to pay to the Company Additional
Consideration with respect to any sales of Products following the third annual
anniversary date of this Agreement and after such date, Buyer shall have no
further Additional Consideration obligation to the Company.
-2-
<PAGE>
"Net Sales Price" shall mean the aggregate net sales price actually received by
the Buyer from the sale of products after reductions for sales discounts,
shipping, transportation, sales taxes, duties, returns and allowances (including
but not limited to mark downs, buy backs, advertising credits, product placement
incentives). Net Sales Price shall be reduced by any amounts previously included
in the calculation of Net Sales Price for a previous period which prove to be
uncollectible, and for product returns. Buyer will make a good faith effort to
make shipments in a timely manner, and will not intentionally delay shipments in
order to avoid Additional Consideration otherwise due. Buyer shall provide the
Company or its agents with access to its relevant books, records, and tax
returns on reasonable notice and at reasonable times for the purpose of
confirming the compliance by the Buyer with the terms of this Agreement. The
Company shall have the right to make copies of records.
2.3 No Assumption of Liabilities. It is expressly agreed and understood
----------------------------
that the Buyer shall not assume, and the Company shall remain liable for each
and all of the Company's obligations or liabilities, of any kind, including but
not limited to the following: (i) all of the Company's federal, state and local
income, franchise and invest-ment tax credit recapture taxes and other taxes
whether based upon or measured by income or otherwise relating or attributable
to all past or future periods and such taxes incurred in connection with the
transactions contemplated hereby; (ii) any obligation of the Company incurred in
connection with this transaction to attorneys, accountants or others for
services rendered or expenses incurred by or on behalf of the Company; (iii) the
Company's expenses associated with this transaction; (iv) brokers or finders
fees, commissions or like payments arising out of or based upon any act or
omission of the Company; (v) any liability based on any claim, suit or
proceeding alleging violation of any law including any federal, state or local
antitrust, workman compensation or other laws, (vi) product liability claims for
goods shipped prior to Closing; or (vii) product returns of goods shipped prior
to Closing, (all of which are herein sometimes collectively referred to as the
"Retained Liabilities").
2.4 Allocation of Purchase Price to Specific Assets. The Purchase
----------------------------------------------------
Price shall be allocated among the Acquired Assets as set forth in Schedule 2.
-3-
<PAGE>
Section 3. Set-Off. The Buyer shall have the right to set-off against any
-------
payment due the Company pursuant to Section 2 any amount of any indemnification
due Buyer under Section 8.1 hereof. Payments will be made as due to the extent
payments exceed indemnification. Credits issued or payments made by the Buyer
for Product returns related to shipments prior to Closing will be offset against
Additional Consideration due.
Section 4. Instruments of Transfer and Further Assurances.
---------------------------------------------------
4.1 Company's Closing Documents. At the Closing, and concur-rently
-----------------------------
with the making of the deliveries by the Buyer as hereinafter set forth, the
Company shall deliver to the Buyer the following instruments, in form and
substance satisfactory to the Buyer:
(a) Warranty bill of Sale conveying the tangible and intangible
personal property conveyed hereunder to the Buyer;
(b) Assignments of any patents, trademarks or other intellectual
property included within the Acquired Assets suitable for filing with the
appropriate filing agency;
(c) To the extent any consents or approvals shall be necessary to
any of the transactions herein contemplated, or to the effective transfer or
assignment of any of the Acquired Assets, copies of all such consents or
approvals as obtained by the Company; and
(d) Such other documents as the Buyer shall reasonably deem
necessary.
4.2 The Buyer's Closing Documents. At the Closing or, and
--------------------------------
con-currently with the making of the deliveries by the Company as have been set
forth, the Buyer shall deliver to the Company the following in form and
substance satisfactory to the Company's counsel:
(a) Such documents as the Company shall reasonably deem necessary.
4.3 Further Assurances. Following the Closing, at the request of the
-------------------
Buyer, in addition to the documents and instruments the Com-pany must deliver at
the Closing, the Company and Parent shall deliver any further instruments of
transfer and take all action as may be necessary or appropriate: (a) to vest in
the Buyer title to the Acquired Assets in accordance with the terms of this
Agreement and (b) to transfer to the Buyer all licenses and permits necessary or
desirable for the operation of the Acquired Assets in accordance with the terms
of this Agreement.
Section 5. Expenses. The Company and the Buyer will bear their own costs of
--------
counsel, appraiser and accountants, whether or not the transactions herein
contemplated shall be consummated. If the transaction closes, all sales taxes,
if any, which are payable by reason of the transaction will be paid by the
Buyer. Any expenses or obligations of the Company which are not assumed by
Buyer, will be paid out of, or reimbursed to the Company from, the Purchase
Price and not reduce the assets sold to Buyer hereunder.
-4-
<PAGE>
Section 6. Representations and Warranties of the Company and Parent. The
-------------------------------------------------------------
Company and the Parent represent and warrant as follows:
6.1 Organization; Good Standing. The Company is a corporation duly
-----------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware, with all requisite corporate power and authority to own, operate and
lease its properties, to carry on its business as now being conducted, and to
enter into this Agree-ment and perform its obligations hereunder.
6.2 Litigation. There are no actions, suits or proceedings pending or,
----------
to the best of the Company's or Parent's knowledge, threatened against or
affecting the Company, the Acquired Assets (specifically including but not
limited to patents and trademarks), or its properties before any court or
governmental department, commission, board, bureau, agency, arbi-trator tribunal
or instrumentality. The Company is not in default with respect to any judgment,
order, writ, injunction, decree or award of any court, arbitration or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign. The are no know material disputes with customers.
6.3 Authority. The Company has taken all necessary corporate,
---------
shareholder or director action to authorize the execution, delivery and
consumma-tion of this Agreement and the performance of its obligations
hereunder.
6.4 Compliance With Other Instruments, etc. Neither the execution nor
---------------------------------------
the delivery of this Agreement nor the consummation of the transactions
contem-plated hereby will conflict with or result in any violation of or
constitute a default under any term of the Certificate of Incorporation or
By-Laws of the Company, or any material agreement, mortgage, debt instrument,
indenture, franchise, license, permit, authorization, lease or other instrument,
judgment, decree or order by which the Company is bound or to which the Com-pany
is subject, or result in the creation of any lien, charge or encumbrance upon
the Acquired Assets.
6.5 Governmental and Other Consents, etc. No consent, approval or
----------------------------------------
authorization of or designation, declaration or filing with any governmental
authority or other persons or entities on the part of the Company is required in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contem-plated hereby.
6.6 Finished Goods Inventory. Inventory of finished goods of the Products
-------------------------
is 5,000 units of which 1,000 units are "platinum" units.
6.7 Tangible Personal Property. Set forth in Schedule 6.7 is a true and
----------------------------
complete list and brief description of all material items of tangible personal
property being acquired as part of the Acquired Assets having an original cost
of $500 or more now owned by the Company and relating to the Business.
-5-
<PAGE>
6.8 Compliance with Codes. All property which is reasonably necessary in
----------------------
the operation of the Business is in substantially good operating condition and
repair, considering age and length of service, and is in compliance with all
safety, wiring or other codes or regulations of any applicable governmental
agency. Buyer will notify Company in writing within 14 days of receipt of
tooling as to any claim that is not in good operating condition and repair.
Failure to so notify Company in writing is acceptance of the tooling in good
operating condition and repair.
6.9 Licenses and Permits. The Company is not in default with respect to
----------------------
any ruling, order, writ, injunction, subpoena, inquiry of any court or any
governmental agency or authority, and is in substantial compliance with every
license or permit required of them, and with all laws, orders and governmental
regulations appli-cable to the conduct of its businesses.
6.10 Title, Rights, Liens, Encumbrances, etc. The Company is the owner and
----------------------------------------
has good and marketable title to all of the Acquired Assets , specifically
including but not limited to patents and trademarks, free and clear of all
liens, claims, charges, encumbrances or rights of others of any kind or nature,
actual or contingent, choate or inchoate, liquidated or unliquidated. The
assets to be acquired by Buyer hereunder consti-tute all of the assets necessary
to the conduct of the Business transferred to Buyer hereunder. To the best of
the Company's knowledge and belief, no other party is using or has the right to
use any of the Acquired Assets, nor does the current use thereof by the Company
constitute an infringement on the rights of any other person. No person has an
option or other right to acquire any of the Acquired Assets.
6.11 Binding Obligation. This Agreement has been duly autho-rized,
-------------------
executed and delivered by the Company, and, assuming the due authorization,
execution and delivery hereof by the Buyer, consti-tutes the legal, valid and
binding obligation of the Company enforce-able against the Company in accordance
with its terms.
6.12 Taxes. There is no material unpaid assessment, objection to any
-----
return, or claim for additional taxes or other governmental changes which is
threatened (to the knowledge of the Company) or has been asserted and which
relates to the Acquired Assets.
6.13 Joint and Several Liability. The representations and warranties of
-----------------------------
the Company and Parent herein contained, and the matters set forth in the
Schedules are true and correct in all material respects on and as of the date
hereof, and do not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements contained herein or
therein not misleading. The Company and Parent shall be jointly and sever-ally
liable for the representations and warranties herein contained.
-6-
<PAGE>
Section 7. Representations and Warranties of the Buyer. The Buyer represents
--------------------------------------------
and warrants to the Company as follows:
7.1 Organization; Good Standing. The Buyer is a corporation duly
-----------------------------
organized, validly existing and in good standing under the laws of the State of
New Jersey with all requisite corporate power to own, operate and lease its
properties and assets and to enter into this Agreement and perform its
obligations hereunder.
7.2 Litigation. There is no suit, action, litigation, admin-istrative,
----------
arbitration or other proceeding or governmental investi-gation pending or, to
the knowledge of the Buyer, threatened which might, severally or in the
aggregate, materially and adversely affect the ability of the Buyer to perform
its obligations under this Agree-ment.
7.3 Authority. The Buyer has taken all necessary corporate action to
---------
authorize the execution, delivery and consummation of this Agreement and the
per-formance of its obligations hereunder.
7.4 Compliance with Instruments; Consents; Adverse Agreements. Neither the
---------------------------------------------------------
execution nor the delivery of this Agreement nor the consummation of the
transactions contemplated hereby will conflict with, or result in any violation
of, or constitute a default under, any term of the Articles of Incorporation or
By-Laws of the Buyer, or any agreement, mortgage, indenture, license, permit,
lease or other instrument, judgment, decree, order, law or regulation by which
the Buyer is bound. No consent, approval or authorization of or designation,
declaration or filing with any governmental authority or other persons or
entities on the part of the Buyer is required in connection with the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby.
7.5 Licenses and Permits. The Buyer is not in default with respect to any
--------------------
ruling, order, writ, injunction, subpoena, inquiry of any court or any
governmental agency or authority, and is in substantial compliance with every
license or permit required of them, and with all laws, orders and governmental
regulations appli-cable to the conduct of its businesses.
7.6 Binding Obligation. This Agreement has been duly autho-rized, executed
------------------
and delivered by the Company, and, assuming the due authorization, execution and
delivery hereof by the Buyer, consti-tutes the legal, valid and binding
obligation of the Company enforce-able against the Company in accordance with
its terms.
7.7 Due Diligence. The Buyer has reviewed the books and records of the
Company, including information pertaining to sales, accounts and costs of
manufacturing, and has completed its due diligence and is satisfied with its
investigation, with the only exception being the condition of the tooling
addressed in 2.1 (b) and 6.8 of this Agreement."
-7-
<PAGE>
Section 8. Indemnifications of the Company and the Buyer.
---------------------------------------------------
8.1 The Company's and Parent's Indemnification of the Buyer. The
--------------------------------------------------------------
Company and Parent shall, jointly and severally, indemnify, hold harmless,
defend and bear all reasonable costs of defending the Buyer, together with its
successors and assigns, from, against or in respect of any and all damage, loss,
deficiency, expense (including, but not limited to, any reasonable legal costs
or expenses), action, suit, proceedings, demand, assessment or judgment to or
against the Buyer arising out of, in connection with, or caused by: (a) any
debt, obligation or liability of the Company which is not expressly assumed by
the Buyer under this Agreement, (b) any claim for products liability asserted
against the Buyer for or with respect to merchandise manufactured and sold or
distributed by the Company, and (c) any claim for breach of the cove-nants,
warranties and representations set forth in this Agreement which shall all
survive for a period of three years from the date of Closing.
The Buyer's Indemnification shall be limited to the aggregate consideration
received by the Company and no claim shall be made until the aggregate of all
claims exceeds $50,000 and then only to the extent of such excess.
8.2 The Buyer's Indemnification of the Company and Parent. The Buyer
--------------------------------------------------------
shall indemnify, hold harmless, defend and bear all reason-able costs of
defending the Company and Parent, together with their successors and assigns,
from, against or in respect of any and all damage, loss, deficiency, expense
(including, but not limited to, any reasonable legal costs or expenses), action,
suit, proceeding, demand, assessment or judgment to or against the Company or
Parent, arising out of, in connection with, or caused by: (a) any debt,
obligation or liability of the Company which is expressly assumed by the Buyer
under this Agreement, (b) any claim for products lia-bility asserted against the
Company for or with respect to merchan-dise manufactured, sold or distributed by
the Buyer after the Closing, and (c) or arising from Buyer's operation of the
business after Closing, (d) breach of the covenants, warranties and
representations set forth in this Agreement which shall all survive for a period
of three years from the date of Closing.
8.3 General. Each indemnified party will promptly, after receipt of
-------
notice of any claim or the commencement of any action against such indemnified
party in respect of which indemnity may be sought from an indemnifying party on
account of the indemnity agree-ments contained in this Section, notify the
indemnifying party in writing of the claim or the commencement of such action.
The failure of any indemnified party so to notify an indemnifying party of any
such action shall only relieve the indemnifying party from any liability in
respect of such action which it may have to such indemnified party on account of
the indemnity agreements contained in this Sec-tion, to the extent failure to
give notice caused harm to the indemnifying party, but shall not relieve the
indemnifying party from any other liability which it may have to such
indemnified party. The indemnifying party shall have the right, at its own
expense, to defend any such claim. The Company and Parent agree to participate
fully in the defense of any infringement claims against Patents or Trademarks.
-8-
<PAGE>
Section 9. Non-competition. For a period of five years after the Closing, the
---------------
Company and Parent agree that, together or separ-ately they will not, either
directly or indirectly, either on their own account, or on behalf of any other
person, company or business entity, engage in any business competitive with the
Business in any state or foreign country, in which the Buyer from time to time
conducts business.
In addition to any other rights that the Buyer may have under this
Agreement at law and equity, the Buyer shall be entitled to apply to any court
of competent jurisdiction to obtain injunctive relief against the Company,
Parent, their officers and directors and against any third party to prevent any
breach of this Section.
Section 10. Miscellaneous.
-------------
10.1 Amendment. This Agreement cannot be amended or terminated orally
---------
but only in writing by a duly authorized officer of the Com-pany and the Buyer.
10.2 Entire Agreement. This Agreement embodies the entire agreement
-----------------
and understanding of the parties hereto and supersedes any prior agreement and
understanding between the parties.
10.3 Applicable Law. The provisions of this Agreement shall be
---------------
construed, and the performance thereof shall be enforced, in accordance with the
laws of the State of New Jersey. Each Schedule and Exhibit attached hereto is
hereby made a part hereof as though fully set forth herein.
10.4 Severability. If any provision, phrase or other portion of this
------------
Agreement should be determined by any court of competent jurisdiction to be
invalid, illegal or unen-forceable in whole or in part, and such determination
should become final, such provision, phrase or other portion shall be deemed to
be severed or limited, but only to the extent required to render the remaining
provisions hereof enforce-able; and, provided that the severing of any such
provision will not materially change the substance of this Agreement as thus
amended, this Agreement shall be enforced to the fullest extent possible to give
effect to the intention of the parties expressed herein.
10.5 Binding Effect and Benefit. This Agreement shall be binding upon,
--------------------------
and shall inure to the benefit of, the parties hereto and their respective
successors and permitted assigns. The parties intend that there are no third
party beneficiaries hereunder. No transfer of the Acquired Assets of the Buyer
shall occur during the three year period without the express written consent of
the Company or Parent, which consent shall not be unreasonably withheld.
Provided however, Buyer may sell its Consumer Products Division upon prior
written notice to the Company, but if and only if purchaser agrees to be bound
by all Terms and Conditions of this Agreement.
10.6 Headings. Headings and subheadings are used herein for
--------
convenience of reference only and shall be given no weight in the interpretation
of the Agreement.
10.7 Counterparts. This Agreement may be executed simultane-ously in
------------
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
-9-
<PAGE>
10.8 Waivers and Notices. Any failure by either party to this Agreement to
-------------------
comply with any of its obligations, agreements or cove-nants may be waived by
the other party. All waivers under this Agreement and all notices, consents,
demands, requests, approvals and other communications which are required or may
be given hereunder shall be in writing properly executed and shall be deemed to
have been duly given (a) when received by telex, telephone or similar device, if
subsequently confirmed by a properly executed writing sent within twenty-four
hours after the giving of such notice in such manner, (b) when received by mail,
(c) when delivered by a reputable overnight carrier, or (d) five days following
deposit in the United States mail if mailed certified first class mail, postage
prepaid:
(i) If to the Company: Dr. Michael Yaron
Exeter Technologies, Inc.
One Penn Plaza
Suite 4025
New York, New York 10119
With a copy to:
Mr. Michael M. Goss, Esq.
1634 Spruce Street
Philadelphia, PA 19103
(ii) If to the Buyer: Mr. Joseph R. Mallon, Jr. Chairman
Measurement Specialties, Inc.
80 Little Falls Road
Fairfield, New Jersey 07004
With a copy to:
Mr. John D. Arnold, Esq.
104 Highland Terrace
Woodside, CA 94062
or to such other person or persons at such address or addresses as shall be
designated by written notice to the other parties hereunder.
10.9 Arbitration. If a dispute arises between the parities relating to the
------------
interpretation of performance of this Agreement, the parties agree to hold a
meeting, attended by individuals with decision-making authority regarding the
dispute, to attempt in good faith to negotiate a resolution of the dispute prior
to pursuing other available remedies. If within Forty-Five (45) days after such
meeting, the parties have not succeeded in negotiating the resolution of the
dispute, either party may request that such dispute be resolved through
non-binding arbitration. Each party agrees to participate in the non-binding
arbitration unless all unanimously agree in writing not to participate. Such
arbitration shall be conducted by a single arbitrator in New York, New York, in
accordance with the then-current commercial arbitration rules and supplementary
procedures for commercial arbitration of the American Arbitration Association
("AAA"). Such arbitrator shall be selected by the mutual agreement of the
parties or, failing such agreement, shall be selected according to the aforesaid
AAA rules. The parties shall bear the costs of such arbitrator equally. The
prevailing party in any such arbitration or in any judicial enforcement or
review proceeding shall be entitled to its reasonable attorney's fees and costs
in addition to any other amount of recovery ordered by such arbitrator or court.
Such non-binding arbitration shall not preclude any other remedies at law.
-10-
<PAGE>
10.10 Inventory Mark Down.The Buyer and Company agree to share equally
----------------------
payments made as a result of any agreement by Buyer to mark down Product sold
prior to the Closing date. The Company agrees the mark down due Auto-Zone for
2,575 units sold prior to Closing will be assumed by the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
BUYER
MEASUREMENT SPECIALTIES, INC.
By /s/ Joseph R. Mallon, Jr.
----------------------------
Joseph R. Mallon, Jr.
Chairman and CEO
THE COMPANY
EXETER TECHNOLOGIES, INC.
By /s/ Dr. Michael Yaron
----------------------------
Dr. Michael Yaron
Chairman
PARENT
/s/ Dr. Michael Yaron
----------------------------
Dr. Michael Yaron
-11-
<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 December 31, 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> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 4925
<SECURITIES> 0
<RECEIVABLES> 7692
<ALLOWANCES> 0
<INVENTORY> 6495
<CURRENT-ASSETS> 27228
<PP&E> 8398
<DEPRECIATION> (3893)
<TOTAL-ASSETS> 27228
<CURRENT-LIABILITIES> 11365
<BONDS> 0
0
0
<COMMON> 5502
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 20620
<SALES> 43426
<TOTAL-REVENUES> 43426
<CGS> 24166
<TOTAL-COSTS> 24166
<OTHER-EXPENSES> 12915
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 217
<INCOME-PRETAX> 6128
<INCOME-TAX> 1532
<INCOME-CONTINUING> 4596
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4596
<EPS-BASIC> 1.22
<EPS-DILUTED> 1.07
</TABLE>
