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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 JUNE 30, 2002.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 1-11906
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 IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
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 No _X_
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: 11,912,958 shares
of common stock, no par value, were outstanding at October 21, 2002.
PART I. FINANCIAL INFORMATION............................................................ 3
ITEM 1. FINANCIAL STATEMENTS............................................................. 3
Condensed Consolidated Balance Sheets (Unaudited), June 30, 2002
and March 31, 2002 ....................................................... 3
Condensed Consolidated Statements of Operations (Unaudited),
Three Months Ended June 30, 2002 and 2001 ................................ 5
Condensed Consolidated Statements of Shareholders' Equity (Unaudited),
Three Months Ended June 30, 2002 and the Fiscal Year Ended March 31, 2002 6
Condensed Consolidated Statements of Cash Flows (Unaudited), Three
Months Ended June 30, 2002 and 2001 ...................................... 7
Notes to Condensed Consolidated Financial Statements (Unaudited) ............ 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS ...................................................................... 21
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....................... 32
ITEM 4. CONTROLS AND PROCEDURES.......................................................... 37
PART II. OTHER INFORMATION................................................................ 38
ITEM 1. LEGAL PROCEEDINGS................................................................ 38
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K AND 8-K/A....................................... 40
SIGNATURES................................................................................ 43
2
Item 1. Financial Statements
MEASUREMENT SPECIALTIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JUNE 30, MARCH 31,
2002 2002
---- ----
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................... $ 1,747 $ 3,760
Accounts receivable, trade, net of allowance for doubtful
accounts of $620 and $658, respectively ............... 12,444 12,220
Inventories ............................................. 18,028 16,026
Assets held for sale .................................... 36,115 36,632
Due from receivor ....................................... 860 --
Prepaid expenses and other current assets ............... 2,173 2,088
------- -------
Total current assets .................................. 71,367 70,726
------- -------
PROPERTY AND EQUIPMENT, NET ............................... 13,834 14,287
------- -------
OTHER ASSETS:
Goodwill, net of accumulated amortization of $483 ....... 4,191 4,191
Other assets ............................................ 361 408
------- -------
4,552 4,599
------- -------
Total Assets .............................................. $89,753 $89,612
======= =======
See Notes to Condensed Consolidated Financial Statements.
3
MEASUREMENT SPECIALTIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JUNE 30, MARCH 31,
($ IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) 2002 2002
- ------------------------------------------------------------------- ---- ----
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long term debt ................................. $ 27,030 $ 29,281
Accounts payable .................................................. 15,534 9,689
Accrued compensation .............................................. 2,450 1,435
Liabilities held for sale ......................................... 17,918 16,343
Accrued expenses and other current liabilities .................... 5,297 4,875
-------- --------
Total current liabilities ......................................... 68,229 61,623
-------- --------
Other liabilities ................................................. 1,140 1,162
-------- --------
Total liabilities ................................................. 69,369 62,785
-------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Serial preferred stock; 221,756 shares authorized; none outstanding -- --
Common stock, no par; 20,000,000 shares authorized; 11,912,958 and
11,864,958 shares issued and outstanding, respectively ............ 5,502 5,502
Additional paid-in capital ........................................ 42,463 42,346
Accumulated (deficit) ............................................. (26,289) (20,586)
Accumulated other comprehensive loss .............................. (1,292) (435)
-------- --------
Total shareholders' equity ........................................ 20,384 26,827
-------- --------
$ 89,753 $ 89,612
======== ========
See Notes to Condensed Consolidated Financial Statements.
4
MEASUREMENT SPECIALTIES, INC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED JUNE 30,
-----------------------------------
2002 2001
---- ----
($ IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) As Restated
Notes 3
and 5
-------
Net sales $ 23,646 $ 23,701
Cost of goods sold 15,862 17,340
----------- ----------
Gross profit 7,784 6,361
----------- ----------
Operating expenses (income):
Selling, general and administrative 8,037 6,780
Research and development 934 1,127
Customer funded development (276) (443)
Restructuring costs 593 --
----------- ----------
Total operating expenses 9,288 7,464
----------- ----------
Operating loss (1,504) (1,103)
Interest expense, net of interest
income of $3 and $6, respectively 720 1,010
Other (income) (57) (16)
----------- ----------
Loss from continuing operations before income
taxes and cumulative effect of accounting change (2,167) (2,097)
Income tax provision (benefit) -- (11)
----------- ----------
Loss from continuing operations before cumulative
effect of accounting change (2,167) (2,086)
Discontinued operations:
Loss from operations of discontinued units (3,536) (211)
----------- ----------
Loss before cumulative effect of accounting change . (5,703) (2,297)
Cumulative effect of accounting change, net of taxes -- (248)
----------- ----------
Net loss $ (5,703) $ (2,545)
=========== ==========
Loss per common share - Basic and Diluted
Loss from continuing operations (0.18) (0.25)
Loss from operations of discontinued units (0.30) (0.02)
Cumulative effect of accounting change -- (0.03)
----------- ----------
Net loss $ (0.48) $ (0.30)
=========== ==========
Weighted average shares outstanding 11,899,000 8,423,000
=========== ==========
See Notes to Condensed Consolidated Financial Statements.
5
MEASUREMENT SPECIALTIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED MARCH 31, 2002, AND THE THREE MONTHS ENDED JUNE 30, 2002
Retained
Additional Earnings Other Accumulated
Common paid-in (Accumulated Comprehensive Comprehensive
($ IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) stock capital Deficit) Loss Total Income (Loss)
- ---------------------------------------------------- ----- ------- -------- ---- ----- -------------
BALANCE, APRIL 1, 2001 5,502 3,769 8,461 (15) 17,717
Comprehensive income, March 31, 2002:
Net(loss) -- -- (29,047) -- (29,047) $(29,047)
Currency translation adjustment -- -- -- (420) (420) (420)
---------
Comprehensive (loss) $(29,467)
========
Reversal of tax benefit on exercise of options -- (1,534) -- -- (1,534)
2,530,000 common shares issued in secondary
offering, net of expenses -- 30,874 -- -- 30,874
503,692 common shares issued upon acquisition -- 6,800 -- -- 6,800
182,434 common shares issued upon exercise of
options -- 429 -- -- 429
315,492 common shares issued in private
placement -- 2,008 -- -- 2,008
-------- -------- -------- -------- --------
BALANCE, MARCH 31, 2002 5,502 42,346 (20,586) (435) 26,827
Comprehensive income (loss) (unaudited):
Net(loss)(unaudited) -- -- (5,703) -- (5,703) $ (5,703)
Currency translation adjustment (unaudited) -- -- -- (857) (857) (857)
---------
Comprehensive (loss) (unaudited) $ (6,560)
========
Proceeds from exercise of stock options (unaudited) -- 117 -- -- 117
-------- -------- -------- -------- --------
BALANCE, JUNE 30, 2002 (UNAUDITED) $ 5,502 $ 42,463 $(26,289) $(1,292) $ 20,384
======== ======== ======== ======== ========
See Notes to Condensed Consolidated Financial Statements.
6
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE THREE MONTHS ENDED JUNE 30,
-----------------------------------
2002 2001
---- ----
As Restated
CONTINUING OPERATIONS: Notes 3 and 5
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $(5,703) $(2,545)
Adjustments to reconcile net (loss) to net cash
provided by operating activities:
Loss from discontinued operations 3,536 211
Depreciation and amortization 1,026 699
Deferred rent 14 67
Net changes in operating assets and liabilities:
Accounts receivable, trade (224) (1,085)
Inventories (2,002) 2,332
Prepaid expenses and other current assets (85) (94)
Other assets 22 (481)
Accounts payable 5,845 5,302
Accrued expenses and other liabilities 1,401 (959)
------- -------
Net cash provided by operating activities 3,830 3,447
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (336) (1,415)
------- -------
Net cash used in investing activities (336) (1,415)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under bank line of credit agreement 300 2,021
Repayment of capital lease obligations (52) --
Repayments of debt (2,499) (1,037)
Proceeds from exercise of options and warrants 117 211
------- -------
Net cash provided by (used in) financing activities (2,134) 1,195
------- -------
Net change in cash and cash equivalents, continuing
operations 1,360 3,227
Effect of exchange rates (857) (195)
Cash used for discontinued operations (2,516) (2,970)
Cash and cash equivalents, beginning of period 3,760 466
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,747 $ 528
======= =======
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest $ 711 $ 875
Income taxes -- --
Assets purchased under capital leases -- 762
See Notes to Condensed Consolidated Financial Statements.
7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
($ IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. INTERIM FINANCIAL STATEMENTS:
Basis of presentation:
These interim financial statements were prepared pursuant to accounting
principles for interim financial information, the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X of the Rules and Regulations of the Securities and
Exchange Commission. Accordingly, while they conform with the measurement and
classification provisions of accounting principles generally accepted in the
United States, they do not include the footnote information required by
accounting principles generally accepted in the United States 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. In the opinion of management,
all accrual adjustments and disclosures necessary to make these interim
financial statements not misleading have been included. Reference is made to the
annual financial statements included in the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 2002. Operating results for the three months
ended June 30, 2002 are not necessarily indicative of the results that may be
expected for the year ending March 31, 2003.
Description of business:
Measurement Specialties, Inc., a New Jersey Corporation, ("MSI" or "the
Company") is a designer and manufacturer of sensors and sensor-based consumer
products. The Company produces a wide variety of sensors that use advanced
technologies to measure precise ranges of physical characteristics, including
pressure, motion, force, displacement, angle, flow and distance. The Company has
a Sensor segment and a Consumer Products segment. The Sensor segment designs and
manufactures sensors for leading original equipment manufacturers for
electronic, automotive, medical, military and industrial applications. Sensor
products include pressure sensors, custom microstructures and accelerometers.
The Consumer Products segment designs and manufactures sensor based consumer
products which are sold to leading retailers and distributors in both the United
States and Europe. Consumer products include bathroom and kitchen scales, tire
pressure gauges, and distance estimators.
Current Developments:
In February 2002, the Company, at its own initiative, contacted the staff
of the SEC after discovering that its former Chief Financial Officer made the
misrepresentation to senior management, the Board of Directors and the Company's
auditors that a waiver of the Company's covenant default under its credit
agreement had been obtained when the lenders had, in fact, refused to grant such
a waiver. Since February 2002, the Company and a Special Committee formed by the
Company's Board of Directors have been cooperating with the staff of the SEC. In
June 2002, the staff of the Division of Enforcement of the SEC informed the
Company that the SEC is conducting a formal investigation relating to matters
reported in the Company's quarterly report on Form 10-Q for the quarter ended
December 31, 2001. The Company cannot predict how long the SEC investigation
will continue or its outcome.
Liquidity and Going Concern:
8
The Company has incurred a net loss of $29,047 for the year ended March
31, 2002, a net loss of $5,703 for the quarter ended June 30, 2002 and
anticipates incurring additional losses for the next several quarters. From
September 30, 2001 through March 31, 2002, the Company was in default of certain
financial covenants in its credit agreement and as a result of the restatement
of previously issued financial statements the Company was also in default of
certain financial covenants for earlier periods. The Company sought, but did not
obtain, a waiver of such events of default from its lenders. The Company and its
lenders have entered into a forbearance agreement which expires November 1, 2002
or earlier. The Company is currently in negotiations with its lenders to extend
the forbearance period and the deadline for repayment in full of the notes
evidencing the term loan and the revolving credit facility beyond November 1,
2002. No assurance can be given that the lenders will grant such an extension on
terms reasonable to the Company, or at all.
As a result of the significant losses for the last several reporting
periods and the Company's inability to make the required payments under the
Company's loan agreement, management and the Board of Directors approved a
restructuring program with the aim of reducing costs, streamlining operations
and generating cash to repay the Company's lenders. As of March 31, 2002,
excluding the effects of the Terraillon and Schaevitz UK dispositions, the
Company has reduced its workforce by 138 employees as compared to its workforce
as of June 30, 2001. Additionally, as of September 30, 2002, the Company has
reduced its workforce by an additional 49 employees as compared to its workforce
as of March 31, 2002. The Company expects this workforce reduction to result in
a cost savings of approximately $5,000 for the fiscal year ending March 31,
2003. The Company is currently examining the possibility of further workforce
reductions. In addition, the Company (i) discontinued its operations in the
United Kingdom, (ii) sold the assets related to its silicon wafer fab
manufacturing operations in Milpitas, California, which were part of the
Company's IC Sensors division for approximately $5,250 in July 2002, and (iii)
sold all of the outstanding stock of Terraillon Holdings Limited, the Company's
European subsidiary, for approximately $22,300. Approximately $2,282 of the
Terraillon sales price will be held in escrow until January 24, 2003 to secure
payment of certain purchase price adjustments, if any (see Note 6).
The Company is currently in the process of responding to the claims made
in the class action lawsuit (see Note 9). The Company intends to defend the
foregoing lawsuit vigorously, but cannot predict the outcome and is not
currently able to evaluate the likelihood of its success or the range of
potential loss, if any. However, if the Company were to lose this lawsuit, the
judgment would likely have a material adverse effect on its consolidated
financial position, results of operations and cash flows. The Company has
Directors and Officers insurance policies that provide an aggregate coverage of
$10,000, for the period during which the lawsuit was filed, but cannot evaluate
at this time whether such coverage will be available or adequate to cover
losses, if any, arising out of this lawsuit.
The Company is also the subject of a formal investigation being conducted
by the Division of Enforcement of the United States Securities and Exchange
Commission related to matters reported in the Company's quarterly report on Form
10-Q for the quarter ended December 31, 2001. The United States Attorney for the
District of New Jersey is also conducting an inquiry into the matters being
investigated by the SEC. In addition, the trading of the Company's common stock
on the American Stock Exchange ("AMEX") has been suspended and the Company has
received a letter from the AMEX indicating that the Company is no longer in
compliance with AMEX listing requirements. The Company has appealed this
determination.
These factors raise substantial doubt about the Company's ability to
continue as a going concern. The Company has been pursuing and will continue to
pursue, among other initiatives, i) refinancing our existing bank debt, ii)
seeking additional sales opportunities within its core business, iii) reducing
9
expenses to a level that would provide the Company with sufficient cash flow to
meet its obligations, iv) additional equity investments, v) sales of assets
and/or vi) a combination of any of the foregoing. Although there can be no
assurances that the Company will be able to achieve any of the foregoing
initiatives, the financial statements included in this report do not contain any
adjustments that might be necessary if the Company is unable to continue as a
going concern.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation:
The consolidated financial statements include the accounts of MSI and its
wholly-owned subsidiaries (the "Subsidiaries"): Measurement Limited, organized
in Hong Kong ("ML"); Jingliang Electronics (Shenzhen) Co. Ltd. ("JL"), organized
in the People's Republic of China ("China"); IC Sensors Inc. ("IC Sensors");
Measurement Specialties, U.K. Limited ("Schaevitz, UK"), organized in the United
Kingdom; and Terraillon Holdings Limited, organized in Ireland, and its
wholly-owned subsidiaries ("Terraillon"); all collectively referred to as the
"Company." As discussed in Note 3, the Company has placed Schaevitz UK in
receivership in June 2002 and sold Terraillon in September 2002, accordingly,
the results from these operations are reflected as discontinued operations. See
Note 6. All significant intercompany balances and transactions have been
eliminated.
Reclassifications:
Certain reclassifications have been made to conform prior years to the
current period's presentation.
Derivative Instruments:
The Company adopted SFAS 133, as amended, as of April 1, 2001. The
cumulative effect of the adoption of the accounting principle was $248.
Recent Accounting Pronouncements:
On July 29, 2002, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities." The standard requires companies to recognize costs
associated with exit or disposal activities when they are incurred, rather than
at the date of a commitment to an exit or disposal plan. Examples of costs
covered by the standard include lease termination costs and certain employee
severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity. SFAS 146 is
required to be applied prospectively to exit or disposal activities initiated
after December 31, 2002. The Company is currently evaluating the impact of this
standard.
The Company's current policy is to accrue restructuring and other costs at
commitment date of a plan in accordance with the provisions of Emerging Issues
Task Force ("EITF") No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an
10
Activity" and Staff Accounting Bulletin No. 100, "Restructuring and Impairment
Charges." Accordingly, the Company has provided for certain restructuring costs
during the year ended March 31, 2002 and the quarter ended June 30, 2002. See
Note 4.
The Company adopted SFAS No. 145, "Rescission of FASB Statements No. 4, 44
and 64, Amendment of FASB Statement No. 13 and Technical Corrections", effective
May 15, 2002. The Statement rescinds SFAS No. 4 which required all gains and
losses from extinguishment of debt to be aggregated and, when material,
classified as an extraordinary item net of related income tax effect. SFAS No.
145 also amends Statement 13 to require that certain lease modifications having
economic effects similar to sale-leaseback transactions be accounted for in the
same manner as sale-leaseback transactions. The Company does not expect this
Statement will have a material effect on our financial position or results of
operations.
The Company adopted SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", effective April 1, 2002. This standard
supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of". The standard retains the previously
existing accounting requirements related to the recognition and measurement of
the impairment of long-lived assets to be held and used while expanding the
measurement requirements of long-lived assets to be disposed of by sale to
include discontinued operations. It also expands on the previously existing
reporting requirements for discontinued operations to include a component of an
entity that either has been disposed of or is classified as held for sale.
The Company adopted SFAS No. 143, "Accounting for Asset Retirement
Obligations", effective April 1, 2002. This standard addresses financial
accounting and reporting for obligations associated with retirement of tangible
long-lived assets and the associated assets' retirement costs.
3. RESTATEMENT:
Based on the advice of its auditors and discussion with the Securities and
Exchange Commission, the Company determined it was necessary to conduct a
thorough re-examination of its historical determination of inventory values and
cost of goods sold. As a result of additional procedures employed a number of
errors in the Company's historical inventory valuation relating to the
absorption of manufacturing costs were discovered. Each of the Company's
business units experienced various types of calculation and application errors.
These errors varied by quarter, type and cause. The errors and causes thereof
are included in the following general categories:
- Failure to analyze and account for standard cost variances properly
and on a timely basis;
- Failure to use readily available accounting and costing records to
determine manufacturing costs;
- Inclusion of inappropriate expenses in inventory cost pools;
11
- Apparent mathematical errors (including amounts used in calculations
that could not be reconciled to our underlying accounting records);
- Failure to adjust inventories to the lower of cost or market; and
- Use of inconsistent parameters to determine cost pools that relate
to inventory at each reporting period.
Accordingly, the Company has restated its financial statements for the
fiscal year ended March 31, 2001, its results of operations for the three months
ended June 30, 2001 and its previously issued selected financial information for
each of the quarterly periods in the fiscal year ended March 31, 2001 and the
first three quarters in the fiscal year ended March 31, 2002. The effect of the
restatement was a reduction of our previously reported inventory values and
operating income and a corresponding increase to costs of goods sold aggregating
approximately $8,200 for the fiscal year ended March 31, 2001 and $3,981 for the
three months ended June 30, 2001.
In connection with the restatement and due in part to the cessation of
operations of Arthur Andersen LLP, the previous auditors of our financial
statements for the fiscal year ended March 31, 2001, we requested our current
auditors to conduct a reaudit of our financial statements for the fiscal year
ended March 31, 2001. The reaudit resulted in the following additional
adjustments: reclassification of certain costs included in selling, general, and
administrative expenses to revenue for $213, amortization of patents in the
amount of $59; straight-lining of lease expense in accordance with SFAS No. 13
in the amount of $67; and certain other adjustments. As a result of all the
above adjustments, the Company recalculated its tax provision resulting in a
benefit of $459. In addition, the results of operations for the three months
ended June 30, 2001 have been adjusted to reclassify the results of discontinued
operating units.
The following is a summary of the significant effects of the restatement
of results for the three months ended June 30, 2001:
THREE MONTHS ENDED
JUNE 30, 2001
(UNAUDITED)
---------------------------------------------
AS RESTATED,
AS ADJUSTED FOR
PREVIOUSLY AS DISCONTINUED
REPORTED RESTATED OPERATIONS (1)
-------- -------- --------------
Consolidated statements of operations data:
Sales $25,871 $ 25,658 $ 23,701
Cost of goods sold 15,172 19,153 17,340
Selling, general and administrative 7,098 7,011 6,780
Loss from continuing operations before
income taxes and cumulative effect of
accounting change 1,799 (2,308) (2,097)
Provision (benefit) for income taxes 448 (11) (11)
Income (loss) from continuing operations
12
before cumulative effect of accounting change 1,351 (2,297) (2,086)
(Loss) from operations of discontinued units -- -- (211)
Income (loss) before cumulative effect of
accounting change 1,351 (2,297) (2,297)
Cumulative effect of accounting change, net
of taxes -- (248) (248)
Net income (loss) 1,351 (2,545) (2,545)
Earnings (loss) per common share:
Basic $ 0.16 $ (0.30) (0.30)
Diluted 0.15 (0.30) (0.30)
Consolidated balance sheet data:
Inventories 35,586 24,099 20,342
Goodwill 12,606 11,592 8,715
Other assets 6,383 7,175 5,049
Accrued expenses and other current liabilities 8,190 5,509 5,231
Other liabilities 1,180 1,247 1,247
Accumulated retained earnings 17,576 8,481 8,481
Stockholders' equity 26,848 17,753 17,753
(1) The consolidated statement of operations data and consolidated balance
sheet data have been adjusted to reclassify the results of discontinued
operating units and assets and liabilities held for sale.
4. RESTRUCTURING AND OTHER COSTS:
During the quarter ended March 31, 2002, management and the Board of
Directors approved a plan of reduction of workforce and a reduction of operating
capacity at certain locations. The reduction in workforce consisted of 106
employees in the quarter ended March 31, 2002, and 49 additional employees in
the quarter ended June 30, 2002 in the consumer and sensor segments, in addition
to the corporate offices. Costs associated with this restructuring consist of
severance costs and the writedown of fixed assets which amounted to $1,413 in
the quarter ended March 31, 2002 and an additional accrual of $443 in the
quarter ended June 30, 2002 for potential expense related to lease termination
and an additional $150 for severance. As of June 30, 2002 the remaining unpaid
balance of accrued severance costs was $75 and is included in accrued expenses
and other current liabilities in the consolidated balance sheet. All other
previous amounts provided for have been paid.
5. INVENTORIES:
Inventories are summarized as follows:
JUNE 30, MARCH 31,
2002 2002
---- ----
RAW MATERIALS $ 7,225 $ 7,111
WORK-IN-PROCESS 2,508 1,986
FINISHED GOODS 8,295 6,929
------- -------
$18,028 $16,026
======= =======
13
6. DISCONTINUED OPERATIONS AND ASSETS AND LIABILITIES HELD FOR SALE:
As a result of the restructuring plan, the Company sold all of the
outstanding stock of Terraillon, previously a component of our Consumer segment,
in September 2002 and sold the assets, principally property and equipment,
related to its IC Sensors silicon wafer fab manufacturing operations, previously
a component of our Sensor segment, in July 2002. The assets held for sale in the
amount of $36,115 and $36,632 at June 30, 2002 and March 31, 2002, respectively
and liabilities held for sale in the amount of $17,918 and $16,343 at June 30,
2002 and March 31, 2002, respectively represents the assets and liabilities from
these operations at June 30, 2002. The amounts on the consolidated statements of
operations for the three months ended June 30, 2002 and 2001 have been
reclassified to reflect the disposal of these operating units as discontinued
operations (see Note 10).
The Company placed its United Kingdom subsidiary, Schaevitz UK (previously
a component of our Sensor segment), into receivership on June 5, 2002 pursuant
to the terms of a Mortgage Debenture dated February 28, 2001, as the Company was
no longer in a position to support its losses. The receiver's function was to
dispose of Schaevitz UK's business and assets for the best price possible. The
book debt recoveries and sale proceeds were applied in settlement of the
receiver's remuneration, costs and expenses, the preferential creditors' claims,
(i.e. the claims of the Inland Revenue, Customs & Excise and employee claims up
to certain statutory limits) and then to (i) claims by the Company's lenders in
accordance with UK insolvency legislation (the Insolvency Act 1986) and (ii)
priority arrangements. Schaevitz, UK's landlord has a potential dilapidations
claim of up to 350 Pounds Sterling (approximately $549 United States dollars
based on market exchange rates as of October 8, 2002) against Schaevitz UK that
arose on the expiration of the lease of 543/544 Ipswich Road Trading Estate,
Slough, Berkshire, England on June 23, 2002. The Company is currently in
negotiations with the landlord regarding this matter. The results of operations
of Schaevitz UK are reflected in discontinued operations from April 1, 2002
through the June 5, 2002 date of liquidation. During the quarter ended June 30,
2002, the Company incurred approximately $3,577 of costs and expenses in
connection with the liquidation of Schaevitz UK, which consisted of writedown of
prepaid pension costs of $2,309 and receiver and other costs of $1,268. The
Company estimates the amount recoverable from the liquidation is approximately
$860 and is reflected in the balance sheet as "Due from receiver." The Company
received approximately $850 from the receiver through October 20, 2002.
During the three months ended June 30, 2002, the Company determined to
sell the assets related to its silicon wafer manufacturing operations in
Milpitas, CA and accordingly, classified the related assets and liabilities as
"Assets and liabilities held for sale." See Note 10.
The following is a summary of the components of assets and liabilities
held for sale:
Assets held for sale:
14
June 30,2002 March 31, 2002
------------ --------------
Terraillon Wafer Fab Total Terraillon Schaevitz UK Wafer Fab Total
---------- --------- ----- ---------- ------------ --------- -----
Cash and cash equivalents $ (598) $ (598) $ 401 $ 381 $ 782
Accounts receivable 12,089 12,089 5,735 1,959 7,694
Inventories 7,147 7,147 6,023 920 6,943
Other current assets -- -- 1,433 101 1,534
------- ------ ------- ------- ------ ----- -------
Total current assets 18,638 -- 18,638 13,592 3,361 16,953
------- ------ ------- ------- ------ ----- -------
PROPERTY AND EQUIPMENT 1,897 4,955 6,852 1,883 -- 4,955 6,838
Less accumulated depreciation and
amortization 1,002 1,924 2,926 1,043 -- 1,737 2,780
------- ------ ------- ------- ------ ----- -------
895 3,031 3,926 840 -- 3,218 4,058
------- ------ ------- ------- ------ ----- -------
OTHER ASSETS:
Goodwill, net 4,074 4,074 4,074 -- 4,074
Trademarks 9,477 9,477 9,477 -- 9,477
Other assets -- 2,070 2,070
------- ------ ------- ------- ------ ----- -------
13,551 -- 13,551 13,551 2,070 15,621
------- ------ ------- ------- ------ ----- -------
Total assets 33,084 3,031 36,115 27,983 5,431 3,218 36,632
======= ====== ======= ======= ====== ===== =======
Liabilities held for sale:
Current portion of long term debt $ 5,254 $ 854 $ 6,108 2,534 -- 943 3,477
Accounts payable 8,666 8,666 5,102 4,461 -- 9,563
Accrued compensation -- 537 98 -- 635
Accrued expenses and other current
liabilities 2,730 2,730 2,068 344 -- 2,412
------- ------ ------- ------- ------ ----- -------
Total current liabilities 16,650 854 17,504 10,241 4,903 943 16,087
OTHER LIABILITIES:
Long term debt, net of current
portion 414 414 249 -- -- 249
Other liabilities -- -- 7 -- -- 7
------- ------ ------- ------- ------ ----- -------
Total liabilities 17,064 854 17,918 10,497 4,903 943 16,343
======= ====== ======= ======= ====== ===== =======
A summary of the results of operations of the discontinued operating units
follows:
June 30,2002 June 30,2001
------------ ------------
($ IN THOUSANDS EXCEPT PER SHARE AMOUNTS) Schaevitz Schaevitz
Terraillon UK Total UK
---------- -- ----- --
Net sales $ 8,671 $ 905 $ 9,576 $ 1,957
Cost of goods sold 5,319 617 5,936 1,813
------- ------- ------- -------
Gross profit 3,352 288 3,640 144
Operating expenses (income):
Selling, general and administrative 3,358 3,726 7,084 231
Research and development 68 68 132
------- ------- ------- -------
Total operating expenses 3,358 3,794 7,152 363
Operating income (loss) (6) (3,506) (3,512) (219)
15
Interest expense, net of interest
income of (12) 2 (10) 8
Other (income) (12) (7) (19)
------- ------- ------- -------
(Loss) before income taxes (30) (3,511) (3,541) (211)
Benefit for income taxes (5) (5)
------- ------- ------- -------
Net (loss) from discontinued
operations (25) (3,511) (3,536) (211)
======= ======= ======= =======
7. PER SHARE INFORMATION:
Basic per share information is computed based on the weighted average
common shares outstanding during each period. Diluted per share information
additionally considers the shares that may be issued upon exercise or conversion
of stock options, less the shares that may be repurchased with the funds
received from their exercise. Diluted earnings per share is not presented as the
results are antidilutive. Excluded from earnings per share are 92,000 equivalent
shares for fiscal quarter ended June 30, 2002 and 701,000 equivalent shares for
fiscal quarter ended June 30, 2001, as their inclusion would be antidilutive.
8. SEGMENT INFORMATION:
The Company has two businesses ("segments"), a Sensor business and a
Consumer Products business.
The Company's Sensor business designs, manufactures, and markets sensors
for original equipment manufacturer applications. These products include
pressure sensors, custom microstructures, accelerometers, tilt/angle sensors,
and displacement sensors for electronic, automotive, military, and industrial
applications.
The Company's Consumer Products business manufactures and markets
sensor-based consumer products. These products include bathroom and kitchen
scales, tire pressure gauges, and distance estimators. These products are
typically based on application-specific integrated circuits, piezoresistive, and
ultrasonic technologies.
Segment data have been presented on a basis consistent with how business
activities are reported internally to management.
The accounting policies of the segments are substantially the same as
those described in Note 1.
The Company has no material intersegment sales.
The following is information related to industry segments:
16
THREE MONTHS ENDED JUNE 30,
---------------------------
2002 2001
---- ----
Net Sales
Consumer Products $ 11,207 $ 10,650
Sensors 12,439 13,051
-------- --------
Total 23,646 23,701
-------- --------
Operating Income (Loss)
Consumer Products 1,363 468
Sensors 154 (1,085)
-------- --------
Total Segment Operating Income (Loss) 1,517 (617)
Unallocated Expenses (3,021) (486)
-------- --------
Total Operating (Loss) (1,504) (1,103)
Interest expense, net of interest income 720 1,010
Other (income) (57) (16)
-------- --------
(Loss) from continuing operations before
income taxes and cumulative effect of
accounting change $ (2,167) $ (2,097)
======== ========
AS OF JUNE 30, AS OF MARCH 31,
-------------- ---------------
2002 2002
---- ----
Segment Assets
Consumer products $19,765 $15,634
Sensors 30,103 35,152
Unallocated 2,910 2,194
Assets held for
sale 36,115 36,632
Due from receiver 860 --
------- -------
Total $89,753 $89,612
======= =======
9. COMMITMENTS AND CONTINGENCIES:
CLASS ACTION LAWSUIT
On March 20, 2002, a class action lawsuit was filed on behalf of
purchasers of the Company's common stock in the United States District Court for
the District of New Jersey against Measurement Specialties and certain of its
present and former officers and directors. The complaint was subsequently
amended to include the underwriters in the Company's August 2001 public offering
and the Company's former auditors. The lawsuit alleges violations of the federal
17
securities laws including, among other things, that the registration statement
related to the Company's August 2001 public offering and the Company's periodic
SEC filings misrepresented or omitted material facts and that certain of the
Company's officers made false or misleading statements of material fact. The
lawsuit seeks an unspecified award of money damages. After March 20, 2002, nine
additional similar class actions were filed in the same court. The ten lawsuits
have been consolidated into one case under the caption In re: Measurement
Specialties, Inc. Securities Litigation, 02 Civ. No. 1071 (D.N.J.). Plaintiffs
filed a Consolidated Amended Complaint on September 12, 2002. The Company must
file a responsive pleading by November 11, 2002. The Company is currently in the
process of responding to the claims made in the class action lawsuit. The
Company intends to defend the foregoing lawsuit vigorously, but cannot predict
the outcome and are not currently able to evaluate the likelihood of success or
the range of potential loss, if any. However, if the Company were to lose this
lawsuit, judgment would likely have a material adverse effect on the Company's
consolidated financial position, results of operations and cash flows. The
Company has Directors and Officers insurance policies that provide an aggregate
coverage of $10,000 for the period during which the claims were filed, but
cannot evaluate at this time whether such coverage will be available or adequate
to cover losses, if any, arising out of this litigation.
SEC INVESTIGATION
In February 2002, the Company, at its own initiative, contacted the staff
of the SEC after discovering that the Company's former Chief Financial Officer
had made the misrepresentation to senior management, the Board and the Company's
auditors that a waiver of the covenant default under the Company's credit
agreement had been obtained when, in fact, the lenders refused to grant such a
waiver. Since February 2002, the Company and a Special Committee formed by the
Company's Board of Directors have been cooperating with the staff of the SEC. In
June 2002, the staff of the Division of Enforcement of the SEC informed the
Company that it is conducting a formal investigation relating to matters
reported in the Company's quarterly report on Form 10-Q for the quarter ended
December 31, 2001. The Company cannot predict how long the SEC investigation
will continue or its outcome.
UNITED STATES ATTORNEY INQUIRY
The Company has also learned that the Office of the United States Attorney
for the District of New Jersey is conducting an inquiry into the matters that
are being investigated by the SEC. The Company cannot predict how long the
United States Attorney's inquiry will continue or its outcome.
OTHER LITIGATION
In re Service Merchandise Company, Inc. (Service Merchandise Company, Inc.
v. Measurement Specialties, Inc.), United States Bankruptcy Court for the Middle
District of Tennessee, Nashville Division, Case No. 399-02649, Adv. Pro. No.
301-0462A
The Company is currently the defendant in a lawsuit filed in March 2001 by
Service Merchandise Company, Inc. ("SMC") and its related debtors (collectively,
the "Debtors") in the context of the Debtors' Chapter 11 bankruptcy proceedings.
The Bankruptcy Court entered a
18
stay of the action in May 2001, which was lifted in February 2002. Citing 11
U.S.C. Section 547(b), the action alleges that the Company received $645 from
one or more of the Debtors during the ninety (90) day period before the Debtors
filed their bankruptcy petitions, that the transfers were to the Company's
benefit, were for or on account of an antecedent debt owed by one or more of the
Debtors, made when one or more of the Debtors were insolvent, and that the
transfers allowed the Company to receive more than it would have received if the
cases were cases under Chapter 7 of the United States Bankruptcy Code. The
action seeks to disgorge the sum of $645 from the Company. It is not possible at
this time to predict the outcome of the litigation or estimate the extent of any
damages that could be awarded in the event that the Company is found liable to
the estates of SMC or the other Debtors.
Robert L. DeWelt v. Measurement Specialties, Inc. et al., United States
District Court, District of New Jersey, Civil Action No. 02-CV-3431.
On July 17, 2002, Robert DeWelt, the Company's former acting Chief
Financial Officer and general manager of the Company's Schaevitz Division, filed
a lawsuit against Measurement Specialties, Inc. and certain of the Company's
officers and directors. Mr. DeWelt resigned on March 26, 2002 in disagreement
with management's decision not to restate certain of the Company's financial
statements. See "Legal Proceedings" for a discussion of Mr. DeWelt's
resignation. The lawsuit alleges a claim for constructive wrongful discharge and
violations of the New Jersey Conscientious Employee Protection Act. Mr. DeWelt
seeks an unspecified amount of compensatory and punitive damages. The Company
has filed a Motion to Dismiss for which a hearing is scheduled on November 12,
2002. At this point in the litigation, the Company cannot predict its outcome.
Hibernia Litigation
On or about July 23, 2002, Hibernia Capital Partners I, ilp and Hibernia
Capital Partners II, ilp filed a lawsuit against Measurement Specialties in the
High Court of Dublin. The Plenary Summons states that plaintiffs seek a
declaration that the plaintiffs entered into the share purchase agreement on
June 7, 2001 for the sale of their shares in Terraillon Holdings Limited to
Measurement Specialties as a result of an operative misrepresentation and
misstatement. Plaintiffs further seek damages for misrepresentation and/or
breach of contract and/or breach of warranty and costs of the proceedings. On
August 9, 2002, the Company entered an Appearance, which is the equivalent of
the acceptance of service of process. On August 22, 2002, plaintiffs filed a
Statement of Claim, which is the equivalent of a complaint. The Company is still
engaged in the initial pleadings process wherein plaintiffs' claims and the
Company's defenses will be set forth in detail. The Company intends to defend
the foregoing lawsuit vigorously, but cannot predict the outcome and is not
currently able to evaluate the likelihood of success or the range of potential
loss, if any.
The Company has other litigation occurring in the normal course of its
business. The Company does not believe that this litigation will have a material
effect on financial position or results of operations.
10. SUBSEQUENT EVENTS
19
In July 2002, the Company sold the assets, principally property and
equipment, related to its silicon wafer fab manufacturing operation in Milpitas,
CA to Silicon Microstructures, Inc. (SMI), a wholly-owned subsidiary of Elmos
Semiconductor AG. The wafer fab operation was formerly part of the Company's IC
Sensors division. The price paid by SMI for the assets was approximately $5,250,
consisting of approximately $3,370 in cash and $1,880 in prepaid credit for
products and services, subject to reduction under certain circumstances.
Approximately, $1,000 of the cash purchase price was used to satisfy an
outstanding equipment lease obligation. The prepaid credit for products and
services, if utilized, will be accounted as a component of wafer costs. The
estimated gain on this sale is approximately $150, net of tax.
In September 2002, the Company sold all of the outstanding stock of
Terraillon Holdings Limited, a European manufacturer of branded consumer
bathroom and kitchen scales, to Fukuda (Luxembourg) S.a.r.l., an investment
holding company incorporated in Luxembourg, for $22,300. Approximately $2,282 of
the purchase price will be held in escrow until January 24, 2003 to secure
payment of certain purchase price adjustments, if any, or any right of Fukuda to
set off as a result of breaches of the Company's representations and warranties
in the stock purchase agreement. Fukuda also assumed approximately $4,800 in
debt in connection with the acquisition of Terraillon. The estimated gain on
this sale is approximately $1,500, net of tax, subject to further adjustments.
20
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
(dollars in the thousands, except share and per share data)
The following discussion of our results of operations and financial
condition should be read together with the other financial information and
consolidated financial statements and related notes included in this Quarterly
Report on Form 10-Q. This discussion contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially from
those anticipated in the forward-looking statements as a result of a variety of
factors.
OVERVIEW
We are a designer and manufacturer of sensors and sensor-based consumer
products. We produce a wide variety of sensors that use advanced technologies to
measure precise ranges of physical characteristics, including pressure, motion,
force, displacement, angle, flow, and distance. We have two businesses, a Sensor
business and a Consumer Products business.
Our Sensor business designs, manufactures, and markets sensors for
original equipment manufacturer applications. These products include pressure
sensors, custom microstructures, accelerometers, tilt/angle sensors, and
displacement sensors for electronic, automotive, military, and industrial
applications. Our Sensor business customers include leading manufacturers such
as Alaris Medical, Texas Instruments, Allison Transmission, Althen GmbH, and
Graco.
Our Consumer Products business manufactures and markets sensor-based
consumer products. These products include bathroom and kitchen scales, tire
pressure gauges, and distance estimators. These products are typically based on
application-specific integrated circuits, piezoresistive, and ultrasonic
technologies. Our Consumer Products customers include leading retailers such as
Bed Bath & Beyond, Linens 'n Things, Sears, Costco and Target, and European
resellers such as Laica, Ole Bodtcher Hanson, and Babyliss.
RESTATEMENT
Background - Examination of Inventory Valuation; Capitalized Overhead
Calculations
In August 2001, we determined that the implementation of a more
comprehensive and standardized cost accounting system was necessary as a result
of the expansion of our company through recent acquisitions, and we hired an
experienced cost accountant, Robert DeWelt, to, among other things, implement
this system. This process included updating standard inventory costs at two of
our locations. After review and analysis, management, in November 2001,
completed the update of standard costs for these two locations and revised the
estimated capitalized overhead calculations used in valuing the inventory
located there, but concluded that a more complete analysis, including an
examination of inventory valuation at our other locations, was necessary. The
review process also raised questions regarding the appropriateness of our
inventory costing methodology.
After the termination of our Chief Financial Officer in February 2002, we
briefly retained PricewaterhouseCoopers (PWC) as a consultant with regard to the
appropriateness of our inventory costing methodology, including specifically the
methodology used in allocating fixed manufacturing expenses to inventory and
cost of sales. PWC was not engaged to, nor did they, reach a conclusion or
21
render any type of opinion regarding this matter. Additionally, because of PWC's
limited role, they were not involved in our final resolution of this issue.
In February 2002, our Board formed a Special Committee consisting of all
of our outside directors. The Special Committee performed a limited review of
the appropriateness of our inventory valuation methodology, including whether a
misapplication of accounting principles would require a restatement of
previously reported financial statements. The Special Committee retained
independent counsel to assist in its investigation and, through its independent
counsel, retained RosenfarbWinters, LLC as special accounting advisors to the
Special Committee.
Initial Decision Not to Restate Financial Statements for Periods Prior to
December 31, 2001
In March 2002, management initially determined that the calculation of
capitalized overhead was in compliance with applicable accounting principles and
concluded that the increase in cost of sales and attendant reduction in
inventory value during the quarter ended December 31, 2001 was largely
attributable to changes in accounting estimates relating to the general
absorption of direct labor and overhead costs and therefore no restatement of
previously reported financial results was necessary. This determination was
based on management's belief that the calculation was appropriately capturing
direct labor and overhead costs. Robert DeWelt (who had been temporarily given
the title of "Acting CFO" after the termination of our former Chief Financial
Officer, Kirk Dischino) and Edward McCausland, our Controller, resigned in
disagreement with management's conclusion not to restate prior period financial
statements.
We subsequently retained Amper, Politziner and Mattia, PC (APM) in April
2002 to assist and work under the direction of management in our analysis and
quantification of inventory calculations and to consult as to whether or not any
errors in the application of accounting principles or in the preparation of our
financial statements required restatement of previously reported financial
statements.
In May 2002, management again determined that the calculation of
capitalized overhead was in compliance with applicable accounting principles and
concluded that the increase in cost of sales and attendant reduction in
inventory value during the quarter ended December 31, 2001 was largely
attributable to changes in accounting estimates and therefore no restatement of
previously reported financial results was necessary. Our Board of Directors
concurred in the decision not to restate prior periods. In its limited review,
the Special Committee concluded that no information had been brought to its
attention that would render management's decision inappropriate. APM,
RosenfarbWinters, and our independent auditors, Arthur Andersen, LLP, concurred
in this conclusion. PWC's engagement ended prior to the completion of our
analysis and the Board's determination.
Decision to Restate
On June 11, 2002, we retained Grant Thornton LLP to replace Arthur
Andersen LLP as our independent auditor. We appointed a new Chief Executive
Officer in June 2002 and appointed a new Chief Financial Officer in July 2002.
Based upon the advice of our new auditor and after consultation with the United
States Securities and Exchange Commission, our new senior management team
determined that it was necessary to conduct a thorough re-examination of our
historical determination of inventory values and costs of goods sold. Beginning
in July 2002, we concurred with our auditor's recommendation to expand the scope
of their audit work to include an extended analysis of our inventory valuation
calculations. As part of our auditor's procedures, they obtained detailed
operating and production data for our operating units, validated the underlying
data and applied the resulting data to assist new senior management in the
accurate determination of inventories valued at the lower of cost or
22
estimated market value. As a result of these procedures, our auditors
discovered a number of errors in our inventory valuation calculations. Each of
our business units experienced various types of calculation and application
errors. These errors varied by quarter, type and cause. The errors and causes
thereof are included in the following general categories:
- - Failure to analyze and account for standard cost variances properly and on
a timely basis;
- - Failure to use readily available accounting and costing records to
determine manufacturing costs;
- - Inclusion of inappropriate expenses in inventory cost pools;
- - Apparent mathematical errors (including amounts used in calculations that
could not be reconciled to our underlying accounting records);
- - Failure to adjust inventories to the lower of cost or market; and
- - Use of inconsistent parameters to determine cost pools that relate to
inventory at each reporting period.
We have determined that these errors in our valuation of inventory were of
a sufficient magnitude to require restatement. Accordingly, we have restated our
previously issued financial statements for the fiscal year ended March 31, 2001
and our previously issued selected financial information for each of the
quarterly periods in the fiscal year ended March 31, 2001 and the first three
quarters in the fiscal year ended March 31, 2002. The effect of the restatement
was an increase in cost of goods sold aggregating approximately $8,200 for the
fiscal year ended March 31, 2001 and $3,981 for the three months ended June 30,
2001. During the course of our review, we did not identify errors of a
significant magnitude to require restatement of periods ending prior to April 1,
2000.
In connection with the restatement of our inventory and cost of sales
values, and due in part to the cessation of operations of Arthur Andersen LLP,
the previous auditors of our financial statements for the fiscal year ended
March 31, 2001, we instructed our current auditors to conduct a reaudit of our
financial statements for the fiscal year ended March 31, 2001. The reaudit and
the audit for the fiscal year ended March 31, 2002 resulted in the following
additional adjustments to the previously reported results for the quarter ended
June 30, 2001:
- Reclassification of certain promotional costs from selling, general
and administrative to a reduction in revenue of $213;
- Amortization of patents in the amount of $59;
- Straight-lining of lease expense in accordance with SFAS 13 in the
amount of $67; and
- Certain other adjustments.
As a result of the restated items described above, including the inventory
valuation issue, we recomputed our tax provision as of June 30, 2001, resulting
in a reduction of our previously reported tax provision by $459.
The following is a summary of the significant effects of the restatement
discussed above on the results for the three month period ended June 30, 2001:
23
THREE MONTHS ENDED
JUNE 30, 2001
(UNAUDITED)
-----------------------------------------
AS RESTATED,
AS ADJUSTED FOR
PREVIOUSLY AS DISCONTINUED
REPORTED RESTATED OPERATIONS(1)
-------- -------- -------------
Consolidated statements of operations data:
Sales $ 25,871 $ 25,658 $ 23,701
Cost of goods sold 15,172 19,153 17,340
Selling, general and administrative 7,098 7,011 6,780
Loss from continuing operations
before income taxes and cumulative effect of
accounting change 1,799 (2,308) (2,097)
Provision (benefit) for income taxes 448 (11) (11)
Income (loss) from continuing operations before 1,351 (2,297) (2,086)
cumulative effect of accounting change
(Loss) from operations of discontinued units -- -- (211)
Income (loss) before cumulative effect of
accounting change 1,351 (2,297) (2,297)
Cumulative effect of accounting change, net
of taxes -- (248) (248)
Net income (loss) 1,351 (2,545) (2,545)
Earnings (loss) per common share:
Basic $ 0.16 $ (0.30) (0.30)
Diluted 0.15 (0.30) (0.30)
Consolidated balance sheet data:
Inventories 35,586 24,099 20,342
Goodwill 12,606 11,592 8,715
Other assets 6,383 7,175 5,049
Accrued expenses and other current liabilities 8,190 5,509 5,231
Other liabilities 1,180 1,247 1,247
Accumulated retained earnings 17,576 8,481 8,481
Stockholders' equity 26,848 17,753 17,753
(1) The consolidated statement of operations data and consolidated balance
sheet data have been adjusted to reclassify the results of discontinued
operating units.
See "Item 4. Controls and Procedures" for a discussion of the actions that
we have taken to strengthen our internal controls.
RESULTS OF OPERATIONS
SPECIAL NOTE REGARDING OUR RESTRUCTURING PROGRAM
24
AS DESCRIBED BELOW UNDER "RECENT DEVELOPMENTS," WE ARE ENGAGED IN AN
ONGOING RESTRUCTURING PROGRAM PURSUANT TO WHICH WE HAVE DISCONTINUED CERTAIN
OPERATIONS AND SOLD ASSETS SINCE JUNE 30, 2002 AND MAY, IN THE FUTURE, ENGAGE IN
ADDITIONAL SALES OF ASSETS OR STOCK OR OBTAIN OTHER TYPES OF FINANCING.
ACCORDINGLY, THE HISTORICAL RESULTS OF OPERATIONS PRESENTED HEREIN ARE UNLIKELY
TO BE INDICATIVE OF FUTURE PERFORMANCE. UNLESS SPECIFICALLY INDICATED OTHERWISE,
INFORMATION IN THIS FILING IS AS OF JUNE 30, 2002, AND DOES NOT TAKE INTO
ACCOUNT THE RESTRUCTURING PROGRAM AND OTHER EVENTS DESCRIBED BELOW UNDER "RECENT
DEVELOPMENTS."
SPECIAL NOTE REGARDING RESTATEMENT OF OUR PREVIOUSLY ISSUED FINANCIAL STATEMENTS
WE HAVE RESTATED OUR PREVIOUSLY ISSUED FINANCIAL STATEMENTS FOR THE FISCAL
YEAR ENDED MARCH 31, 2001, AND OUR PREVIOUSLY ISSUED FINANCIAL RESULTS FOR EACH
OF THE QUARTERLY PERIODS IN THE FISCAL YEAR ENDED MARCH 31, 2001 AND THE FIRST
THREE QUARTERS IN THE FISCAL YEAR ENDED MARCH 31, 2002. SEE "RESTATEMENT" ABOVE.
THE CONSOLIDATED FINANCIAL RESULTS FOR THE QUARTER ENDED JUNE 30, 2001 INCLUDED
IN THIS REPORT AND THE DISCUSSION OF THE RESULTS OF OPERATIONS FOR THE QUARTER
ENDED JUNE 30, 2001 GIVE EFFECT TO THE RESTATEMENT.
WE INTEND TO FILE A CURRENT REPORT ON FORM 8-K TO PROVIDE RESTATED
QUARTERLY FINANCIAL INFORMATION FOR EACH OF THE QUARTERLY PERIODS IN THE FISCAL
YEAR ENDED MARCH 31, 2001 AND THE FIRST THREE QUARTERS IN THE FISCAL YEAR ENDED
MARCH 31, 2002.
YOU SHOULD NOT RELY ON PREVIOUS DISCUSSIONS OF RESULTS OF OPERATIONS AND
TRENDS AFFECTING OUR BUSINESS.
AS A RESULT OF THE RESTATEMENT, OUR HISTORICAL RESULTS OF OPERATIONS
DIFFER SIGNIFICANTLY FROM THOSE CONTAINED IN OUR PRIOR REPORTS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. ACCORDINGLY, YOU SHOULD NOT RELY ON PREVIOUS
DISCUSSIONS OF OUR RESULTS OF OPERATIONS AND TRENDS AFFECTING OUR BUSINESS,
SINCE SUCH DISCUSSIONS WERE BASED ON FINANCIAL RESULTS THAT HAVE NOW BEEN
RESTATED. WE DO NOT INTEND TO MAKE ADDITIONAL FILINGS TO CORRECT THE HISTORICAL
DISCUSSIONS OF RESULTS OF OPERATIONS AND TRENDS AFFECTING OUR BUSINESS.
The following table sets forth, for the periods indicated, certain items
in our consolidated statements of income as a percentage of net sales:
THREE MONTHS ENDED JUNE 30,
2002(1) 2001(1)(2)
------- ----------
Net Sales
Sensors 52.6% 55.1%
Consumer products 47.4% 44.9%
----- -----
Total net sales 100.0% 100.0%
Cost of sales 67.1% 73.2%
----- -----
25
THREE MONTHS ENDED JUNE 30,
2002(1) 2001(1)(2)
------- ----------
Gross profit 32.9% 26.8%
Operating expenses (income)
Selling, general, and administrative 34.0% 28.6%
Research and development 3.9% 4.8%
Customer funded development (1.2)% (1.9)%
Restructuring costs 2.5% -
Interest expense, net 3.0% 4.3%
Other expenses (income)
(0.2)% (0.2)%
------ ------
(Loss) from continuing operations before income
taxes and cumulative effect of accounting change (9.1)% (8.8)%
Loss from operations of discontinued units (15.0)% (0.9)%
Cumulative effect of accounting change, net of tax - (1.0)%
------- ------
Net income (loss) (24.1)% (10.7)%
======= =======
(1) The consolidated financial statements for the quarter ended June 30,
2002 include the results of the ongoing operations of Measurement Specialties,
Inc. As a result of the restructuring plan, we sold all of the outstanding stock
of Terraillon Holdings Limited in September 2002 and placed Measurement
Specialties UK Limited (referred to herein as Schaevitz UK) into receivership in
June 2002. Accordingly, Terraillon and Schaevitz UK are classified as
discontinued operations in the consolidated financial results for the three
months ended June 30, 2002, and Schaevitz UK is classified as a discontinued
operation for the three months ended June 30, 2001 (Terraillon was acquired in
August 2001.) The comparisons above exclude the results of these discontinued
operations, except for "Loss from operations of discontinued units," "Cumulative
effect of accounting change, net of tax" and "Net income (loss)."
(2) Reflects the restatement of our financial statements for the fiscal
quarter ended June 30, 2001. See "Restatement" and Note 3 to our consolidated
financial results included in this Quarterly Report on Form 10-Q.
THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE MONTHS ENDED JUNE 30, 2001
The consolidated financial statements for the quarter ended June 30, 2002
include the results of the ongoing operations of Measurement Specialties, Inc.
As a result of the restructuring plan, we sold all of the outstanding stock of
Terraillon in September 2002 and placed Schaevitz UK into receivership in June
2002. Accordingly, Terraillon and Schaevitz UK are classified as discontinued
operations in the consolidated financial results for the three months ended June
30, 2002 and 2001. The results of operations presented below exclude the results
of these discontinued operations, except as specifically set forth in
"Discontinued Operations."
Net Sales. Net sales declined slightly to $23,646 for the fiscal quarter
ended June 30, 2002 from $23,701 for the fiscal quarter ended June 30, 2001.
Net sales of our Sensor business decreased $612, or 4.7%, to $12,439 for
the fiscal quarter ended June 30, 2002 from $13,051 for the fiscal quarter ended
June 30, 2001. The decrease is primarily due to decreased sales of Schaevitz
products and significantly reduced demand for displacement transducers in the
power generation and other capital goods sectors. Sales of microfused sensors
increased due to continuing growth in demand for automotive pressure sensors,
but this increase was offset by decreased IC Sensors sales. PiezoSensors sales
were flat.
26
Net sales of our Consumer Products business increased $557, or 5.2%, to
$11,207 for the fiscal quarter ended June 30, 2002 from $10,650 for the fiscal
quarter ended June 30, 2001. This increase was the result of increased bath
scale sales during the quarter ended June 30, 2002 as compared to the quarter
ended June 30, 2001. Sales of tire pressure gauges declined during the fiscal
quarter ended June 30, 2002 due to a reduction in promotions and less media
attention to tire quality issues than in previous years. Sales to Korona,
historically a significant customer of ours, decreased significantly as a result
of its acquisition by Bonso Electronics, a competitor of ours. We expect further
decreases in sales to Korona in subsequent fiscal quarters.
Gross Profit. Gross profit increased $1,423, or 22.4%, to $7,784 for the
fiscal quarter ended June 30, 2002 from $6,361 for the fiscal quarter ended June
30, 2001. Gross margin increased to 32.9% for the fiscal quarter ended June 30,
2002 from 26.8% for the fiscal quarter ended June 30, 2001. Gross margin for our
Sensor business increased to 36.7% for the quarter ended June 30, 2002 from
28.2% for the quarter ended June 30, 2001. This margin improvement was the
result of a net reduction in cost of goods sold through increased production
transferred to China (and the associated lower cost basis). Gross margin for our
Consumer Products business improved to 28.7% for the fiscal quarter ended June
30, 2002 from 25.1% for the fiscal quarter ended June 30, 2001. This improvement
resulted from our ongoing cost reduction program in Asia.
Selling, General, and Administrative. Selling, general, and administrative
expenses increased $1,257, or 18.5%, to $8,037 for the fiscal quarter ended June
30, 2002 from $6,780 for the fiscal quarter ended June 30, 2001. The overall
increase is primarily due to increased aggregate consulting and professional
fees of $1,453 that were incurred as a result of the defaults under our credit
agreement, the restatement of our financial statements, the class action lawsuit
and the SEC investigation. See "Legal Proceedings" below. We expect these
increased consulting and professional fees to continue in subsequent periods.
Research and Development. Research and development costs were reduced $193
to $934 for the fiscal quarter ended June 30, 2002 from $1,127 for the fiscal
quarter ended June 30, 2001. Customer-funded development declined $167 to $276
for the fiscal quarter ended June 30, 2002 from $443 for the fiscal quarter
ended June 30, 2001. On a net basis, research and development costs decreased
$26 to $658 for the fiscal quarter ended June 30, 2002 from $684 for the fiscal
quarter ended June 30, 2001. IC Sensors generated the majority of our customer
funded research and development in the fiscal quarter ended June 30, 2002. Due
to the sale of the IC Sensors wafer fab operation in August 2002, we do not
expect significant customer funded research and development for the remainder of
the fiscal year ending March 31, 2003.
Interest Expense, Net. Net interest expense decreased $290, or 28.7%, to
$720 for the fiscal quarter ended June 30, 2002 from $1,010 for the fiscal
quarter ended June 30, 2001. This decrease is attributable to an approximately
$11,452 reduction in total debt outstanding from $38,482 as of June 30, 2001 to
$27,030 as of June 30, 2002, partially offset by increased interest rates
incurred as a result of defaults under our credit agreement. We expect interest
expense to decrease in subsequent periods as our outstanding debt balances
decrease.
Income Taxes. We had a pretax loss for financial reporting purposes and
have not provided a tax benefit for the fiscal quarters ended June 30, 2002 and
2001. Recognition of a deferred tax benefit will require generation of future
taxable income. Since there can be no assurance that we will generate earnings
in future years, we have increased our valuation allowance on deferred tax
assets by $1,038 to $14,053 as of June 30, 2002.
27
Discontinued Operations. As a result of the restructuring plan, we sold
all of the outstanding stock of Terraillon in September 2002 and placed
Schaevitz UK into receivership in June 2002. The net results for these
operations for the quarter ended June 30, 2002 was a loss of $3,536. Terraillon
reported a net loss of $25 while Schaevitz UK recorded a net loss of $3,511. The
loss at Schaevitz UK was primarily due to the write-off of prepaid pension
costs, severance and other exit costs, and professional fees associated with the
liquidation.
LIQUIDITY AND CAPITAL RESOURCES
Operating working capital (accounts receivable plus inventory less
accounts payable) decreased by $3,619 as of June 30, 2002 as compared to March
31, 2002. The decrease was largely attributable to an increase in accounts
payable of $5,845 from $9,689 for the fiscal quarter ended March 31, 2002 to
$15,534 for the fiscal quarter ended June 30, 2002, partially offset by an
increase in accounts receivable of $224 from $12,220 for the fiscal quarter
ended March 31, 2002 to $12,444 for the fiscal quarter ended June 30, 2002 and
an increase in inventory of $2,002 from $16,026 for the fiscal quarter ended
March 31, 2002 to $18,028 for the fiscal quarter ended June 30, 2002. Accounts
payable increased as a result of normal seasonal spending increase in the
consumer segment, as well as stretching payment terms with vendors. The
inventory increase was attributable to seasonal increases in the consumer
segment. Cash provided by operating activities was $3,830 for the fiscal quarter
ended June 30, 2002, as compared to $3,447 for the same period last fiscal year.
Capital spending decreased sharply ($336 for the fiscal quarter ended June 30,
2002 versus $1,415 for the fiscal quarter ended June 30, 2001), resulting in
cash flow after capital expenditures of $3,494 for the fiscal quarter ended June
30, 2002 as compared to $2,032 for the fiscal quarter ended June 30, 2001.
Financing activities for the fiscal quarter ended June 30, 2002 consumed $2,134,
primarily driven by the repayment of debt. For the fiscal quarter ended June 30,
2002, continuing operations generated cash of $1,360, offset by $2,516 used for
discontinued operations and $857 as a result of unfavorable exchange rates,
resulting in a decrease in net cash decrease of $2,013 as compared to the fiscal
quarter ended March 31, 2002.
Our Credit Agreement
We and Schaevitz UK are the borrowers under an Amended and Restated
Revolving Credit, Term Loan and Security Agreement dated February 28, 2001, as
amended (the "credit agreement"), among Wachovia Bank, National Association
(formerly known as First Union National Bank) as lender and agent, JP Morgan
Chase Bank as lender and Fleet National Bank as lender (First Union, Chase and
Fleet are hereafter referred to as the "lenders"). Our obligations under the
credit agreement are secured by a lien on substantially all of our assets.
The loans outstanding under the credit agreement as of June 30, 2002 were
a revolving credit line with an amount outstanding of approximately $19,700 and
a term loan in the amount of $7,200.
Events of Default under the Credit Agreement
Because of our inability to comply with certain financial covenants
contained in the credit agreement, events of default have occurred and are
continuing under the credit agreement. We sought, but did not obtain, a waiver
of such events of default from the lenders.
The occurrence of the events of default under the credit agreement gives
the lenders the right to require immediate repayment of all amounts outstanding
under the credit agreement and exercise their remedies as a secured creditor,
including taking immediate possession of all of our assets and requiring our
customers to pay all amounts owed to us directly to them. As a result of the
defaults under our credit agreement and the lenders' consequent right to
accelerate the loans, we were required to classify the long-
28
term portion of our debt to current. The consolidated financial results included
in this Quarterly Report on Form 10-Q reflect this reclassification.
Forbearance Agreement
On July 2, 2002, we signed an agreement with our lenders pursuant to which
the lenders agreed to forbear from exercising the rights and remedies available
to them under the credit agreement as a result of our defaults until the
earliest of (i) November 1, 2002, (ii) our breach or violation of the provisions
of the forbearance agreement, (iii) the institution of bankruptcy proceedings
under the federal bankruptcy laws, or (iv) the occurrence of additional defaults
under the credit agreement (the time period between July 2, 2002 and the
termination of the lenders' obligation to forbear from the exercise of their
rights is referred to herein as the "forbearance period"). We are required under
the forbearance agreement to, among other things, comply with certain strict
financial covenants, actively seek purchasers for certain of our assets,
continue to make required term loan payments, pledge certain unencumbered assets
in favor of the lenders and issue the lenders a warrant to purchase up to 4.99%
of our common stock. Half of this warrant was canceled when we repaid certain
obligations as required prior to October 1, 2002 and the balance of the warrant
will be canceled if our obligations to the lenders are repaid in full on or
before November 1, 2002. The forbearance agreement also provides that our
borrowings will bear interest at a rate equal to the lenders' prime rate plus
3%, which rate will increase by an additional 2% in the event of a default under
the forbearance agreement.
In connection with the execution of the forbearance agreement, the lenders
agreed to extend additional credit under our revolving credit facility (as more
fully described below), as well as to allow us to apply the proceeds from the
sale/liquidation of certain assets against amounts outstanding under the
revolving credit facility (rather than against amounts outstanding under the
term loan as otherwise required by the credit agreement).
Available Credit under the Revolving Credit Facility during the Forbearance
Period
As of the consummation of our sale of Terraillon, and subject to our
continued compliance with the terms of the forbearance agreement, the maximum
available credit under the revolving credit facility during the forbearance
period is $13,500 or such lesser amount as is determined based on certain
formulas in the credit agreement related to the value of our collateral. As of
October 18, 2002, we had $10,079 of available credit under the revolving credit
facility. At October 18, 2002, the balances of our revolving credit line and
term loan were $3,100 and $6,200, respectively.
Payment Obligations under the Forbearance Agreement
Subject to our continued compliance with its terms, the forbearance
agreement permitted us to maintain an over-advance under the revolving credit
facility of up to $9,000 until July 31, 2002, after which time the permitted
over-advance was reduced to $8,000. As a result of the sale of Terraillon and
the application of the proceeds from the sale to amounts outstanding under our
revolving credit facility, the over-advance under the revolving credit facility
was eliminated.
Under the forbearance agreement, the deadline for repayment in full of the
notes evidencing the term loan and revolving credit facility has been changed to
November 1, 2002. We cannot assure you that we will be able to replace this
credit facility on acceptable terms, or at all, after its expiration.
No assurance can be given that we will be able to pay the amounts due
under the forbearance agreement or otherwise comply with all the terms and
conditions of the forbearance agreement. If we are unable to comply with the
terms of the forbearance agreement, we may be unable to continue operations,
29
or may be compelled to restructure our obligations in a bankruptcy proceeding
under Title 11 of the United States Code.
We are currently in negotiations with our lenders to extend the
forbearance period and the deadline for repayment in full of the notes
evidencing the term loan and the revolving credit facility beyond November 1,
2002. No assurance can be given that the lenders will grant such an extension on
terms reasonable to us, or at all.
Liquidity
At October 18, 2002, we had $10,079 available under our revolving credit
facility. As stated above, this credit facility expires and all amounts
outstanding under the credit facility must be repaid on or before November 1,
2002. Our working capital and our limited amount of borrowing capacity will not
be sufficient to satisfy our ongoing capital needs and other obligations, that
include payment of:
- - the $9,300 outstanding under our term loan and revolving credit facility
by November 1, 2002;
- - substantially increased consulting and professional fees that are being
incurred as the result of the defaults under the credit agreement, the
class action lawsuits and SEC investigation;
- - any judgments or penalties arising from the class action lawsuit, SEC
investigation or other matters described under "Legal Proceedings";
- - the obligations described below under "Obligations to Trade Creditors and
Others"; and
- - payment of dilapidation claims under the Schaevitz UK real property lease.
In an effort to obtain additional funds, we are currently in negotiations
with an asset based lender regarding a new $15,000 revolving credit facility
that we intend to use to refinance our existing bank debt and provide our
company with additional working capital. In addition to pursuing asset based
financing, we are exploring the sale of additional assets or the sale of equity
securities. No assurance, however, can be given that we will be able to
refinance our debt, or successfully sell assets or stock, or, even if such
transactions are possible, that they will be on terms reasonable to us, that
they will enable us to continue to satisfy our cash requirements or that such
actions will be permitted under our credit agreement. Additionally, any sale of
securities will dilute existing shareholders and may be at prices that are
substantially lower than current market prices. If we do not obtain additional
funds, we will likely be unable to continue operations, or we will be compelled
to restructure our obligations in a bankruptcy proceeding under Title 11 of the
United States Code.
OBLIGATIONS TO TRADE CREDITORS AND OTHERS
In order to conserve available cash, we have been delaying payments to our
trade creditors. We are beginning to cure overdue obligations and are making
efforts to meet all of our new trade obligations within terms. If we are unable
to cure overdue obligations or meet new obligations within terms, our suppliers
may be unwilling to provide us with the components and finished products
necessary to manufacture our products. If we lose one or more sources of supply
and/or assembly and we are not able to replace that source in a timely manner,
we may be unable to meet the needs of our customers, resulting in a reduction in
net sales and jeopardizing our customer relationships.
Our failure to timely file certain of our periodic reports with the
Securities and Exchange Commission and our payment default render us, among
other things, ineligible to file registration statements on Form S-3 with the
SEC. In connection with the acquisition of Terraillon in August 2001, we entered
into a Registration Rights Agreement with the former shareholders of Terraillon,
pursuant to which we agreed to file a Registration Statement on Form S-3 to
register the resale of shares of our
30
common stock issued in that acquisition. Our present inability to file a
registration statement to effect the resale registration triggers our
contractual obligation to repurchase shares of our common stock that former
Terraillon shareholders are unable to sell in the market or to pay former
Terraillon shareholders an amount determined by formula and based on the number
of shares they are unable to sell in the market. We are presently precluded by
the credit agreement from repurchasing shares of our common stock. See "Legal
Proceedings," below.
Dividends
We have not declared cash dividends on our common equity. Additionally,
the payment of dividends is subject to the consent of our lenders. If permitted
under applicable law and our loan agreement, we may, in the future, declare
dividends under certain circumstances.
At present, there are no material restrictions on the ability of our Hong
Kong subsidiary to transfer funds to us in the form of cash dividends, loans,
advances, or purchases of materials, products, or services. Chinese laws and
regulations, including currency exchange controls, restrict distribution and
repatriation of dividends by our China subsidiary.
Seasonality
Our sales of consumer products are seasonal, with highest sales during the
second and third fiscal quarters.
31
Item 3. Quantitative and Qualitative Disclosures about Market Risk
(dollars in thousands)
We are exposed to a certain level of foreign currency exchange risk.
FOREIGN CURRENCY RISK
The majority of our net sales are priced in United States dollars. Our
costs and expenses are priced in United States dollars, Hong Kong dollars,
Chinese renminbi, British pounds and Euros. Accordingly, the competitiveness of
our products relative to products produced domestically (in foreign markets) may
be affected by the performance of the United States dollar compared with that of
our foreign customers' currencies. Additionally, we are exposed to the risk of
foreign currency transaction and translation losses, which might result from
adverse fluctuations in the values of the Hong Kong dollar, the Chinese
renminbi, the British pound and the Euro. At June 30, 2002, we had net
liabilities of $3,289 subject to fluctuations in the value of the Hong Kong
dollar, net assets of $860 subject to fluctuations in the value of the British
pound, net assets of $18,369 subject to fluctuations in the value of the Euro
and net assets of $11,132 subject to fluctuations in the value of the Chinese
renminbi. At June 30, 2001, we had net liabilities of $1,239 subject to
fluctuations in the value of the Hong Kong dollar, net assets of $7,991 subject
to fluctuations in the value of the British pound and net assets of $13,354
subject to fluctuations in the value of the Chinese renminbi.
Fluctuations in the value of the Hong Kong dollar have not been
significant since October 17, 1983, when the Hong Kong government tied the value
of the Hong Kong dollar to that of the United States dollar. However, there can
be no assurance that the value of the Hong Kong dollar will continue to be tied
to that of the United States dollar. China adopted a floating currency system on
January 1, 1994, unifying the market and official rates of foreign exchange.
China approved current account convertibility of the Chinese renminbi on July 1,
1996, followed by formal acceptance of the International Monetary Fund's
Articles of Agreement on December 1, 1996. These regulations eliminated the
requirement for prior government approval to buy foreign exchange for ordinary
trade transactions, though approval is still required to repatriate equity or
debt, including interest thereon.
There can be no assurance that these currencies will remain stable or will
fluctuate to our benefit. To manage our exposure to foreign currency and
translation risks, we may purchase currency exchange forward contracts, currency
options, or other derivative instruments, provided such instruments may be
obtained at suitable prices. However, to date we have not done so.
See "Recent Developments - Our Restructuring Program" for a discussion of
the elimination of certain of our foreign operations.
32
Recent Developments
(dollars in thousands)
Our Restructuring Program
As a result of significant losses for each of the four quarters in the
fiscal year ended March 31, 2002 and for the quarter ended June 30, 2002 and our
inability to make required payments under our loan agreement, we have
implemented a restructuring program with the aim of reducing costs, streamlining
operations and generating cash to repay our lenders. The actions we have taken
in connection with this restructuring program include the following:
- Liquidation of our UK Subsidiary. We placed Schaevitz UK into
receivership on June 5, 2002 pursuant to the terms of a Mortgage Debenture dated
February 28, 2001, as we were no longer in a position to support its losses. The
receiver's function was to dispose of Schaevitz UK's business and assets for the
best price possible. The book debt recoveries and sale proceeds were applied in
settlement of the receiver's remuneration, costs and expenses, the preferential
creditors' claims (i.e., the claims of the Inland Revenue, Customs & Excise and
employee claims up to certain statutory limits) and then to (i) the claims by
our lenders in accordance with the United Kingdom insolvency legislation (the
Insolvency Act 1986), and (ii) priority arrangements. The landlord has a
potential dilapidations claim of up to 350 Pounds Sterling (approximately $549
United States dollars based on market exchange rates as of October 8, 2002)
against Schaevitz UK that arose on the expiration of the lease of 543/544
Ipswich Road Trading Estate, Slough, Berkshire, England on June 23, 2002.
Measurement Specialties is responsible for this claim as a result of our
guarantee of Schaevitz UK's obligations under the lease. We are currently in
negotiations with the landlord regarding this matter. During the quarter ended
June 30, 2002, we incurred approximately $3,577 of costs and expenses in
connection with the liquidation of Schaevitz UK.
With the divestiture of Schaevitz UK in June 2002, the strain gauge based
products and force balanced accelerometers which were part of this operation
will no longer be manufactured by us, although we continue to supply strain
gauge subassemblies to Polaron (who acquired a portion of the assets of
Schaevitz UK), and we continue to distribute products incorporating these
technologies.
- Reduction of Workforce. As of March 31, 2002, excluding the effects
of the Terraillon and Schaevitz UK dispositions, we have reduced our workforce
by 138 employees as compared to our workforce as of June 30, 2001. Additionally,
as of September 30, 2002, we have reduced our workforce by an additional 49
employees as compared to our workforce as of March 31, 2002. We expect this
workforce reduction to result in a cost savings of approximately $5,000 for the
fiscal year ending March 31, 2003. We are currently examining the possibility of
further workforce reductions.
- Sale of IC Sensors wafer fab. In July 2002, we sold the assets,
principally property and equipment, related to our silicon wafer fab
manufacturing operation in Milpitas, CA to Silicon Microstructures, Inc. (SMI),
a wholly-owned subsidiary of Elmos Semiconductor AG. The wafer fab operation was
formerly part of our IC Sensors division. The price paid by SMI for the assets
was approximately $5,250, consisting of approximately $3,370 in cash and $1,880
in prepaid credit for products and services, subject to reduction under certain
circumstances. Approximately, $1,000 of the cash purchase price was used to
satisfy an outstanding equipment lease obligation. The prepaid credit for
products and services, if utilized, will be accounted for as a component of our
wafer costs. The estimated gain on this sale is approximately $150, net of tax.
IC Sensors continues to design and sell all, and manufacture most, of its
current product lines, including custom wafers and die, pressure sensors,
accelerometers and custom MEMS components, and to outsource to SMI the
manufacturing of silicon chips used in these products. As part of this
transaction, we entered into a long-term supply agreement for the purchase of
wafers from SMI.
33
In July 2002, SMI assumed the lease of our Milpitas, CA facility in
connection with this sale. SMI's assumption of this lease and the related
operating expenses has resulted in an annualized cost savings to us of over
$3,000. We have entered into a lease for an approximately 4,800 square foot
property in San Jose, CA for our IC Sensors sales, research and development,
manufacturing, and engineering personnel. IC Sensors generated approximately
$1,000 in customer funded research and development in the fiscal year ended
March 31, 2002. As a result of the sale of the ICS wafer fab, we will not
receive these amounts during the fiscal year ending March 31, 2003 and expect
customer funded research and development to decrease.
- Shutdown of Valley Forge operations. The operations of our Valley
Forge, PA facility will be consolidated into our Hampton, VA and Shenzhen, China
facilities. The lease term for the Valley Forge, PA facility, originally assumed
as part of the purchase of PiezoSensors from AMP, Inc. in 1998, expires January
30, 2003 and will not be renewed. As a result of this action, 10 full-time
positions will be eliminated. We expect PiezoSensors to continue to design,
manufacture, and sell all of its current product lines. The shutdown of our
Valley Forge operations has resulted in an annualized cost savings to us of
approximately $900. We entered into a lease for an approximately 2,500 square
foot property in Wayne, PA for our sales, engineering and technical personnel
formerly located at our Valley Forge facility.
- Sale of Terraillon. In September 2002, we sold all of the
outstanding stock of Terraillon Holdings Limited, a European manufacturer of
branded consumer bathroom and kitchen scales, to Fukuda (Luxembourg) S.a.r.l.,
an investment holding company incorporated in Luxembourg, for $22,300.
Approximately $2,282 of the purchase price will be held in escrow until January
24, 2003 to secure payment of certain purchase price adjustments, if any, or any
right of Fukuda to set off as a result of breaches of our representations and
warranties in the stock purchase agreement. Fukuda also assumed approximately
$4,800 in debt in connection with the acquisition of Terraillon. The estimated
gain on this sale is approximately $1,500, net of tax, subject to further
adjustments.
As a result of the sale of Terraillon, we no longer have operations in
France or Ireland. Moreover, as a result of the sale of Terraillon and the
liquidation of Schaevitz UK, we no longer have operations in Europe. We expect
to continue to sell products in Europe through our distributors, but at much
lower levels.
- Examination of fund raising alternatives. In connection with the
restructuring effort, we are examining ways to raise additional funds. We are
currently in negotiations with an asset based lender regarding the refinancing
of our bank debt. In addition to pursuing asset based financing, we are
examining other alternatives, including, without limitation, the private sale of
our common stock and sales of other portions of our business or product lines.
Possible De-Listing of our Common Stock
As a result of our failure to timely file our Annual Report on Form 10-K
for the fiscal year ended March 31, 2002, the trading of our common stock on the
American Stock Exchange (AMEX) has been suspended since July 15, 2002. On August
21, 2002, we received a letter from the AMEX indicating that we no longer comply
with AMEX listing guidelines due to our failure to furnish certain reports and
information to shareholders and that our securities are, therefore, subject to
being delisted from the AMEX. We have appealed this determination. There can be
no assurance that our request for continued listing will be granted or that we
will be able to comply with AMEX listing requirements in the future. In the
event that our common stock becomes ineligible for trading on the AMEX, it will
be more difficult to dispose of our common stock and to obtain accurate pricing
information for our common stock.
34
Management and Board Changes
In May 2002, we engaged Corporate Revitalization Partners ("CRP") to
conduct our ongoing operational/financial restructuring efforts. CRP has focused
on the development and execution of our restructuring program.
In June 2002, Frank Guidone of CRP was appointed Chief Executive Officer.
Joseph R. Mallon, Jr., our former Chief Executive Officer, continues to be
Chairman of our Board of Directors.
In June 2002, Damon Germanton, the former president and chief operating
officer of our company, was appointed Managing Director of our Asian Operations.
In June 2002, Vic Chatigny was appointed a Vice President of our company
and General Manager of our Sensors division.
In June 2002, Mark Cappiello, a Vice President of our company, was
appointed General Manager of our Consumer Products division.
In July 2002, John P. Hopkins was appointed Chief Financial Officer.
CAUTIONARY STATEMENT
This report includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities and Exchange Act of 1934, as amended. Forward looking statements may
be identified by such words or phrases as "believe," "expect," "intend,"
"estimate," "anticipate," "project," "will," "may" and similar expressions. All
statements that address operating performance, events or developments that we
expect or anticipate will occur in the future, including statements relating to
our continued operation, our ability to raise additional funds, our ability to
successfully implement our restructuring program, our ability to consummate
future asset or stock sales, negotiations with our lenders and continued
compliance with our forbearance agreement, are forward-looking statements. The
forward-looking statements above are not guarantees of future performance and
involve a number of risks and uncertainties. Factors that might cause actual
results to differ materially from the expected results described in or
underlying our forward-looking statements include:
- Our ability to complete our ongoing restructuring program;
- Conditions in the general economy and in the markets served by us;
- Competitive factors, such as price pressures and the potential
emergence of rival technologies;
- Interruptions of suppliers' operations or the refusal of our
suppliers to provide us with component materials;
- Timely development and market acceptance, and warranty performance
of new products;
- Changes in product mix, costs, yields and fluctuations in foreign
currency exchange rates;
- Uncertainties related to doing business in Hong Kong and China;
- The continued decline in the United States consumer products market;
- The possible de-listing of our common stock from the American Stock
Exchange;
- The numerous class action lawsuits filed against us and the pending
SEC investigation;
- Our ability to raise additional funds;
- Our ability to comply with the provisions of the forbearance
agreement with our lenders; and
- The risk factors listed from time to time in our SEC reports.
35
This list is not exhaustive. Except as required under federal securities
laws and the rules and regulations promulgated by the SEC, we do not have any
intention or obligation to update publicly any forward-looking statements after
the filing of this Quarterly Report on Form 10-Q, whether as a result of new
information, future events, changes in assumptions or otherwise.
36
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. We have identified
significant and material weaknesses in our internal disclosure controls and
procedures. As a result of these deficiencies, we needed to perform extensive
detail testing and reconciliation of past transactions in order to be able to
determine the proper presentation of our financial information for past and
current periods. In addition, our independent auditors have expanded their
procedures to audit periods during which the weaknesses were present. These
deficiencies in our internal disclosure controls and procedures have contributed
to our filing of inaccurate financial reports for the periods from June 30, 2000
through December 31, 2001 and to the delay in filing of this Quarterly Report on
Form 10-Q. Accordingly, this report contains restated financial results for the
fiscal quarter ended June 30, 2001, and we intend to file a current report on
Form 8-K to provide restated quarterly financial information for each of the
quarterly periods in the fiscal year ended March 31, 2001 and the first three
quarters in the fiscal year ended March 31, 2002.
(b) Changes in internal controls.
Interim compensating controls and procedures
While we are in the process of implementing a more efficient and reliable
system of disclosure controls and procedures, we have, on an immediate basis,
instituted interim compensating controls and procedures to ensure that
information required to be disclosed in this Quarterly Report on Form 10-Q has
been recorded, processed, summarized and reported to our senior management. The
steps that we have taken to ensure that all material information about our
company is accurately disclosed in this report, include:
- the appointment of a new chief executive officer in June 2002;
- the appointment of a new chief financial officer in July 2002;
- the performance of an extensive review of our financial statements
for the fiscal years ended March 31, 2002 and March 31, 2001;
- the reaudit of our financial statements for the fiscal year ended
March 31, 2001;
- the performance of a comprehensive evaluation of our historical
valuation of inventory; and
- the engagement of outside professionals specializing in accounting
and finance to assist our management in the collection,
substantiation and analysis of the information contained in this
report.
Ongoing changes in internal controls
In order to correct the deficiencies described above and to improve our
internal disclosure and control procedures on a going forward basis, we have:
- initiated the process of consolidating the financial information for
our Sensor business onto one information technology platform and
general ledger;
- reassigned the financial reporting responsibility from the corporate
accounting level to the respective separate general managers and
controllers of each of our business units;
- implemented consolidated financial and operational review
procedures; and
- hired additional qualified financial reporting personnel.
We intend to continue to evaluate our internal disclosure controls and
procedures and implement improvements as required.
37
PART II. OTHER INFORMATION
(dollars in thousands)
Item 1. Legal Proceedings
CLASS ACTION LAWSUIT
On March 20, 2002, a class action lawsuit was filed on behalf of
purchasers of our common stock in the United States District Court for the
District of New Jersey against Measurement Specialties and certain of our
present and former officers and directors. The complaint was subsequently
amended to include the underwriters in our August 2001 public offering and our
former auditors. The lawsuit alleges violations of the federal securities laws
including, among other things, that the registration statement related to our
August 2001 public offering and our periodic SEC filings misrepresented or
omitted material facts and that certain of our officers made false or misleading
statements of material fact. The lawsuit seeks an unspecified award of money
damages. After March 20, 2002, nine additional similar class actions were filed
in the same court. The ten lawsuits have been consolidated into one case under
the caption In re: Measurement Specialties, Inc. Securities Litigation, 02 Civ.
No. 1071 (D.N.J.). Plaintiffs filed a Consolidated Amended Complaint on
September 12, 2002. We must file a responsive pleading by November 11, 2002. We
are currently in the process of responding to the claims made in the class
action lawsuit. We intend to defend the foregoing lawsuit vigorously, but cannot
predict the outcome and are not currently able to evaluate the likelihood of
success or the range of potential loss, if any. However, if we were to lose this
lawsuit, judgment would likely have a material adverse effect on our
consolidated financial position, results of operations and cash flows. We have
Directors and Officers insurance policies that provide an aggregate coverage of
$10,000 for the period during which the claims were filed, but cannot evaluate
at this time whether such coverage will be available or adequate to cover
losses, if any, arising out of this litigation.
SEC INVESTIGATION
In February 2002, we, at our own initiative, contacted the staff of the
SEC after discovering that our former Chief Financial Officer had made the
misrepresentation to senior management, the Board and our auditors that a waiver
of the covenant default under our credit agreement had been obtained when, in
fact, the lenders had refused to grant such a waiver. Since February 2002,
Measurement Specialties and a Special Committee formed by our Board of Directors
have been cooperating with the staff of the SEC. In June 2002, the staff of the
Division of Enforcement of the SEC informed us that it is conducting a formal
investigation relating to matters reported in our Quarterly Report on Form 10-Q
for the quarter ended December 31, 2001. We cannot predict how long the SEC
investigation will continue or its outcome.
UNITED STATES ATTORNEY INQUIRY
We have also learned that the Office of the United States Attorney for the
District of New Jersey is conducting an inquiry into the matters that are being
investigated by the SEC. We cannot predict how long the United States Attorney's
inquiry will continue or its outcome.
OTHER LITIGATION
In re Service Merchandise Company, Inc. (Service Merchandise Company, Inc.
v. Measurement Specialties, Inc.), United States Bankruptcy Court for the Middle
District of Tennessee, Nashville Division, Case No. 399-02649, Adv. Pro. No.
301-0462A.
We are currently the defendant in a lawsuit filed in March 2001 by Service
Merchandise Company, Inc. ("SMC") and its related debtors (collectively, the
"Debtors") in the context of the Debtors'
38
Chapter 11 bankruptcy proceedings. The Bankruptcy Court entered a stay of the
action in May 2001, which was lifted in February 2002. Citing 11 U.S.C. Section
547(b), the action alleges that we received $645 from one or more of the Debtors
during the ninety (90) day period before the Debtors filed their bankruptcy
petitions, that the transfers were to our benefit, were for or on account of an
antecedent debt owed by one or more of the Debtors, made when one or more of the
Debtors were insolvent, and that the transfers allowed us to receive more than
we would have received if the cases were cases under Chapter 7 of the United
States Bankruptcy Code. The action seeks to disgorge the sum of $645 from us. It
is not possible at this time to predict the outcome of the litigation or
estimate the extent of any damages that could be awarded in the event that we
are found liable to the estates of SMC or the other Debtors.
Robert L. DeWelt v. Measurement Specialties, Inc. et al., United States
District Court, District of New Jersey, Civil Action No. 02-CV-3431.
On July 17, 2002, Robert DeWelt, our former acting Chief Financial Officer
and general manager of our Schaevitz Division, filed a lawsuit against
Measurement Specialties, Inc. and certain of our officers and directors. Mr.
DeWelt resigned on March 26, 2002 in disagreement with management's decision not
to restate certain of our financial statements. See "Restatement" above for a
discussion of Mr. DeWelt's resignation. The lawsuit alleges a claim for
constructive wrongful discharge and violations of the New Jersey Conscientious
Employee Protection Act. Mr. DeWelt seeks an unspecified amount of compensatory
and punitive damages. We have filed a Motion to Dismiss for which a hearing is
scheduled on November 12, 2002. At this point in the litigation, we cannot
predict its outcome.
Hibernia Litigation
On or about July 23, 2002, Hibernia Capital Partners I, ilp and Hibernia
Capital Partners II, ilp filed a lawsuit against Measurement Specialties in the
High Court of Dublin. The Plenary Summons states that plaintiffs seek a
declaration that the plaintiffs entered into the share purchase agreement on
June 7, 2001 for the sale of their shares in Terraillon Holdings Limited to
Measurement Specialties as a result of an operative misrepresentation and
misstatement. Plaintiffs further seek damages for misrepresentation and/or
breach of contract and/or breach of warranty and costs of the proceedings. On
August 9, 2002, we entered an Appearance, which is the equivalent of the
acceptance of service of process. On August 22, 2002, plaintiffs filed a
Statement of Claim, which is the equivalent of a complaint. We are still engaged
in the initial pleadings process wherein plaintiffs' claims and our defenses
will be set forth in detail. We intend to defend the foregoing lawsuit
vigorously, but cannot predict the outcome and are not currently able to
evaluate the likelihood of success or the range of potential loss, if any.
In re: Clark Material Handling Company, et al. (Clark Material Handling
Company, et al. v. Lucas Control Systems, United States District Court for the
District of Delaware, Case No. 02-997.
We are currently the defendant (as successor to Lucas Control Systems) in
the lawsuit filed in April 2002 by Clark Material Handling Company and its
related debtors (the "Debtors") in the context of the Debtors' Chapter 11
bankruptcy proceedings. Plaintiffs assert that Lucas Control Systems ("Lucas")
received $34 from one or more of the Debtors during the ninety (90) day period
before the Debtors filed their bankruptcy petitions, that the transfers were to
Lucas' benefit, were for or on account of an antecedent debt owed by one or more
of the Debtors, made when one or more of the Debtors were insolvent, and that
the transfers allowed Lucas to receive more than it would have received if the
cases were cases under Chapter 7 of the United States Bankruptcy Code. The
action seeks to disgorge the sum of $34 from Lucas. It is not possible at this
time to predict the outcome of the litigation or estimate the extent of any
damages that could be awarded in the event that we are found liable to the
estates of Clark Material Handling Company or the other Debtors.
39
From time to time, we are subject to other legal proceedings and claims in
the ordinary course of business. We currently are not aware of any such legal
proceedings or claims that we believe will have, individually or in the
aggregate, a material adverse effect on our business, financial condition, or
operating results.
Item 6. Exhibits and Reports on Form 8-K
(A) EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION
3.1# Second Restated Certificate of Incorporation of Measurement
Specialties, Inc.
3.2++ Bylaws of Measurement Specialties, Inc.
4.1+ Specimen Certificate for shares of common stock of
Measurement Specialties, Inc.
10.1# Supply and Distribution Agreement dated September 26, 1997
between Korona GmbH & Co. KG and Measurement Specialties,
Inc.
10.2## Product Line Acquisition Agreement dated January 5, 2000
between Exeter Technologies, Inc., Dr. Michael Yaron and
Measurement Specialties, Inc.
10.3### Stock Purchase Agreement dated February 11, 2000 between
PerkinElmer, Inc. and Measurement Specialties, Inc.
10.4* Purchase Agreement dated August 4, 2000 between TRW Sensors
& Components, Inc. and Measurement Specialties, Inc.
10.5** Asset Purchase Agreement dated August 14, 1998 between AMP
Incorporated, The Whitaker Corporation and Measurement
Specialties, Inc.
10.6+ Measurement Specialties, Inc. 1995 Stock Option Plan.
10.7*** Measurement Specialties, Inc. 1998 Stock Option Plan.
10.8+ Lease dated December 30, 1999 between Hollywood Place
Company Limited and Measurement Limited for property in
Kowloon, Hong Kong.
10.9+ Lease dated September 14, 1977 between Schaevitz E.M.
Limited and Slough Trading Estate Limited for property in
Slough, England.
10.10+ Deed of Variation dated July 14, 1992 of Lease between
Slough Trading Estate Limited and Lucas Schaevitz Limited.
10.11+ Assignment dated August 4, 2000 of Lease from Lucas
Schaevitz Limited to Measurement Specialties (England)
Limited.
10.12+ License to Assign dated August 4, 2000 between Slough
Trading Estate Limited, Lucas Schaevitz Limited, Measurement
Specialties (England) Limited and Measurement Specialties,
Inc. for property in Slough, England.
10.13+ Lease dated May 5, 1994 between Transcube Associates and
Measurement Specialties, Inc. for property in Fairfield, New
Jersey.
10.14+ First Amendment dated February 24, 1997 to Lease between
Transcube Associates and Measurement Specialties, Inc.
10.15+ Second Amendment dated July 10, 2000 to Lease between
Transcube Associates and Measurement Specialties, Inc.
10.16+ First Amendment dated February 1, 2001 to Lease between
Kelsey-Hayes Company and Measurement Specialties, Inc. for
property in Hampton, Virginia.
10.17++ Lease Agreement dated May 20, 1986 between Semex, Inc. and
Pennwalt Corporation and all amendments for property in
Valley Forge, Pennsylvania.
10.18++ Lease Agreement dated January 10, 1986 between Creekside
Industrial Associates and I.C. Sensors and all amendments
for property in Milpitas, California.
10.19++ Lease Agreements for property in Shenzhen, China.
10.20++ Lease dated August 4, 2000 between Kelsey-Hayes Company and
Measurement Specialties, Inc. for property in Hampton,
Virginia.
40
EXHIBIT
NUMBER DESCRIPTION
10.21++ Amended and Restated Revolving Credit, Term Loan and
Security Agreement dated as of February 28, 2001 among
Measurement Specialties, Inc., Measurement Specialties UK
Limited, Summit Bank, The Chase Manhattan Bank and First
Union National Bank as agent and all amendments.
10.22++ Agreement for the Purchase of the Share Capital of
Terraillon Holdings Limited, dated 7 June 2001, among
Hibernia Development Capital Partners I ilp, Hibernia
Development Capital Partners II ilp, Fergal Mulchrone and
Chris Duggan and Andrew Gleeson and Measurement Specialties,
Inc.
10.23+ Supplemental Agreement, dated 11 July 2001, concerning the
amendment of the Agreement for the Purchase of the Share
Capital of Terraillon Holdings Limited, dated 7 June 2001.
10.24+++ Asset Purchase Agreement dated July 12, 2002 by and among
Elmos Semiconductor AG, Silicon Microstructures, Inc.,
Measurement Specialties, Inc., and IC Sensors Inc.
10.25++++ Stock Purchase Agreement, dated as of September 18, 2002, by
and between FUKUDA (Luxembourg) S.a.r.l. and Measurement
Specialties, Inc.
10.26#### Forbearance Agreement, dated as of June , 2002, by and among
Wachovia Bank, National Association, for itself and as agent
for Fleet National Bank and JP Morgan Chase Bank,
Measurement Specialties, Inc., Measurement Specialties UK
Limited., IC Sensors, Inc., Measurement Limited, Jingliang
Electronics (Shenzhen) Co., Ltd. and Terraillon Holdings
Limited.
10.27#### Agreement of Lease, commencing October 1, 2002, between
Liberty Property Limited Partnership and Measurement
Specialties, Inc.
10.28#### Sublease Agreement, dated August 1, 2002, between Quicksil,
Inc. and Measurement Specialties, Inc.
# Previously filed with the Securities and Exchange Commission as an Exhibit
to the Quarterly Report on Form 10-Q filed on February 3, 1998 and
incorporated herein by reference.
## Previously filed with the Securities and Exchange Commission as an Exhibit
to the Quarterly Report on Form 10-Q filed on February 14, 2000 and
incorporated herein by reference.
### Previously filed with the Securities and Exchange Commission as an Exhibit
to the Current Report on Form 8-K filed on March 1, 2000 and incorporated
herein by reference.
#### Previously filed with the Securities and Exchange Commission as an Exhibit
to the Annual Report on Form 10-K filed on October 28, 2002.
* Previously filed with the Securities and Exchange Commission as an Exhibit
to the Current Report on Form 8-K filed on August 22, 2000 and
incorporated herein by reference.
** Previously filed with the Securities and Exchange Commission as an Exhibit
to the Current Report on Form 8-K/A filed on August 27, 1998 and
incorporated herein by reference.
*** Previously filed with the Securities and Exchange Commission as an Exhibit
to the Proxy Statement for the Annual Meeting of Shareholders filed on
August 18, 1998 and incorporated herein by reference.
+ Previously filed with the Securities and Exchange Commission as an Exhibit
to the Registration Statement on Form S-1 (File No. 333-57928) and
incorporated herein by reference.
41
++ Previously filed with the Securities and Exchange Commission as an Exhibit
to the Annual Report on Form 10-K filed on July 5, 2001 and incorporated
herein by reference.
+++ Previously filed with the Securities and Exchange Commission as an Exhibit
to the Current Report on Form 8-K filed on August 14, 2002 and
incorporated herein by reference.
++++ Previously filed with the Securities and Exchange Commission as an Exhibit
to the Current Report on Form 8-K filed on October 7, 2002 and
incorporated herein by reference.
(B) REPORTS ON FORM 8-K.
The following reports on Form 8-K were filed during the three months ended
June 30, 2002:
Current Report on Form 8-K filed pursuant to Item 4 to disclose a change
in our certifying accountant.
Current Report on Form 8-K filed pursuant to Item 5 on June 21, 2002 to
include, as exhibits, (i) a press release announcing the commencement of a
formal SEC investigation of our company, (ii) a press release discussing our
restructuring plan and the appointment of Frank Guidone as CEO, and (iii) the
forbearance letter agreement with our lenders dated April 17, 2002.
42
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MEASUREMENT SPECIALTIES, INC.
(Registrant)
/s/ John P. Hopkins
-------------------
Date: October 29, 2002 John P. Hopkins
Chief Financial Officer (authorized officer
and principal financial officer)
43
CERTIFICATION OF QUARTERLY REPORT
I, Frank Guidone, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Measurement
Specialties, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: October 29, 2002 /s/ Frank Guidone
------------------------------
Name: Frank Guidone
Title: Chief Executive Officer
44
CERTIFICATION OF QUARTERLY REPORT
I, John P. Hopkins, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Measurement
Specialties, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: October 29, 2002 /s/ John P. Hopkins
------------------------------
Name: John P. Hopkins
Title: Chief Financial Officer
45