Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
80 LITTLE FALLS ROAD, FAIRFIELD, NEW JERSEY 07004
---------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(973) 808-1819
--------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED
SINCE LAST REPORT.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ ] No [X]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act ). 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 per share, at November 12, 2002.
PART I. FINANCIAL INFORMATION ...................................................................................3
ITEM 1. FINANCIAL STATEMENTS ..................................................................................3
Condensed Consolidated Balance Sheets (Unaudited), September 30, 2002 and March 31, 2002 ..............3
Condensed Consolidated Statements of Operations (Unaudited), Three and Six Months Ended
September 30, 2002 and 2001 .........................................................................5
Condensed Consolidated Statements of Shareholders' Equity (Unaudited), Six Months Ended
September 30, 2002 and Fiscal Year Ended March 31, 2002 .............................................6
Condensed Consolidated Statements of Cash Flows (Unaudited), Six Months Ended
September 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 ................22
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............................................39
ITEM 4. CONTROLS AND PROCEDURES...............................................................................40
PART II. OTHER INFORMATION.......................................................................................41
ITEM 1. LEGAL PROCEEDINGS.....................................................................................41
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.............................................................44
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K......................................................................44
SIGNATURES.......................................................................................................47
MEASUREMENT SPECIALTIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
SEPTEMBER 30, MARCH 31,
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2002 2002
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 2,847 $ 3,760
Accounts receivable, trade, net of allowance for doubtful
accounts of $649 and $658, respectively 19,081 12,220
Inventories 14,957 16,026
Assets held for sale -- 36,632
Receivable from sale of Terraillon 1,282 --
Due from receiver 90 --
Prepaid expenses and other current assets 2,522 2,088
------------- -------------
Total current assets 40,779 70,726
------------- -------------
PROPERTY AND EQUIPMENT, NET 12,947 14,287
------------- -------------
OTHER ASSETS:
Goodwill, net of accumulated amortization of $483 4,191 4,191
Other assets 460 408
------------- -------------
4,651 4,599
------------- -------------
Total assets $ 58,377 $ 89,612
============= =============
See Notes to Condensed Consolidated Financial Statements
3
MEASUREMENT SPECIALTIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
SEPTEMBER 30, MARCH 31,
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2002 2002
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ 9,358 $ 29,281
Accounts payable 17,316 13,232
Accrued compensation 1,776 1,435
Liabilities held for sale -- 12,800
Accrued expenses and other current liabilities 8,172 4,875
------------- -------------
Total current liabilities 36,622 61,623
Other liabilities:
Other liabilities 1,033 1,162
------------- -------------
Total liabilities 37,655 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 42,616 42,346
Accumulated deficit (27,330) (20,586)
Accumulated other comprehensive loss (66) (435)
------------- -------------
Total shareholders' equity 20,722 26,827
------------- -------------
$ 58,377 $ 89,612
============= =============
See Notes to Condensed Consolidated Financial Statements
4
MEASUREMENT SPECIALTIES, INC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------------- ------------------------------
2002 2001 2002 2001
------------- ------------- ------------- --------------
($ in thousands, except share and per share amounts) AS RESTATED AS RESTATED
NOTE 3 NOTE 3
------------ ------------
Net sales $ 32,437 $ 25,835 $ 56,083 $ 49,536
Cost of goods sold 22,014 19,441 37,876 36,781
------------ ------------ ------------ ------------
Gross profit 10,423 6,394 18,207 12,755
------------ ------------ ------------ ------------
Operating expenses (income):
Selling, general and administrative 9,917 9,364 17,954 16,144
Research and development 630 1,868 1,564 2,995
Customer funded development (70) (456) (346) (899)
Restructuring costs 530 -- 1,123 --
------------ ------------ ------------ ------------
Total operating expenses 11,007 10,776 20,295 18,240
------------ ------------ ------------ ------------
Operating loss (584) (4,382) (2,088) (5,485)
Interest expense, net 625 962 1,345 1,972
Gain on sale of Wafer Fab (109) -- (109) --
Other expense (income) (93) 125 (150) 109
------------ ------------ ------------ ------------
Loss from continuing operations before income
taxes and cumulative effect of accounting change (1,007) (5,469) (3,174) (7,566)
Income tax benefit -- (31) -- (42)
------------ ------------ ------------ ------------
Loss from continuing operations before cumulative
effect of accounting change (1,007) (5,438) (3,174) (7,524)
------------ ------------ ------------ ------------
Discontinued operations:
Loss from operations of discontinued units (374) (397) (3,910) (608)
Gain on sale of Terraillon 340 -- 340 --
------------ ------------ ------------ ------------
Loss from discontinued units (34) (397) (3,570) (608)
------------ ------------ ------------ ------------
Loss before cumulative effect of accounting change (1,041) (5,835) (6,744) (8,132)
Cumulative effect of accounting change, net of taxes -- -- -- (248)
------------ ------------ ------------ ------------
Net loss $ (1,041) $ (5,835) $ (6,744) $ (8,380)
============ ============ ============ ============
Loss per common share - Basic and Diluted
Loss from continuing operations $ (0.09) $ (0.53) $ (0.27) $ (0.80)
Loss from discontinued units -- (0.04) (0.30) (0.07)
Cumulative effect of accounting change -- -- -- (0.03)
------------ ------------ ------------ ------------
Net loss $ (0.09) $ (0.57) $ (0.57) $ (0.90)
============ ============ ============ ============
Weighted average shares outstanding 11,913,000 10,272,000 11,906,000 9,343,000
============ ============ ============ ============
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 SIX MONTHS ENDED SEPTEMBER 30, 2002
RETAINED
ADDITIONAL EARNINGS OTHER
COMMON PAID-IN (ACCUMULATED COMPREHENSIVE COMPREHENSIVE
($ IN THOUSANDS EXCEPT PER SHARE AMOUNTS) STOCK CAPITAL DEFICIT) LOSS TOTAL INCOME (LOSS)
------- ---------- ------------ ------------- -------- -------------
BALANCE, APRIL 1, 2001 5,502 3,769 8,461 (15) 17,717
Comprehensive loss, 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 loss (unaudited):
Net loss (unaudited) -- -- (6,744) -- (6,744) $ (6,744)
Currency translation adjustment (unaudited) -- -- -- 369 369 369
---------
Comprehensive loss (unaudited) $ (6,375)
---------
Proceeds from exercise of stock options (unaudited) -- 117 -- -- 117
Warrants issued for professional service (unaudited) -- 153 -- -- 153
------- -------- -------- ----- --------
BALANCE, SEPTEMBER 30, 2002 (UNAUDITED) $ 5,502 $ 42,616 $(27,330) $ (66) $ 20,722
======= ======== ======== ===== ========
See Notes to Condensed Consolidated Financial Statements
6
MEASUREMENT SPECIALTIES, INC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) FOR THE SIX MONTHS ENDED SEPTEMBER 30,
--------------------------------------
2002 2001
------------- -------------
As Restated
CASH FLOWS FROM OPERATING ACTIVITIES: Note 3
-------------
Net Loss $ (6,744) $ (8,380)
Adjustments to reconcile net loss to net cash provided by
operating activities of continuing operations:
Loss from discontinued operations 3,910 608
Depreciation and amortization 1,897 1,880
Deferred rent 28 99
Warrants issued for professional services 153 --
Gain on sale of Wafer Fab (109) --
Gain on sale of Terraillon (340) --
Net changes in operating assets and liabilities:
Accounts receivable, trade (6,861) (1,901)
Inventories 1,069 5,360
Prepaid expenses and other current assets (434) (45)
Other assets (102) 1,097
Accounts payable 4,084 (3,684)
Accrued expenses and other liabilities 3,481 (1,375)
------------- -------------
Net cash provided by (used in) operating activities 32 (6,341)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (386) (2,669)
Proceeds from sale of Wafer Fab 3,300 --
Proceeds from sale of Terraillon 16,668 --
Cash received from receiver 770 --
Acquisition of business, net of cash acquired -- (10,669)
------------- -------------
Net cash provided by (used in) investing activities 20,352 (13,338)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under bank line of credit agreement 2,450 14,156
Repayments of capital lease obligations (107) (117)
Repayments of debt (22,266) (21,793)
Proceeds from exercise of options and warrants 117 310
Proceeds from issuance of common stock -- 30,984
------------- -------------
Net cash provided by (used in) financing activities (19,806) 23,540
------------- -------------
NET CHANGE IN CASH AND CASH EQUIVALENTS, CONTINUING OPERATIONS 578 3,861
Effect of exchange rates 369 --
Cash used for discontinued operations (1,860) (3,742)
Cash and cash equivalents, beginning of period 3,760 466
------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,847 $ 585
============= =============
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest $ 1,328 $ 1,864
Income taxes -- 326
Noncash transactions
Common stock issued in connection with acquisition -- 6,800
Proceeds from capital lease -- 1,057
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 six months
ended September 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:
The Company has incurred a net loss of $29,047 for the year ended March 31,
2002, a net loss of $6,744 for the six months ended September 30, 2002 and
anticipates incurring additional losses for the next several quarters. From
September 30, 2001 until October 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
8
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 (see Note 10).
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 June 30, 2002, the Company had 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, (iii) sold all of the outstanding stock
of Terraillon Holdings Limited, the Company's European subsidiary, for
approximately $22,300, and (iv) consolidated Valley Forge operations to Hampton.
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, or any right of the purchaser to set off as a result of breaches of the
Company's representations and warranties in the stock purchase agreement. Of the
$2,282 held in escrow, the Company has assumed that a portion of the escrow will
be used to satisfy certain purchase price adjustments. The gain on sale reflects
these anticipated purchase price adjustments (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") was suspended from July 15, 2002 until November
1, 2002. On August 21, 2002, the Company received a letter from the AMEX
indicating that it no longer complied with AMEX listing guidelines due to the
Company's failure to furnish certain reports and information to shareholders and
that the Company's common stock is, therefore, subject to being delisted from
the AMEX. The hearing with the AMEX to appeal the determination of the AMEX to
delist the Company's common stock has been postponed indefinitely.
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) negotiating with an asset based lender regarding a
revolving credit facility, ii) seeking additional sales opportunities within its
core business, iii) reducing expenses to a level that would provide the Company
with sufficient cash flow to meet its obligations, and/or iv) 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
9
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 6, the Company 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. 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 and was recorded in
the first quarter of the fiscal year ended 2002.
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 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 six months ended September 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
10
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 its
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:
o Failure to analyze and account for standard cost variances
properly and on a timely basis;
o Failure to use readily available accounting and costing
records to determine manufacturing costs;
o Inclusion of inappropriate expenses in inventory cost pools;
o Apparent mathematical errors (including amounts used in
calculations that could not be reconciled to the Company's
underlying accounting records);
o Failure to adjust inventories to the lower of cost or market;
and
o 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 six months ended
September 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, $691 for the
three months ended September 30, 2001, and $4,672 for the six months ended
September 30, 2001.
In connection with the restatement and due in part to the cessation of
operations of Arthur Andersen LLP, the previous auditors of the Company's
financial statements for the fiscal year ended March 31, 2001, the Company
requested its current auditors to conduct a reaudit of its financial statements
for the fiscal year ended March 31, 2001. The reaudit resulted in the following
additional adjustments for the three and six months ended September 30, 2001:
reclassification of certain costs included in selling, general, and
administrative expenses to revenue for $256 and $469, amortization of patents in
the amount of $59 and $118; straight-lining of lease expense in accordance with
SFAS No. 13 in the amount of $32 and $99; and certain other adjustments. As a
result of all the above adjustments, the Company recalculated its tax
11
provision resulting in a reduction of a previously reported tax benefit of
$1,242 and $783. In addition, the results of operations for the three and six
months ended September 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 and six months ended September 30, 2001:
THREE MONTHS ENDED SEPTEMBER 30, 2001
(UNAUDITED)
-----------------------------------------------------
AS RESTATED,
ADJUSTED FOR
PREVIOUSLY AS DISCONTINUED
REPORTED RESTATED OPERATIONS (1)
--------------- --------------- ---------------
Consolidated statements of operations data:
Sales $ 34,868 $ 34,612 $ 25,835
Cost of goods sold 26,186 26,877 19,441
Selling, general and administrative 11,162 10,997 9,364
Loss from continuing operations
before income taxes and cumulative
effect of accounting change (5,081) (5,863) (5,469)
Income tax benefit (1,270) (28) (31)
Loss from continuing operations
before cumulative effect of accounting change (3,811) (5,835) (5,438)
Loss from operations of discontinued units -- -- (397)
Net loss (3,811) (5,835) (5,835)
Loss per common share:
Basic (0.37) (0.57) (0.57)
Diluted (0.37) (0.57) (0.57)
SIX MONTHS ENDED SEPTEMBER 30, 2001
(UNAUDITED)
-----------------------------------------------------
AS RESTATED,
ADJUSTED FOR
PREVIOUSLY AS DISCONTINUED
REPORTED RESTATED OPERATIONS (1)
--------------- --------------- ---------------
Consolidated statements of operations data:
Sales $ 60,739 $ 60,270 $ 49,536
Cost of goods sold 41,358 46,030 36,781
Selling, general and administrative 18,260 18,008 16,144
Loss from continuing operations
before income taxes and cumulative
effect of accounting change (3,282) (8,171) (7,566)
Income tax benefit (822) (39) (42)
Loss from continuing operations
before cumulative effect of accounting change (2,460) (8,132) (7,524)
Loss from operations of discontinued units -- -- (608)
Loss from cumulative effect of
accounting change (2,460) (8,132) (8,132)
Cumulative effect of accounting change, net
of taxes -- (248) (248)
Net loss (2,460) (8,380) (8,380)
Loss per common share:
Basic (0.26) (0.90) (0.90)
Diluted (0.26) (0.90) (0.90)
12
SEPTEMBER 30, 2001
(UNAUDITED)
---------------------------------------------------
AS RESTATED,
ADJUSTED FOR
PREVIOUSLY AS DISCONTINUED
REPORTED RESTATED OPERATIONS (1)
--------------- --------------- ---------------
Consolidated balance sheet data:
Inventories $ 44,072 $ 31,894 $ 17,198
Goodwill 21,540 11,271 11,271
Trademarks -- 9,549 --
Other assets 4,484 3,818 3,818
Accrued expenses and other current liabilities 8,267 8,255 5,443
Other liabilities 1,082 1,181 1,181
Accumulated retained earnings 13,765 81 81
Stockholders' equity 60,910 47,226 47,226
(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, an accrual of $443 in the quarter ended June 30, 2002 for
potential expense related to lease termination and an additional $150 for
severance, and an additional accrual of $530 in the quarter ended September 30,
2002 for potential expense related to lease termination and writedown of fixed
assets. As of September 30, 2002 $15 of the severance costs has not been paid.
As of September 30, 2002, $756 of other restructuring costs remain in the
accrual.
5. INVENTORIES:
Inventories are summarized as follows:
SEPTEMBER 30, MARCH 31,
2002 2002
------------- -------------
Raw Materials $ 7,319 $ 7,111
WORK-IN-PROCESS 2,393 1,986
FINISHED GOODS 5,245 6,929
------------- -------------
$ 14,957 $ 16,026
------------- -------------
6. DISCONTINUED OPERATIONS, ASSETS AND LIABILITIES HELD FOR SALE, AND GAIN OR
LOSS ON SALE OF ASSETS:
As a result of the restructuring plan, the Company sold all of the outstanding
stock of Terraillon, previously a component of the Company's 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 the Company's Sensor segment, in July 2002. The assets held for
sale in the amount of $36,632 at March 31, 2002 and liabilities held for sale in
the amount of $12,800 at March 31, 2002 represent the assets and liabilities
from these operations.
13
Since these businesses were disposed of by September 30, 2002, the assets and
liabilities have been removed from the balance sheet. The amounts for Terraillon
on the consolidated statements of operations for the three and six months ended
September 30, 2002 and 2001 have been reclassified as discontinued operations to
reflect the disposal of this operating unit.
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 $900 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 gain on this sale
was approximately $109, net of tax, and has been reflected in the Condensed
Consolidated Statements of Operations as "Gain on Sale of Wafer Fab" for the
three and six months ended September 30, 2002.
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. ("Fukuda"), 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. Of the $2,282 held in escrow, the Company has
assumed that a portion of the escrow will be used to satisfy certain purchase
price adjustments. The gain on sale reflects these anticipated purchase price
adjustments. Fukuda also assumed approximately $4,800 in debt in connection with
the acquisition of Terraillon. The gain on this sale was approximately $340, net
of tax, subject to further adjustments, and has been reflected in the Condensed
Consolidated Statements of Operations as "Gain on Sale of Terraillon" for the
three and six months ended September 30, 2002.
The Company placed its United Kingdom subsidiary, Schaevitz UK (previously a
component of the Company's 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 $557 United
States dollars based on market exchange rates as of November 11, 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 six
months ended September 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 estimated the amount recoverable from the
liquidation was approximately $860. At September 30, 2002 the amount of "Due
from Receiver" was $90.
14
The following is a summary of the components of assets and liabilities held for
sale:
Assets held for sale:
MARCH 31, 2002
-----------------------------------------------------------------
TERRAILLON SCHAEVITZ, UK WAFER FAB TOTAL
-------------- -------------- -------------- --------------
Cash and cash equivalents $ 401 $ 381 $ -- $ 782
Accounts receivable 5,735 1,959 -- 7,694
Inventories 6,023 920 -- 6,943
Other current assets 1,433 101 -- 1,534
-------------- -------------- -------------- --------------
13,592 3,361 -- 16,953
-------------- -------------- -------------- --------------
PROPERTY AND EQUIPMENT 1,883 -- 4,955 6,838
Less accumulated depreciation and
amortization 1,043 -- 1,737 2,780
-------------- -------------- -------------- --------------
840 -- 3,218 4,058
-------------- -------------- -------------- --------------
OTHER ASSETS:
Goodwill, net 4,074 -- -- 4,074
Trademarks 9,477 -- -- 9,477
Other assets -- 2,070 -- 2,070
-------------- -------------- -------------- --------------
13,551 2,070 -- 15,621
-------------- -------------- -------------- --------------
Total assets 27,983 5,431 3,218 36,632
-------------- -------------- -------------- --------------
Liabilities held for sale:
Current portion of long-term debt 2,534 -- 943 3,477
Accounts payable 5,102 918 -- 6,020
Accrued compensation 537 98 -- 635
Accrued expenses and other current
liabilities 2,068 344 -- 2,412
-------------- -------------- -------------- --------------
Total current liabilities 10,241 1,360 943 12,544
OTHER LIABILITIES:
Long-term debt, net of current portion 249 -- -- 249
Other liabilities 7 -- -- 7
-------------- -------------- -------------- --------------
Total liabilities $ 10,497 $ 1,360 $ 943 $ 12,800
============== ============== ============== ==============
15
A summary of the results of operations of the discontinued operating units
follows:
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------------------------
2002 2001
--------------- -----------------------------------------------------
TERRAILLON TERRAILLON(1) SCHAEVITZ, UK TOTAL
--------------- --------------- --------------- ---------------
Net sales $ 10,007 $ 7,068 $ 1,709 $ 8,777
Cost of goods sold 7,925 5,699 1,737 7,436
--------------- --------------- --------------- ---------------
Gross profit 2,082 1,369 (28) 1,341
Operating expenses:
Selling, general and administrative 2,477 1,141 499 1,640
Research and development -- 41 112 153
--------------- --------------- --------------- ---------------
Total operating expenses 2,477 1,182 611 1,793
Operating income (loss) (395) 187 (639) (452)
Interest expense, net (13) (10) 8 (2)
Other income 39 50 10 60
--------------- --------------- --------------- ---------------
Income (loss) before income taxes (369) 227 (621) (394)
Provision for income taxes 5 3 -- 3
--------------- --------------- --------------- ---------------
Net income (loss) from discontinued operations $ (374) $ 224 $ (621) $ (397)
--------------- --------------- --------------- ---------------
FOR THE SIX MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------------------------------------------
2002 2001
-------------------------------------------- -------------------------------------------
TERRAILLON SCHAEVITZ, UK TOTAL TERRAILLON(1) SCHAEVITZ, UK TOTAL
------------ --------------- --------- ------------- ------------- ---------
Net sales $ 18,678 $ 905 $ 19,583 $ 7,068 $ 3,666 $ 10,734
Cost of goods sold 13,244 617 13,861 5,699 3,550 9,249
------------ --------------- --------- ------------- ------------- ---------
Gross profit 5,434 288 5,722 1,369 116 1,485
Operating expenses:
Selling, general and administrative 5,835 149 5,984 1,141 730 1,871
Research and development -- 68 68 41 244 285
Restructuring costs -- 3,577 3,577 -- -- --
------------ --------------- --------- ------------- ------------- ---------
Total operating expenses 5,835 3,794 9,629 1,182 974 2,156
Operating income (loss) (401) (3,506) (3,907) 187 (858) (671)
Interest expense, net (25) 2 (23) (10) 16 6
Other (income) expense 27 (7) 20 50 10 60
------------ --------------- --------- ------------- ------------- ---------
Income (loss) before income taxes (399) (3,511) (3,910) 227 (832) (605)
Provision for income taxes -- -- -- 3 -- 3
------------ --------------- --------- ------------- ------------- ---------
Net income (loss) from discontinued
operations $ (399) $ (3,511) $ (3,910) $ 224 $ (832) $ (608)
============ =============== ========= ============= ============= =========
(1) Terraillon was acquired in August, 2001.
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.
16
Excluded from earnings per share are 92,000 and 169,000 equivalent shares for
the three and six months ended September 30, 2002 and 470,000 and 597,000
equivalent shares for the three and six months ended September 30, 2001,
respectively, 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:
THREE MONTHS ENDED SEPTEMBER 30,
----------------------------------
2002 2001
--------------- ---------------
Net sales
Consumer Products $ 18,432 $ 13,460
Sensors 14,005 12,375
--------------- ---------------
Total 32,437 25,835
--------------- ---------------
Operating income (loss)
Consumer Products 3,395 496
Sensors 449 (3,749)
--------------- ---------------
Total segment operating income (loss) 3,844 (3,253)
Unallocated expenses (4,428) (1,129)
--------------- ---------------
Total operating loss (584) (4,382)
Interest expense, net of interest income 625 962
Other (income) loss (202) 125
--------------- ---------------
Loss from continuing operations before
income taxes and cumulative effect of
accounting change $ (1,007) $ (5,469)
=============== ===============
17
SIX MONTHS ENDED SEPTEMBER 30,
----------------------------------
2002 2001
--------------- ---------------
Net sales
Consumer Products $ 29,639 $ 24,110
Sensors 26,444 25,426
--------------- ---------------
Total 56,083 49,536
--------------- ---------------
Operating income (loss)
Consumer Products 4,758 964
Sensors 603 (4,834)
--------------- ---------------
Total segment operating income (loss) 5,361 (3,870)
Unallocated expenses (7,449) (1,615)
--------------- ---------------
Total operating loss (2,088) (5,485)
Interest expense, net of interest income 1,345 1,972
Other (income) (259) 109
--------------- ---------------
Loss from continuing operations before
income taxes and cumulative effect of
accounting change $ (3,174) $ (7,566)
=============== ===============
SEPTEMBER 30, MARCH 31,
2002 2002
--------------- ---------------
Segment Assets
Consumer products $ 23,978 $ 15,634
Sensors 29,682 35,152
Unallocated 4,627 2,194
Assets held for sale -- 36,632
Due from receiver 90 --
--------------- ---------------
Total $ 58,377 $ 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 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
18
September 12, 2002. The Company must file a responsive pleading by December 9,
2002. The underwriters have made a claim for indemnification under the
underwriting agreement. 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 is 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 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.
19
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. 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 this case. 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.
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.
Semex, Inc. vs. Measurement Specialties, Inc. and AMP Incorporated, Court of
Common Pleas, Montgomery County, Pennsylvania.
On October 24, 2002, Semex, Inc. ("Semex") filed a lawsuit against the Company
and AMP Incorporated alleging breaches of the lease for the Company's former
facility in the Valley Forge, Pennsylvania. The Company is the assignee of AMP
Incorporated under the lease. The plaintiff alleges that the Company owes at
least $770 for certain payment defaults under the lease. The plaintiff also
seeks an unspecified amount of damages related to plaintiff's allegations of,
among other things, damage to the property, failure to remove alterations and
failure to conduct environmental testing. At this point in the litigation, the
Company cannot predict its outcome.
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. RELATED PARTY TRANSACTION
In May 2002, the Company retained Corporate Revitalization Partners (CRP) to
conduct its ongoing operational/financial restructuring efforts. In June 2002,
Frank Guidone, Managing Director of CRP, became the Company's chief executive
officer. As of November 9, 2002, the Company has incurred $1,606 in consulting
fees to CRP (excluding the success fees described in the following sentence). In
addition to consulting fees based on hours billed by CRP consultants, there is a
"success fee" consisting of $50 and a warrant exercisable to purchase 43,860
shares of the Company's common stock (at an exercise price of $2.28 per share)
that was payable upon the occurrence of each of the following three events:
20
o The successful negotiation and execution of an extended forbearance
agreement with the Company's former lenders (this agreement has been
executed);
o The Company's compliance as of September 30, 2002 with the terms of the
forbearance agreement with its former lenders (the Company was in
compliance with the forbearance agreement as of September 30, 2002);
and
o The repayment of all amounts due to the Company's existing senior
lenders and refinancing of the Company's debt on or before November 1,
2002 (this event was not met and accordingly, the fee will not be paid
and the warrant will not be issued).
During the three months ended September 30, 2002, the Company has expensed $153
relating to the warrants.
On October 31, 2002, the Company received a $9,300 bridge loan from Castletop
Capital, L.P., a limited partnership controlled by Mort Topfer, Vice Chairman of
our Board of Directors. The proceeds from this loan were used to repay all our
obligations under the term loan and revolving credit facility; accordingly, the
Company is no longer in default and these facilities have been eliminated. The
loan is evidenced by a Senior Secured Note due January 31, 2003 and does not
include a revolving credit facility. Interest on the note accrues at a rate of
7% per annum (subject to a 2% increase upon the occurrence of an event of
default under the note). The Company's obligations under the note are secured by
a lien on substantially all of our assets and substantially all of the assets of
IC Sensors. Castletop Capital also received a Warrant to purchase up to 297,228
shares of our common stock for an exercise price equal to the average closing
price of the Company's common stock on the American Stock Exchange for the first
five trading days after October 31, 2002 ($1.64 per share). The exercise price
and number of shares subject to the warrant are subject to adjustment under
certain circumstances. The terms of the warrant issued to Castletop Capital,
L.P. are substantially similar to the terms of the warrant that would have been
issued to the Company's lending group in the event that the Company had not
repaid all amounts outstanding under its term loan and revolving credit facility
on or before November 1, 2002.
21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(DOLLARS IN 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
22
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 estimated
market value. As a result of these procedures, our auditors discovered a number
of errors in our inventory valuation calculations.
23
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:
o Failure to analyze and account for standard cost variances
properly and on a timely basis;
o Failure to use readily available accounting and costing
records to determine manufacturing costs;
o Inclusion of inappropriate expenses in inventory cost pools;
o Apparent mathematical errors (including amounts used in
calculations that could not be reconciled to our underlying
accounting records);
o Failure to adjust inventories to the lower of cost or market;
and
o 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, $691 for the three months ended September 30,
2001 and $4,672 for the six months ended September 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 three and six
months ended September 30, 2001, respectively:
o Reclassification of certain promotional costs from selling,
general and administrative to a reduction in revenue of $256
and $469;
o Amortization of patents in the amount of $59 and $118;
o Straight-lining of lease expense in accordance with SFAS 13 in
the amount of $32 and $99; and
o Certain other adjustments.
As a result of the restated items described above, including the inventory
valuation issue, we recomputed our tax provision for the three and six months
ended September 30, 2001, resulting in a reduction of our previously reported
tax benefit by $1,242 and $783, respectively.
The following is a summary of the significant effects of the restatement
discussed above on our results for the three and six months ended September 30,
2001:
24
THREE MONTHS ENDED SEPTEMBER 30, 2001
(UNAUDITED)
-----------------------------------------------------
AS RESTATED,
ADJUSTED FOR
PREVIOUSLY AS DISCONTINUED
REPORTED RESTATED OPERATIONS (1)
--------------- --------------- ---------------
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Sales $ 34,868 $ 34,612 $ 25,835
Cost of goods sold 26,186 26,877 19,441
Selling, general and administrative 11,162 10,997 9,364
Loss from continuing operations
before income taxes and cumulative
effect of accounting change (5,081) (5,863) (5,469)
Income tax benefit (1,270) (28) (31)
Loss from continuing operations
before cumulative effect of accounting change (3,811) (5,835) (5,438)
Loss from operations of discontinued units -- -- (397)
Net loss (3,811) (5,835) (5,835)
Loss per common share:
Basic (0.37) (0.57) (0.57)
Diluted (0.37) (0.57) (0.57)
SIX MONTHS ENDED SEPTEMBER 30, 2001
(UNAUDITED)
-----------------------------------------------------
AS RESTATED,
ADJUSTED FOR
PREVIOUSLY AS DISCONTINUED
REPORTED RESTATED OPERATIONS (1)
--------------- --------------- ---------------
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Sales $ 60,739 $ 60,270 $ 49,536
Cost of goods sold 41,358 46,030 36,781
Selling, general and administrative 18,260 18,008 16,144
Loss from continuing operations
before income taxes and cumulative
effect of accounting change (3,282) (8,171) (7,566)
Provision for income taxes (822) (39) (42)
Loss from continuing operations
before cumulative effect of accounting change (2,460) (8,132) (7,524)
Loss from operations of discontinued units -- -- (608)
Loss from cumulative effect of
accounting change (2,460) (8,132) (8,132)
Cumulative effect of accounting change, net
of taxes -- (248) (248)
Net loss (2,460) (8,380) (8,380)
Loss per common share:
Basic (0.26) (0.90) (0.90)
Diluted (0.26) (0.90) (0.90)
25
SIX MONTHS ENDED SEPTEMBER 30, 2001
(UNAUDITED)
-----------------------------------------------------
AS RESTATED,
ADJUSTED FOR
PREVIOUSLY AS DISCONTINUED
REPORTED RESTATED OPERATIONS (1)
--------------- --------------- ---------------
CONSOLIDATED BALANCE SHEET DATA:
Inventories 44,072 31,894 17,198
Goodwill 21,540 11,271 11,271
Trademarks -- 9,549 --
Other assets 4,484 3,818 3,818
Accrued expenses and other current liabilities 8,267 8,255 5,443
Other liabilities 1,082 1,181 1,181
Accumulated retained earnings 13,765 81 81
Stockholders' equity 60,910 47,226 47,226
(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.
26
RESULTS OF OPERATIONS
SPECIAL NOTE REGARDING OUR RESTRUCTURING PROGRAM
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 MARCH 31, 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.
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 (COLLECTIVELY, THE
"RESTATEMENT PERIOD"). SEE "RESTATEMENT" ABOVE. THE CONSOLIDATED FINANCIAL
RESULTS FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2001 INCLUDED IN THIS
REPORT AND THE DISCUSSION OF THE RESULTS OF OPERATIONS FOR THE THREE AND SIX
MONTHS ENDED SEPTEMBER 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 RESTATEMENT
PERIOD.
YOU SHOULD NOT RELY ON DISCUSSIONS OF RESULTS OF OPERATIONS AND TRENDS AFFECTING
OUR BUSINESS FOR THE RESTATEMENT PERIOD THAT APPEAR IN OUR SEC FILINGS MADE
PRIOR TO THE FILING OF OUR ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
MARCH 31, 2002.
AS A RESULT OF THE RESTATEMENT, OUR HISTORICAL RESULTS OF OPERATIONS DIFFER
SIGNIFICANTLY FROM THOSE CONTAINED IN OUR REPORTS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION PRIOR TO THE FILING OF OUR ANNUAL REPORT ON FORM 10-K FOR
THE FISCAL YEAR ENDED MARCH 31, 2002. ACCORDINGLY, YOU SHOULD NOT RELY ON THOSE
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.
27
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 September 30,
2002(1) 2001(1)(2)
-------------- --------------
Net Sales
Sensors 56.8% 52.1%
Consumer products 43.2 47.9
-------------- --------------
Total net sales 100.0 100.0
Cost of Sales 67.9 75.3
-------------- --------------
Gross profit 32.1 24.7
Operating expenses (income)
Selling, general, and administrative 30.6 36.2
Research and development 1.9 7.2
Customer funded development (0.2) (1.8)
Restructuring costs 1.6 --
Interest expense, net 1.9 3.7
Other expenses (income) (0.6) 0.6
-------------- --------------
35.2 45.9
Loss from continuing operations before income
taxes and cumulative effect of accounting change (3.1) (21.2)
Income tax benefit -- 0.1
Loss from discontinued units (0.1) (1.5)
-------------- --------------
Net loss (3.2)% (22.6)%
============== ==============
28
Six months ended September 30,
2002(1) 2001(1)(2)
-------------- --------------
Net Sales
Sensors 47.2% 51.3%
Consumer products 52.8 48.7
-------------- --------------
Total net sales 100.0 100.0
Cost of Sales 67.5 74.3
-------------- --------------
Gross profit 32.5 25.7
Operating expenses (income)
Selling, general, and administrative 32.0 32.6
Research and development 2.8 6.0
Customer funded development (0.6) (1.8)
Restructuring costs 2.0 --
Interest expense, net 2.4 4.0
Other expenses (income) (0.5) 0.2
-------------- --------------
38.1 41.0
Loss from continuing operations before income
taxes and cumulative effect of accounting change (5.6) (15.3)
Income tax benefit -- 0.1
Loss from discontinued units (6.4) (1.2)
Cumulative effect of accounting change -- (0.5)
-------------- --------------
Net loss (12.0)% (16.9)%
-------------- --------------
(1) The consolidated financial statements for the three and six months ended
September 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 is classified as a
discontinued operation in the consolidated financial results for the three and
six months ended September 30, 2002, and from its acquisition date in August
2001 through September 30, 2001. Schaevitz UK is classified as a discontinued
operation for the three months ended June 30, 2002 and for the three and six
months ended September 30, 2001. Schaevitz UK had no activity for the three
months ended September 30, 2002. The comparisons above exclude the results of
these discontinued operations, except for "Loss from discontinued units,"
"Cumulative effect of accounting change, net of tax" and "Net income (loss)."
(2) Reflects the restatement of our financial statements for the three and six
months ended September 30, 2001. See "Restatement" and Note 3 to our
consolidated financial results included in this Quarterly Report on Form 10-Q.
29
THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2001
The consolidated financial statements for the three months ended September 30,
2002 include the results of the ongoing operations of Measurement Specialties,
Inc. As a result of our 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 is classified as a discontinued operation in
the consolidated financial results for the three months ended September 30,
2002, and from its acquisition date in August 2001 through September 30, 2001.
Schaevitz UK is classified as a discontinued operation for the three months
ended September 30, 2001. Schaevitz UK had no activity for the three months
ended September 30, 2002.
Net Sales. Net sales increased to $32,437 for the three months ended September
30, 2002 from $25,835 for the three months ended September 30, 2001.
Net sales of our Sensor business increased $1,630, or 13.2%, to $14,005 for the
three months ended September 30, 2002 from $12,375 for the three months ended
September 30, 2001. Sales of microfused pressure transducers increased
substantially, with growth in both our original equipment manufacturer business
and our Texas Instruments automotive sensor programs. PiezoSensors sales
improved as a result of increased sales of traffic sensors and other PiezoSensor
products. Sales of Schaevitz products fell due to weakness in the capital goods
market, primarily in the power generation segment. There was virtually no change
in IC Sensors sales for the three months ended September 30, 2002 as compared to
the three months ended September 30, 2001.
Net sales of our Consumer Products business increased $4,972, or 36.9%, to
$18,432 for the three months ended September 30, 2002 from $13,460 for the three
months ended September 30, 2001. During the three months ended September 30,
2002, $1,235 of slow moving and obsolete inventory was liquidated, which
accounted for 24.8% of the sales improvement. Without this liquidation event,
sales increased $3,737, or 27.8%, to $17,197 for the three months ended
September 30, 2002. The balance of the improved sales was principally the result
of a significant increase in sales of tire pressure gauges resulting from heavy
seasonal promotional activity and an increase in the sales of bath scales over
the prior period. Sales of our other consumer products also improved slightly.
Gross Profit. Gross profit increased $4,029, or 63.0%, to $10,423 for the three
months ended September 30, 2002 from $6,394 for the three months ended September
30, 2001. Gross margin increased to 32.1% for the three months ended September
30, 2002 from 24.7% for the three months ended September 30, 2001. Gross margin
for our Sensor business increased to 33.3% for the three months ended September
30, 2002 from 22.3% for the three months ended September 30, 2001. This margin
improvement was the result of manufacturing cost savings related to the transfer
of the production of certain products to our China facility and the favorable
impact of restructuring programs which included the sale of the IC Sensors wafer
fab and headcount reductions. Gross margin for our Consumer Products business
increased to 31.3% for the three months ended September 30, 2002 from 27.1% for
the three months ended September 30, 2001. Gross margins for the period ending
September 30, 2001 reflect $1,250 in write-downs of slow moving and obsolete
inventory to net realizable value. This write-down was largely comprised of Park
Zone inventory.
Selling, General, and Administrative. Selling, general, and administrative
expenses increased $553, or 5.9%, to $9,917 for the three months ended September
30, 2002 from $9,364 for the three months ended September 30, 2001. The increase
was largely attributable to $3,169 in consulting and professional fees incurred
as a result of defaults under our credit agreement, the restatement of financial
statements, the
30
class action lawsuits and SEC investigation. These increases were partially
offset by savings in payroll, facility, and other expenses resulting from our
cost reduction activities.
Research and Development. Research and development costs decreased $1,238, or
66.3%, to $630 for the three months ended September 30, 2002 from $1,868 for the
three months ended September 30, 2001. Customer-funded development decreased
$386 to $70 for the three months ended September 30, 2002 from $456 for the
three months ended September 30, 2001. On a net basis, research and development
costs decreased $852, or 60.3%, to $560 for the three months ended September 30,
2002 from $1,412 for the three months ended September 30, 2001. The primary
cause of the reduction in research and development spending and customer-funded
development was the sale of the IC Sensors wafer fab in July 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 $337, or 35.0%, to $625
for the three months ended September 30, 2002 from $962 for the three months
ended September 30, 2001. This decrease is attributable to a $10,749 reduction
in average debt outstanding from $32,009 in the three months ended September 30,
2001 to $21,260 in the three months ended September 30, 2002. We expect interest
expense to decrease in the future as our average outstanding debt balances
decrease.
Income Taxes. We had a pretax loss for financial reporting purposes and have not
provided a tax benefit for the three months ended September 30, 2002.
Recognition of a deferred tax benefit will require generation of future taxable
income; accordingly, no benefit has been provided. We recorded a tax benefit of
$31 for the three months ended September 30, 2001 which relates to refundable
income taxes.
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 discontinued units for
the three months ended September 30, 2002 was a loss of $34 compared to a loss
of $397 for the three months ended September 30, 2001.
SIX MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
2001
The consolidated financial statements for the six months ended September 30,
2002 include the results of the ongoing operations of Measurement Specialties,
Inc. As a result of our 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 is classified as a discontinued operation in
the consolidated financial results for the six months ended September 30, 2002,
and from its acquisition date in August 2001 through September 30, 2001.
Schaevitz UK is classified as a discontinued operation for the three months
ended June 30, 2002 and for the six months ended September 30, 2001. Schaevitz
UK had no activity for the three months ended September 30, 2002.
Net Sales. Net sales increased to $56,083 for the six months ended September 30,
2002 from $49,536 for the six months ended September 30, 2001.
Net sales of our Sensor business increased $1,018, or 4.0%, to $26,444 for the
six months ended September 30, 2002 from $25,426 for the six months ended
September 30, 2001. Sales of microfused pressure transducers increased
substantially, with growth in both our original equipment manufacturer business
and our Texas Instruments automotive sensor programs. PiezoSensors sales
improved as a result of increased sales of traffic sensors and other PiezoSensor
products. However, this increase was largely offset by lower sales of Schaevitz
products due to weakness in the capital goods market, primarily in the power
generation segment, and lower sales of IC Sensors products.
31
Net sales of our Consumer Products business increased $5,529, or 22.9%, to
$29,639 for the six months ended September 30, 2002 from $24,110 for the six
months ended September 30, 2001. During the six months ended September 30, 2002,
$1,315 of slow moving and obsolete inventory was liquidated, which accounted for
slightly less than one quarter of the sales improvement. Without this
liquidation event, sales increased $4,214, or 17.5%, to $28,324 for the six
months ended September 30, 2002. The balance of the improved sales was
principally the result of an increase in sales of tire pressure gauges resulting
from heavy seasonal promotional activity and an increase in the sales of bath
scales over the prior period. Sales of food scales and distance measurement
products increased slightly while sales of fish scales were flat as compared to
the six months ended September 30, 2001.
Gross Profit. Gross profit increased $5,452, or 42.7%, to $18,207 for the six
months ended September 30, 2002 from $12,755 for the six months ended September
30, 2001. Gross margin increased to 32.5% for the six months ended September 30,
2002 from 25.7% for the six months ended September 30, 2001. Gross margin for
our Sensor business increased to 34.9% for the six months ended September 30,
2002 from 25.3% for the six months ended September 30, 2001. This margin
improvement was the result of manufacturing cost savings related to the transfer
of the production of certain products to our China facility and the favorable
impact of restructuring programs including the sale of the IC Sensors wafer fab
in July 2002 and headcount reductions. Gross margin for our Consumer Products
business increased to 30.3% for the six months ended September 30, 2002 from
26.2% for the six months ended September 30, 2001. Gross margins for the period
ended September 30, 2001 reflect $1,332 in write-downs of slow moving and
obsolete inventory to net realizable value. This write-down was largely
comprised of Park Zone inventory.
Selling, General, and Administrative. Selling, general, and administrative
expenses increased $1,810, or 11.2%, to $17,954 for the six months ended
September 30, 2002 from $16,144 for the six months ended September 30, 2001. The
increase was largely attributable to $4,622 in consulting and professional fees
incurred as a result of defaults under our credit agreement, the restatement of
financial statements, the class action lawsuits and SEC investigation. These
increases were partially offset by savings in payroll, facility, and other
expenses resulting from our cost reduction activities.
Research and Development. Research and development costs decreased $1,431, or
47.8%, to $1,564 for the six months ended September 30, 2002 from $2,995 for the
six months ended September 30, 2001. Customer-funded development decreased $553
to $346 for the six months ended September 30, 2002 from $899 for the six months
ended September 30, 2001. On a net basis, research and development costs
decreased $878, or 41.9%, to $1,218 for the six months ended September 30, 2002
from $2,096 for the six months ended September 30, 2001. The primary cause of
the reduction in research and development spending and customer funded
development was the sale of the IC Sensors wafer fab in July 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 $627, or 31.8%, to $1,345
for the six months ended September 30, 2002 from $1,972 for the six months ended
September 30, 2001. This decrease is attributable to a $10,419 reduction in
average debt outstanding from $35,498 in the six months ended September 30, 2001
to $25,079 in the six months ended September 30, 2002. We expect interest
expense to decrease in the future as our average outstanding debt balances
decrease.
Income Taxes. We had a pretax loss for financial reporting purposes and have not
provided a tax benefit for the six months ended September 30, 2002. 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 $585 to
$13,600 as of
32
September 30, 2002. We recorded a tax benefit of $42 for the six months ended
September 30, 2001 which relates to refundable income taxes.
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 discontinued units for
the six months ended September 30, 2002 was a loss of $3,570 compared to a loss
of $608 for the six months ended September 30, 2001.
LIQUIDITY AND CAPITAL RESOURCES
Operating working capital (accounts receivable plus inventory less accounts
payable) increased by $1,708 from $15,014 as of March 31, 2002 to $16,722 as of
September 30, 2002. The increase was largely attributable to an increase in
accounts receivable of $6,861 from $12,220 at March 31, 2002 to $19,081 at
September 30, 2002, partially offset by an increase in accounts payable of
$4,084 from $13,232 at March 31, 2002 to $17,316 at September 30, 2002, and a
decrease in inventory of $1,069 from $16,026 at March 31, 2002 to $14,957 at
September 30, 2002. Accounts payable increased as a result of the normal
seasonal spending increase in the consumer segment, as well as extending payment
terms with vendors to manage cash. The inventory decline is attributable to
improved management of overall inventory levels, including the seasonal
increases in the consumer segment and the liquidation of certain slow moving
finished goods inventory. Included in accrued expenses and other current
liabilities at September 30, 2002 is a $1,700 advance payment from a customer.
Cash provided by operating activities was $32 for the six months ended September
30, 2002, as compared to a deficit of $(6,341) for the same period last fiscal
year. Capital spending decreased to $386 for the six months ended September 30,
2002 from $2,669 for the six months ended September 30, 2001. This decrease
resulted in cash flow after capital expenditures of $(354) for the six months
ended September 30, 2002 as compared to $(9,010) for the six months ended
September 30, 2001. Capital spending in the six months ended September 30, 2001
represented a large investment in our Shenzen, China facility to prepare for the
transfer of manufacturing from our domestic facilities to our China facility, as
well as capital expenditures for our domestic sensor operations in Hampton,
Virginia and Milpitas, California. Capital spending in the six months ended
September 30, 2002 was restricted to maintenance and critical tooling primarily
due to liquidity constraints. Other investing activities for the six months
ended September 30, 2002 provided $20,738, consisting of $3,300 in net proceeds
from the sale of the IC Sensor wafer fab, $16,668 from the sale of Terraillon
and $770 received from the receiver for Schaevitz UK. Financing activities for
the six months ended September 30, 2002 consumed $19,806, consisting primarily
of the repayment of debt. For the six months ended September 30, 2002, we
generated cash of $578 from continuing operations, used $1,860 in connection
with discontinued operations and recognized $369 as a result of the effect of
favorable exchange rates, resulting in a net decrease in cash of $913 as
compared to March 31, 2002.
Our Credit Agreement
Measurement Specialties and Schaevitz UK were 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 were secured by a lien on substantially all of our
assets.
The loans outstanding under the credit agreement as of September 30, 2002 were a
revolving credit line with an amount outstanding of approximately $3,082 and a
term loan in the amount of $6,164. All amounts outstanding under the revolving
credit agreement and term loan were repaid on October 31,
33
2002, as more fully described below under "Repayment of Our Obligations under
the Forbearance Agreement."
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 occurred 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 gave 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-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 were 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 to the lenders warrants to purchase up to 4.99% of our common
stock. Half of these warrants were canceled when we repaid certain obligations
as required prior to October 1, 2002 and the balance of the warrants were
canceled when we repaid all amounts outstanding under the credit agreement on
October 31, 2002, as more fully described below. The forbearance agreement also
provided that the interest rate for our borrowings was equal to the lenders'
prime rate plus 3%, which rate was subject to a 2% increase 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 in September 2002, the maximum
available credit under the revolving credit facility during the forbearance
period was $13,500 or such lesser amount as determined based on certain formulas
in the credit agreement related to the value of our collateral. As of September
30 2002, we had $10,393 of available credit under the revolving credit facility.
This credit facility has been repaid, as more fully described below under
"Repayment of Our Obligations under the Forbearance Agreement."
34
Repayment of Our 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 was changed to November
1, 2002. We used the proceeds from a $9,300 bridge loan from Castletop Capital,
L.P., a limited partnership controlled by Mort Topfer, Vice Chairman of our
Board of Directors, to repay all our obligations under the term loan and
revolving credit facility. Accordingly, we are no longer in default and these
facilities have been eliminated. The bridge loan is a term loan that matures on
January 31, 2003. The bridge loan is secured by substantially all of our assets
and does not contain a revolving credit facility. See "Recent Developments - Our
Restructuring Program" for a further discussion of the bridge loan.
No assurance can be given that we will be able to pay the amounts due under the
bridge loan. If we are unable to repay the bridge loan, we may be unable to
continue operations, or may be compelled to restructure our obligations in a
bankruptcy proceeding under Title 11 of the United States Code.
Liquidity
At November 12, 2002, we had approximately $3,000 of available cash and no
established borrowing capacity. Our working capital will not be sufficient to
satisfy our ongoing capital needs and other obligations, that include payment
of:
o the $9,300 outstanding under our bridge loan by January 31,
2003;
o substantial consulting and professional fees that are being
incurred as the result of the class action lawsuits and SEC
investigation; and
o any judgments or penalties arising from the class action
lawsuit, SEC investigation or other matters described under
"Legal Proceedings."
In an effort to obtain additional funds, we are currently in negotiations with
an asset based lender regarding a new revolving credit facility that we intend
to use to repay the bridge loan and provide our company with additional working
capital. No assurance, however, can be given that we will be able to refinance
our debt, or, even if such a transaction is possible, that it will be on terms
reasonable to us or that it will enable us to continue to satisfy our cash
requirements. If we are unable to refinance our debt, we may seek to sell
additional assets or equity securities. 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.
Obligation to Our Trade Creditors and Others
In order to conserve available cash, we delayed payments to our trade creditors
during the three months ended September 30, 2002. We are curing 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
35
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 renders 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 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 were precluded by our bridge
loan 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 prohibited under our bridge loan agreement. If permitted
under applicable law and consented to by our lenders, 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.
Recent Developments
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:
o 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 $557 United States dollars based on market
exchange rates as of November 11, 2002) against Schaevitz UK
that
36
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 three months ended September
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.
o 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 June 30,
2002, the Company had 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.
o 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 $900 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
gain on this sale is approximately $109, 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.
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.
o Shutdown of Valley Forge operations. The operations of our
Valley Forge, PA facility have been 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, eight full-time positions have been eliminated. We
expect PiezoSensors to continue to design, manufacture, and
37
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.
o 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. Of the $2,282 held in escrow, we have
assumed that a portion of the escrow will be used to satisfy
certain purchase price adjustments. Fukuda also assumed
approximately $4,800 in debt in connection with the
acquisition of Terraillon. The gain on this sale is
approximately $340, 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.
o Bridge Loan. On October 31, 2002, we received a $9,300 bridge
loan from Castletop Capital, L.P., a limited partnership
controlled by Mort Topfer, Vice Chairman of our Board of
Directors. The proceeds from this loan were used to repay all
our obligations under our term loan and revolving credit
facility. The loan is evidenced by a Senior Secured Note due
January 31, 2003 and does not include a revolving credit
facility. Interest on the note accrues at a rate of 7% per
annum (subject to a 2% increase upon the occurrence of an
event of default under the note). Our obligations under the
note are secured by a lien on substantially all of our assets
and substantially all of the assets of IC Sensors. Castletop
Capital also received a Warrant to purchase up to 297,228
shares of our common stock for an exercise price equal to the
average closing price of our common stock on the American
Stock Exchange for the first five trading days after October
31, 2002 ($1.64 per share). The exercise price and number of
shares subject to the warrant are subject to adjustment under
certain circumstances.
o 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 a new revolving credit facility.
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.
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) was suspended from July 15, 2002 until November
1, 2002. On August 21, 2002, we received a letter from the AMEX indicating that
we no longer complied 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. The hearing with a board of
the AMEX to appeal the determination to delist our common stock has been
postponed indefinitely. 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
38
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(DOLLARS IN THOUSANDS)
We are exposed to a certain level of foreign currency exchange 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 September 30, 2002, we had net
liabilities of $2,618 subject to fluctuations in the value of the Hong Kong
dollar, net assets of $90 subject to fluctuations in the value of the British
pound, net assets of $1,282 subject to fluctuations in the value of the Euro and
net assets of $11,617 subject to fluctuations in the value of the Chinese
renminbi. At September 30, 2001, we had net liabilities of $1,726 subject to
fluctuations in the value of the Hong Kong dollar, net liabilities of $2,053
subject to fluctuations in the value of the British pound, net assets of $404
subject to fluctuations in the value of the Euro and net assets of $2,906
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.
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
39
sales, 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:
o Our ability to complete our ongoing restructuring program;
o Conditions in the general economy and in the markets served by
us;
o Competitive factors, such as price pressures and the potential
emergence of rival technologies;
o Interruptions of suppliers' operations or the refusal of our
suppliers to provide us with component materials;
o Timely development and market acceptance, and warranty
performance of new products;
o Changes in product mix, costs, yields and fluctuations in
foreign currency exchange rates;
o Uncertainties related to doing business in Hong Kong and
China;
o The continued decline in the United States consumer products
market;
o The possible de-listing of our common stock from the American
Stock Exchange;
o The numerous class action lawsuits filed against us and the
pending SEC investigation;
o Our ability to raise additional funds; and
o The risk factors listed from time to time in our SEC reports.
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.
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. Accordingly, this report contains restated financial
results for the three and six months ended September 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.
40
(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:
o the appointment of a new chief executive officer in June 2002;
o the appointment of a new chief financial officer in July 2002;
o the performance of an extensive review of our financial
statements for the fiscal years ended March 31, 2002 and March
31, 2001;
o the reaudit of our financial statements for the fiscal year
ended March 31, 2001;
o the performance of a comprehensive evaluation of our
historical valuation of inventory; and
o 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:
o initiated the process of consolidating the financial
information for our Sensor business onto one information
technology platform and general ledger;
o reassigned the financial reporting responsibility from the
corporate accounting level to the respective separate general
managers and controllers of each of our business units;
o implemented consolidated financial and operational review
procedures; and
o hired additional qualified financial reporting personnel.
We intend to continue to evaluate our internal disclosure controls and
procedures and implement improvements as required.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
(DOLLARS IN THOUSANDS)
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
41
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 December 9, 2002. The underwriters have made a
claim for indemnification under the underwriting agreement. 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' 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.
42
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 this case. 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.
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.
Semex, Inc. vs. Measurement Specialties, Inc. and AMP Incorporated, Court of
Common Pleas, Montgomery County, Pennsylvania.
On October 24, 2002, Semex, Inc. ("Semex") filed a lawsuit against Measurement
Specialties, Inc. and AMP Incorporated alleging breaches of the lease for our
former facility in the Valley Forge, Pennsylvania. We are the assignee of AMP
Incorporated under the lease. The plaintiff alleges that we owe at least $770
for certain payment defaults under the lease. The plaintiff also seeks an
unspecified amount of damages related to plaintiff's allegations of, among other
things, damage to the property, failure to
43
remove alterations and failure to conduct environmental testing. At this point
in the litigation, we cannot predict its outcome.
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 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On July 19, 2002, in connection with the execution of the forbearance
agreement with our lenders (See "Liquidity and Capital Resources- Forbearance
Agreement"), we issued our lenders common stock purchase warrants to purchase up
to an aggregate of 594,454 shares of our common stock for an exercise price per
share equal to the lesser of (i) $2.28, or (ii) the average closing price of our
common stock on the American Stock Exchange for the five trading days prior to
November 10, 2002. Half of these warrants were canceled when we repaid certain
obligations as required prior to October 1, 2002 and the balance of the warrants
were canceled when we repaid all amounts outstanding under the credit agreement
on October 31, 2002. The warrants were sold in reliance upon the exemption from
registration under Section 4(2) of the Securities Act of 1933, as a transaction
not involving a public offering.
In July 2002 and October 2002, we issued warrants to purchase up to an
aggregate of 87,720 shares of our common stock to Corporate Revitalization
Partners at an exercise price of $2.28 per share. These warrants were issued as
part of a "success fee" as a result of the achievement of certain goals in
connection with our restructuring program. Frank Guidone, a Managing Director of
CRP, is our chief executive officer. The warrants were sold in reliance upon the
exemption from registration under Section 4(2) of the Securities Act of 1933, as
a transaction not involving a public offering.
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.
44
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.
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.
45
## 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.
++ 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
September 30, 2002:
On August 14, 2002, we filed a Current Report on Form 8-K pursuant to Item 5
(Other Events) to (i) announce the sale our silicon wafer fab manufacturing
operation in Milpitas, CA, (ii) attach a press release dated July 26, 2002
announcing the appointment of John Hopkins as our Chief Financial Officer, and
(iii) attach a press release dated July 31, 2002 announcing the sale our silicon
wafer fab manufacturing operation in Milpitas, CA.
On September 25, 2002, we filed a Current Report on Form 8-K pursuant to Item 5
(Other Events) to attach: (i) a press release dated August 21, 2002 announcing,
among other things, our decision to restate previously issued financial
statements, (ii) a press release dated August 28, 2002 announcing our receipt of
a de-listing notice from the American Stock Exchange, and (iii) a press release
dated September 25, 2002 announcing our sale of Terraillon.
46
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: November 14, 2002 John P. Hopkins
Chief Financial Officer (authorized officer
and principal financial officer)
47
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: November 14, 2002 /s/ Frank Guidone
------------------------------
Name: Frank Guidone
Title: Chief Executive Officer
48
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: November 14, 2002 /s/ John P. Hopkins
------------------------------
Name: John P. Hopkins
Title: Chief Financial Officer
49