UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
AMENDMENT NO. 1 to Form 10-Q on

FORM 10-Q/A

(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, 2005

OR

[   ] 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
INCORPORATION OR ORGANIZATION)
(I.R.S. EMPLOYER
IDENTIFICATION NO. )
 
1000 LUCAS WAY, HAMPTON, VA 23666

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
 
(757) 766-1500

(REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE)

 (FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x    No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes x    No o
 
Indicate by check mark whether the registrant is a shell company (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 stock, as of the latest practicable date: 13,640,944 shares of common stock, no par value per share, as of August 1, 2005.
 
 

 
 
PART I.
FINANCIAL INFORMATION
3
 
 
 
ITEM 1.
FINANCIAL STATEMENTS
3
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
3
 
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
4
 
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)
6
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
7
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
8
 
 
 
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
23
 
 
 
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
32
 
 
 
ITEM 4.
CONTROLS AND PROCEDURES
33
 
 
 
PART II.
OTHER INFORMATION
34
 
 
 
ITEM 1.
LEGAL PROCEEDINGS
34
 
 
 
ITEM 2.
UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS
 34
     
ITEM 6.
EXHIBITS
34
 
 
 
SIGNATURES
35
 


 
EXPLANATORY NOTE
 
This Amendment No. 1 on Form 10-Q/A (the “Amendment”) amends the Quarterly Report on Form 10-Q of Measurement Specialties, Inc. (the “Company”) for the quarter ended September 30, 2005, previously filed on November 9, 2005 (the “Original 10-Q”). The Company has filed this Amendment solely for the purpose of filing corrected versions of: (i) the Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended (filed as Exhibit 31.1 to the Original 10-Q), and (ii) the Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended (filed as Exhibit 31.2 to the Original 10-Q). This Amendment contains the corrected Certifications noted herein and should be read in conjunction with the information set forth in the Original 10-Q, as well as the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2005, previously filed on June 14, 2005 (the “Original 10-K”) , as amended on January 24, 2006, and the Company's quarterly report on Form 10-Q for the quarter ended June 30, 2005, filed on August 9, 2005, as amended on January 24, 2006, and any subsequent reports filed pursuant to the Securities Exchange Act of 1934.
 
All information contained in this Amendment is as of the original filing date of the Original Form 10-Q and does not reflect events occurring after the filing of the Original 10-Q or modify or update the disclosures therein in any way other than as required to reflect the amendments set forth herein.
 

Part I. Financial Information

ITEM 1.  FINANCIAL STATEMENTS
 
MEASUREMENT SPECIALTIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
 
 
For the three months
 
For the six months
 
 
 
ended September 30,
 
ended September 30,
 
(Dollars in thousands, except per share amounts )
 
2005
 
2004
 
2005
 
2004
 
Net sales
 
$
44,405
 
$
36,211
 
$
84,912
 
$
64,231
 
Cost of goods sold
   
26,950
   
21,082
   
51,366
   
36,525
 
Gross profit
   
17,455
   
15,129
   
33,546
   
27,706
 
Operating expenses (income):
                 
Selling, general and administrative
   
9,118
   
8,474
   
19,405
   
15,748
 
Research and development
   
918
   
848
   
1,862
   
1,657
 
Customer funded development
   
(184
)
 
(43
)
 
(240
)
 
(138
)
Amortization of acquired intangibles
   
402
   
8
   
830
   
16
 
Total operating expenses
   
10,254
   
9,287
   
21,857
   
17,283
 
Operating income
   
7,201
   
5,842
   
11,689
   
10,423
 
Interest expense, net
   
486
   
108
   
958
   
97
 
Other expense (income)
   
(64
)
 
67
   
(21
)
 
50
 
Income before income taxes
   
6,779
   
5,667
   
10,752
   
10,276
 
Income taxes
   
2,434
   
1,613
   
3,472
   
2,927
 
Net income
 
$
4,345
 
$
4,054
 
$
7,280
 
$
7,349
 
 
                 
Net income per common share - Basic
 
$
0.32
 
$
0.30
 
$
0.53
 
$
0.55
 
Net income per common share - Diluted
 
$
0.30
 
$
0.29
 
$
0.51
 
$
0.52
 
Weighted average shares outstanding - Basic
   
13,642,981
   
13,326,843
   
13,621,764
   
13,297,197
 
Weighted average shares outstanding - Diluted
   
14,293,355
   
14,188,500
   
14,293,723
   
14,168,655
 

SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

3


MEASUREMENT SPECIALTIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

 
 
September 30,
 
March 31,
 
(Dollars in thousands)
 
2005
 
2005
 
 
 
 
 
 
 
ASSETS
         
 
         
Current assets:
         
Cash and cash equivalents
 
$
5,973
 
$
4,402
 
Accounts receivable, trade, net of allowance for
         
doubtful accounts of $516 and $390, respectively
   
23,209
   
20,369
 
Inventories, net
   
23,304
   
20,282
 
Deferred income taxes
   
4,261
   
4,284
 
Prepaid expenses and other current assets
   
3,572
   
3,029
 
Total current assets
   
60,319
   
52,366
 
 
         
Property and equipment, net
   
16,210
   
14,924
 
 
         
Other assets:
         
Goodwill
   
40,600
   
40,010
 
Acquired intangible assets, net
   
9,459
   
10,583
 
Deferred income taxes
   
6,429
   
7,190
 
Other assets
   
1,444
   
931
 
Total other assets
   
57,932
   
58,714
 
Total Assets
 
$
134,461
 
$
126,004
 

SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

4


MEASUREMENT SPECIALTIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

 
 
September 30,
 
March 31,
 
(Dollars in thousands, except share amounts)
 
2005
 
2005
 
 
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
         
 
         
Current liabilities:
         
Current portion of promissory notes payable
 
$
1,000
 
$
1,200
 
Current portion of deferred acquisition payments
   
2,574
   
1,720
 
Short-term debt
   
2,941
   
2,085
 
Current portion of long-term debt
   
2,247
   
2,310
 
Accounts payable
   
17,140
   
13,394
 
Accrued expenses and other current liabilities
   
3,551
   
4,525
 
Accrued compensation
   
2,408
   
2,231
 
Income taxes payable
   
3,474
   
1,165
 
Deferred gain on sale of assets, current
   
1,418
   
2,925
 
Total current liabilities
   
36,753
   
31,555
 
 
         
Other liabilities:
         
Deferred gain on sale of assets, net of current portion
   
-
   
839
 
Promissory notes payable, net of current portion
   
600
   
1,100
 
Long-term debt, net of current portion
   
17,753
   
18,928
 
Deferred acquisition payments, net of current portion
   
1,747
   
4,069
 
Other liabilities
   
2,387
   
1,497
 
Total liabilities
   
59,240
   
57,988
 
 
         
Shareholders' equity:
         
Serial preferred stock; 221,756 shares authorized; none outstanding
   
-
   
-
 
Common stock, no par; 20,000,000 shares authorized; 13,712,880 and
         
13,257,084 shares issued and outstanding, respectively
   
5,502
   
5,502
 
Additional paid-in capital
   
57,773
   
56,285
 
Accumulated earnings
   
14,009
   
6,729
 
Accumulated other comprehensive loss
   
(2,063
)
 
(500
)
Total shareholders' equity
   
75,221
   
68,016
 
Total liabilities and shareholders' equity
 
$
134,461
 
$
126,004
 

SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

5

 
MEASUREMENT SPECIALTIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the six months ended September 30, 2005 and 2004
(UNAUDITED)

 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
 
 
Additional
 
Accumulated
 
Other
 
 
 
 
 
 
 
Common
 
paid-in
 
Earnings
 
Comprehensive
 
 
 
Comprehensive
 
(Dollars in thousands)
 
stock
 
capital
 
(Deficit)
 
Loss
 
Total
 
Income
 
Balance, April 1, 2004
 
$
5,502
 
$
53,509
 
$
(8,097
)
$
(74
)
$
50,840
       
Comprehensive income:
                                   
Net income
               
7,349
         
7,349
 
$
7,349
 
Currency translation adjustment
                     
(7
)
 
(7
)
 
(7
)
Comprehensive income
                               
$
7,342
 
Proceeds from exercise of stock options
         
573
               
573
       
Tax benefit from exercise of stock options
         
279
               
279
       
Balance, September 30, 2004
 
$
5,502
 
$
54,361
 
$
(748
)
$
(81
)
$
59,034
       
 
                                   
Balance, April 1, 2005
 
$
5,502
 
$
56,285
 
$
6,729
 
$
(500
)
$
68,016
       
Comprehensive income:
                                   
Net income
               
7,280
         
7,280
 
$
7,280
 
Currency translation adjustment
                     
(1,563
)
 
(1,563
)
 
(1,563
)
Comprehensive income
                             
$
5,717
 
Proceeds from exercise of stock options
         
1,031
               
1,031
       
Tax benefit from exercise of stock options
         
457
               
457
       
Balance, September 30, 2005
 
$
5,502
 
$
57,773
 
$
14,009
 
$
(2,063
)
$
75,221
       

SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

6

 
MEASUREMENT SPECIALTIES, INC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

 
 
For the six months
 
(Dollars in thousands)
 
ended September,
 
 
 
2005
 
2004
 
Cash flows from operating activities:
         
Net income
 
$
7,280
 
$
7,349
 
Adjustments to reconcile net income to net cash
         
provided by operating activities:
         
Depreciation and amortization
   
2,900
   
1,402
 
Deferred rent
   
-
   
5
 
Amortization of deferred gain
   
(2,346
)
 
(1,454
)
Provision for doubtful accounts
   
-
   
238
 
Loss on disposal of fixed assets
   
(20
)
 
151
 
Provision for inventory obsolescence
   
1,098
   
358
 
Deferred income taxes
   
732
   
1,777
 
Tax benefit on exercise of stock options
   
457
   
279
 
Net changes in operating assets and liabilities:
         
Accounts receivable, trade
   
(2,974
)
 
(2,656
)
Inventories
   
(4,234
)
 
(4,443
)
Prepaid expenses and other current assets
   
(568
)
 
1,089
 
Other assets
   
(480
)
 
(191
)
Accounts payable, trade
   
4,746
   
(322
)
Accrued expenses and other liabilities
   
646 
   
130
 
Accrued litigation expenses
   
-
   
(2,100
)
Income taxes payable
   
2,009
   
394
 
Net cash provided by operating activities
   
9,246
   
2,006
 
Cash flows from investing activities:
         
Purchases of property and equipment
   
(3,389
)
 
(1,152
)
Acquisition of business, net of cash acquired
   
(2,735
)
 
(15,953
)
Net cash used in investing activities
   
(6,124
)
 
(17,105
)
Cash flows from financing activities:
         
Payments under short-term debt and notes payable
   
(6,406
)
 
-
 
Borrowings under short-term debt
   
7,000
   
5,613
 
Payments on long-term debt
   
(1,788
)
 
-
 
Payments on deferred acquisition payments
   
(1,400
)
 
-
 
Proceeds from exercise of options
   
1,031
   
573
 
Net cash provided by (used in) financing activities
   
(1,563
)
 
6,186
 
Effect of exchange rates
   
12
 
 
(2
)
Net change in cash and cash equivalents
   
1,571
   
(8,915
)
Cash and cash equivalents, beginning of year
   
4,402
   
19,274
 
Cash and cash equivalents, end of period
 
$
5,973
 
$
10,359
 
Supplemental Cash Flow Information:
         
Cash paid during the period for:
         
Interest
 
$
932
 
$
30
 
Income taxes
   
89
   
-
 
Noncash investing and financing transactions
         
Notes from acquisitions
   
-
   
3,000
 
Deferred acquisition payments
   
-
   
3,654
 
Purchases of property in accounts payable
   
-
   
230
 
Fair value of assets acquired less liabilities assumed
   
-
   
7,708
 

SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

7

MEASUREMENT SPECIALTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2005

(Dollars in thousands, except share and per share amounts)

1. BASIS OF PRESENTATION:

Interim financial statements:

The information presented as of September 30, 2005 and for the three and six month periods ended September 30, 2005 and 2004 is unaudited, and reflects all adjustments (consisting only of normal recurring adjustments) which the Company considers necessary for the fair presentation of the Company’s financial position as of September 30, 2005 and the results of its operations and cash flows for the six month periods ended September 30, 2005 and 2004. The March 31, 2005 balance sheet information was derived from the audited consolidated financial statements for the year ended March 31, 2005.

The condensed consolidated financial statements included herein have been prepared in accordance with U.S. generally accepted accounting principles and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended March 31, 2005, which are included as part of the Company’s Annual Report on Form 10-K.

Description of business:

Measurement Specialties, Inc. ("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, position, force, vibration, humidity and photo-optics. The Company has two segments, a Sensor business and a Consumer Products business.

The Sensor segment designs and manufactures sensors for original equipment manufacturers and end users. These sensors are used for automotive, medical, consumer, military/aerospace and industrial applications. The Company's sensor products include pressure and electromagnetic displacement sensors, transducers and sensors piezoelectric polymer film sensors, custom microstructures, load cells, accelerometers, optical sensors and humidity sensors.

The Consumer Products segment designs and manufacturers sensor-based consumer products primarily as an original equipment manufacturer (OEM) that are sold to retailers and distributors primarily in the United States and Europe. Consumer products include bathroom and kitchen scales, tire pressure gauges and distance estimators.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of consolidation:

8

The consolidated financial statements include the accounts of Measurement Specialties, Inc. and its wholly-owned subsidiaries (the "Subsidiaries").

The Company has made the following acquisitions which are included in the consolidated financial statements as of the effective date of acquisition (See Note 7):

Acquired Company
Effective Date of Acquisition
Country
Elekon Industries USA, Inc. (“Elekon”)
June 24, 2004
USA
Entran Devices, Inc. and Entran SA (“Entran”)
July 16, 2004
USA and France
Encoder Devices, LLC (“Encoder”)
July 16, 2004
USA
Humirel, SA (“Humirel”)
December 1, 2004
France
MWS Sensorik GmbH (“MWS Sensorik”)
January 1, 2005
Germany
Polaron Components Ltd
February 1, 2005
United Kingdom

Elekon, Entran, Humirel and MWS Sensorik are wholly-owned subsidiaries of the Company.

All significant inter-company balances and transactions have been eliminated.

Reclassifications:

The presentation of certain prior year information has been reclassified to conform with the current year financial statement presentation.

Stock Based Compensation:

The Company has three stock-based employee compensation plans. The Company applies APB Opinion 25, Accounting for Stock Issued to Employees, and related Interpretations in accounting for its plans. There was no compensation expense recognized for the three or six months ended September 30, 2005 and 2004, as a result of options issued. The table below illustrates the effect on net income and net income per share if the Company had applied the fair value recognition provisions of FASB Statement 123, Accounting for Stock-Based Compensation.

   
For the three months
 
For the six months
 
   
ended September 30,
 
ended September 30,
 
   
2005
 
2004
 
2005
 
2004
 
                   
Net income, as reported
 
$
4,345
 
$
4,054
 
$
7,280
 
$
7,349
 
Add: Stock-based employee compensation
                         
expense included in reported net
                         
income, net of related tax effects
   
-
   
-
   
-
   
-
 
                           
Deduct: Total stock-based employee compensation
                         
expense determined under fair value based
                         
method for awards granted, modified, or
                         
settled, net of related tax effects
   
(320
)
 
(163
)
 
(1,006
)
 
(328
)
Pro forma net income
 
$
4,025
 
$
3,891
 
$
6,274
 
$
7,021
 
                           
Net income per share:
                         
Basic - as reported
 
$
0.32
 
$
0.30
 
$
0.53
 
$
0.55
 
Basic - pro forma
   
0.30
   
0.29
   
0.46
   
0.53
 
Diluted - as reported
   
0.30
   
0.29
   
0.51
   
0.52
 
Diluted - pro forma
   
0.28
   
0.27
   
0.44
   
0.50
 

9


Recent Accounting Pronouncements:

In December 2004, the Financial Accounting Standards Board (“FASB”) issued FASB Statement No. 123R (Revised 2004), Share-Based Payment. The new FASB rule requires that the compensation cost relating to share-based payment transactions be recognized in financial statements, rather than disclosed in the footnotes to the financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. The scope of FASB Statement 123R includes a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. FASB Statement 123R replaces FASB Statement No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. FASB Statement 123, as originally issued in 1995, established as preferable a fair-value-based method of accounting for share-based payment transactions with employees. However, that statement permitted entities the option of continuing to apply the guidance in APB Opinion 25, as long as the footnotes to the financial statements disclosed what net income would have been had the preferable fair-value-based method been used. Under the effective date provisions included in FASB Statement 123R, registrants would have been required to implement the Statement’s requirements as of the beginning of the first interim or annual period beginning after June 15, 2005, or after December 15, 2005 for small business issuers. The new rule allows registrants to implement FASB Statement 123R at the beginning of their next fiscal year, instead of the next interim period, that begins after June 15, 2005, or December 15, 2005 for small business issuers. The Company will be required to apply FASB 123R beginning with the quarter ending June 30, 2006. The Company is currently quantifying the impact of FASB 123R, however, the Company does believe the adoption of FASB Statement 123R will have a material effect on its financial position and results of operations consistent with the pro-forma disclosures.
 
On November 24, 2004, the FASB issued FASB Statement No. 151, Inventory Costs - An amendment of ARB No. 43, Chapter 4. This new standard is the result of a broader effort by the FASB to improve financial reporting by eliminating differences between GAAP in the United States and GAAP developed by the International Accounting Standards Board (“IASB”). As part of this effort, the FASB and the IASB identified opportunities to improve financial reporting by eliminating certain narrow differences between their existing accounting standards. FASB Statement 151 clarifies that abnormal amounts of idle facility expense, freight, handling costs and spoilage should be expensed as incurred and not included in overhead. Further, FASB Statement 151 requires that allocation of fixed production overheads to conversion costs should be based on normal capacity of the production facilities. The provisions in FASB Statement 151 are effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Companies must apply the standard prospectively. The Company does not believe the adoption of FASB Statement 151 will have a material effect on its financial position or results of operations.
 
On December 17, 2004, the FASB issued FASB Statement No. 153, Exchanges of Nonmonetary Assets - An Amendment of APB Opinion No. 29. This new standard is the result of a broader effort by the FASB to improve financial reporting by eliminating differences between GAAP in the United States and GAAP developed by the IASB. As part of this effort, the FASB and the IASB identified opportunities to improve financial reporting by eliminating certain narrow differences between their existing accounting standards. FASB Statement 153 amends APB Opinion No. 29, Accounting for Nonmonetary Transactions, that was issued in 1973. The amendments made by FASB Statement 153 are based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. Further, the amendments eliminate the narrow exception for nonmonetary exchanges of similar productive assets and replace it with a broader exception for exchanges of nonmonetary assets that do not have "commercial substance." Previously, APB Opinion 29 required that the accounting for an exchange of a productive asset for a similar productive asset or an equivalent interest in the same or similar productive asset should be based on the recorded amount of the asset relinquished. The provisions in FASB Statement 153 are effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. Early application is permitted and companies must apply the standard prospectively. The Company does not believe the adoption of FASB Statement 153 will have a material effect on its financial position or results of operations.
 
10

In May 2005, the FASB issued FASB Statement No. 154, Accounting Changes and Error Corrections. This new standard replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and represents another step in the FASB's goal to converge its standards with those issued by the IASB. Among other changes, Statement 154 requires that a voluntary change in accounting principle be applied retrospectively with all prior period financial statements presented on the new accounting principle, unless it is impracticable to do so. FASB Statement 154 also provides that (1) a change in method of depreciating or amortizing a long-lived nonfinancial asset be accounted for as a change in estimate (prospectively) that was effected by a change in accounting principle, and (2) correction of errors in previously issued financial statements should be termed a "restatement." The new standard is effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. Early adoption of this standard is permitted for accounting changes and correction of errors made in fiscal years beginning after June 1, 2005. The Company does not believe the adoption of FASB Statement 154 will have a material effect on its financial position or results of operations.

In December 2004, the FASB issued FASB Staff Position No. 109-1 ("FSP 109-1"), "Application of SFAS No. 109, "Accounting for Income Taxes", related to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004." FSP 109-1 is effective immediately. FSP 109-1 states that the tax deduction of qualified domestic production activities, which is provided by the American Jobs Creation Act of 2004 (the "Jobs Act"), will be treated as a special deduction as described in SFAS No. 109. Consequently, the impact of the deduction, which is effective January 1, 2005, will be reported in the period in which the deduction is claimed on the Company's income tax returns. The Company does not expect FSP 109-1 to have a material effect on its financial statements.

In December 2004, the FASB issued FASB Staff Position No. 109-2 ("FSP 109-2"),"Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004" (“Jobs Act”). FSP 109-2 provides accounting and disclosure guidance related to the Jobs Act provision for the limited time 85% dividends received deduction on the repatriation of certain foreign earnings. Although adoption is effective immediately, FSP 109-2 states that a company is allowed time beyond the financial reporting period to evaluate the effect of the Jobs Act on its plan for reinvestment or repatriation of foreign earnings. The Company is evaluating the impact of the repatriation provisions of the Jobs Act and will complete its review by December 31, 2005. It is not expected that these provisions will have a material impact on the Company's financial statements. Accordingly, as provided for in FSP 109-2, the Company has not adjusted its tax expense or net deferred tax assets to reflect the repatriation provisions of the Jobs Act.
 
3. INVENTORIES:

Inventories net of inventory reserves, consists of the following:

 
 
September 30,
 
March 31,
 
 
 
2005
 
2005
 
Raw Materials
 
$
12,247
 
$
12,645
 
Work-in-Process
   
2,470
   
2,008
 
Finished Goods
   
8,587
   
5,629
 
 
 
$
23,304
 
$
20,282
 
 
Inventory reserves were $4,208 at September 30, 2005 and $ 3,603 at March 31, 2005.

4. SHORT AND LONG-TERM DEBT:

Term Loan and Revolving Credit Facility

On December 17, 2004, the Company entered into a $35,000 five-year credit agreement with GE Commercial Finance, Commercial & Industrial Finance (“GE” or “GECC”), comprised of a $20,000 term loan and $15,000 revolving credit facility. JP Morgan Chase Bank, N.A. and Wachovia Bank, participated in the syndication. Interest accrues on the principal amount of borrowings at a rate based on either a London Inter-bank Offered Rate (LIBOR) rate plus a LIBOR margin or at an Index (a prime based) Rate plus an Index Margin. The LIBOR or Index Rate is at the election of the borrower. From the closing date to the second anniversary date of the closing, the applicable LIBOR and Index Margins are 4.50% and 2.75%, respectively, and from the second anniversary, the applicable LIBOR and Index Margins are 4.25% and 2.50%, respectively, subject to a 2% increase upon the occurrence of an event of default under the credit agreement. The term loan is payable in nineteen quarterly installments of $500 beginning on March 1, 2005 with the final installment due on December 17, 2009. Proceeds from the new credit facility were primarily used to support the acquisition of Humirel (See Note 7), for ordinary working capital and general corporate needs and to replace the $15,000 revolving credit facility with Bank of America Business Capital (formerly Fleet Capital Corporation). The Company has provided a security interest in substantially all of the Company’s assets as collateral for the new credit facilities. Borrowings under the line are subject to certain financial covenants and restrictions on indebtedness, dividend payments, financial guarantees, and other related items. At September 30, 2005, the Company was in compliance with applicable debt covenants.

11

As of September 30, 2005, the Company utilized the LIBOR based rate for the term loan and the prime based Index Rate for the revolving credit facility. As of September 30, 2005, the outstanding borrowings on the term loan and revolver were $18,500 and $2,500, respectively, and the Company had the right to borrow an additional $12,500 under the revolving credit facility. The revolving credit facility is not directly based on any borrowing base requirements.

The weighted average interest rate for the above credit facilities was 7.89% for the six months ended September 30, 2005. The average amount outstanding under the agreements for the six months ended September 30, 2005 was $19,761.

Promissory Notes

In connection with the acquisition of Elekon Industries USA, Inc. (See Note 7), the Company issued unsecured Promissory Notes (“Notes”) totaling $3,000, of which $1,600 was outstanding and $1,000 was considered current at September 30, 2005. The Notes amortize over a period of three years, are payable quarterly and bear interest at 6%.

Other Short-Term Debt

In connection with the acquisition of Entran and Humirel, the Company assumed outstanding short-term borrowings. At September 30, 2005, $441 of this assumed short-term borrowing remains outstanding and is included in short-term debt in the accompanying condensed consolidated balance sheet.

Long-term debt and promissory notes
 
Below is a summary of the long-term debt and promissory notes outstanding at September 30, 2005:

Prime or LIBOR plus 2.75% five-year term loan with a final installment due on December 17, 2009.
 
$
18,500
 
         
Governmental loans from French agencies at no interest and payable based on R&D expenditures.
   
563
 
         
Term credit facility with six banks at an interest rate of 4% payable through 2010.
   
937
 
         
6% Promissory Notes payable in twelve equal quarterly installments through September 20, 2007
   
1,600
 
     
21,600
 
Less long-term debt and promissory notes due currently
   
3,247
 
   
$
18,353
 

12

5. PROPERTY AND EQUIPMENT:

Property and equipment are summarized as follows:


   
September 30,
 
March 31,
 
 
 
   
2005
 
2005
 
Useful Life
 
Production machinery and equipment
 
$
21,902
 
$
20,083
   
3-10 years
 
Building
   
1,375
   
750
   
39 years
 
Tooling costs
   
4,491
   
4,635
   
3-7 years
 
Furniture and equipment
   
6,548
   
6,348
   
3-10 years
 
Leasehold improvements
   
1,686
   
2,219
   
Lesser of useful life or remaining term of lease
 
Construction in progress
   
1,788
   
1,299
   
-
 
Total
   
37,790
   
35,334
       
Less: accumulated depreciation and amortization
   
(21,580
)
 
(20,410
)
     
   
$
16,210
 
$
14,924
       
 
Depreciation expense was $1,053 and $752 for the three months ended September 30, 2005 and 2004, respectively, and depreciation expense was $2,070 and $1,402 for the six months ended September 30, 2005 and 2004, respectively.

6. PER SHARE INFORMATION AND STOCK OPTIONS ISSUED:

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 and warrants, less the shares that may be repurchased with the funds received from their exercise. There were no significant anti-dilutive shares in the periods presented.

The computation of the basic and diluted net income per share is as follows:

   
Net Income (Numerator)
 
Weighted Average Shares (Denominator)
 
Per-Share Amount
 
Three months ended September 30, 2005:
                   
Basic per share information
 
$
4,345
   
13,642,981
 
$
0.32
 
Effect of dilutive securities
         
650,374
   
(0.02
)
Diluted per-share information
 
$
4,345
   
14,293,355
 
$
0.30
 
                     
Three months ended September 30, 2004:
                   
Basic per share information
 
$
4,054
   
13,326,843
 
$
0.30
 
Effect of dilutive securities
         
861,657
   
(0.01
)
Diluted per-share information
 
$
4,054
   
14,188,500
 
$
0.29
 
                     
Six months ended September 30, 2005:
                   
Basic per share information
 
$
7,280
   
13,621,764
 
$
0.53
 
Effect of dilutive securities
         
671,959
   
(0.02
)
Diluted per-share information
 
$
7,280
   
14,293,723
 
$
0.51
 
                     
Six months ended September 30, 2004:
                   
Basic per share information
 
$
7,349
   
13,297,197
 
$
0.55
 
Effect of dilutive securities
         
871,458
   
(0.03
)
Diluted per-share information
 
$
7,349
   
14,168,655
 
$
0.52
 

13

7. ACQUISITIONS, GOODWILL AND ACQUIRED INTANGIBLES:

Recent Acquisitions:

As part of its growth strategy in the Sensors segment, the Company made six acquisitions during the year ended March 31, 2005. Proforma financial statements are presented below for the aggregate of the acquisitions of Elekon, Entran, Encoder, Humirel, MWS and Polaron.

Elekon:

On June 24, 2004, the Company acquired 100% of the capital stock of Elekon Industries USA, Inc. ("Elekon") for $7,797 ($4,500 in cash at the closing, $3,000 in unsecured Promissory Notes ("Notes") and $297 in acquisition costs). The terms of the Notes amortize over a period of three years, are payable quarterly and bear interest at a rate of 6%. If certain performance targets were achieved, an additional $3,000 could have been paid to the principals of Elekon. However, the performance targets for additional payments were not achieved, and accordingly, no additional payment will be made. Elekon is based in Torrance, California where it designs and manufactures optical sensors primarily for the medical and security markets. The transaction was recorded as a purchase, and is included in the consolidated financial results from the date of acquisition through September 30, 2005. The Company’s final allocation recorded goodwill of $5,708. Included in the goodwill is $1,200 resulting from the recording of deferred tax liabilities as part of the acquisition. Set forth below is a summary of the amount of purchase price allocated to intangibles related to the Elekon acquisition:

Description
 
Life
 
Value
 
Customer relationships
   
Indefinite
 
$
1,870
 
Patents
   
18.5 years
   
775
 
Proprietary technology
   
10 years
   
510
 
Covenants not-to-compete
   
3 years
   
620
 
 
     
$
3,775
 
 
Below is a condensed balance sheet for the acquired business on the date of acquisition:
 
ELEKON INDUSTRIES, INC.
 
CONDENSED BALANCE SHEET
 
OF ACQUIRED ENTITY AT
 
JUNE 24, 2004
 
 
 
 
 
Assets:
     
Accounts receivable
 
$
501
 
Inventory
   
442
 
Property and equipment
   
169
 
Others
   
20
 
 
   
1,132
 
 
     
Liabilities:
     
Accounts payable
   
(1,516
)
Others
   
(102
)
 
   
(1,618
)
Net Assets Acquired
 
$
(486
)

14

Entran:

On July 16, 2004, the Company acquired 100% of the capital stock of Entran Devices, Inc. and Entran SA ("Entran") for $10,724 ($6,000 in cash at the closing, $1,195 in certain liabilities discharged at closing, $3,254 in deferred payments and $275 in acquisition costs). The Company will pay a deferred payment of $2,254 on July 16, 2006, and an additional $1,000 was paid in July 2005 upon the elimination of the lease expense and certain other expenses related to the Fairfield, NJ Facility. Entran, based in Fairfield, NJ and Les Clayes-sous-Bois, France, is a designer/manufacturer of acceleration, pressure and force sensors sold primarily to the automotive crash test and motor sport racing markets. The transaction was recorded as a purchase, and is included in the consolidated financial results from the date of acquisition through September 30, 2005. The Company’s final allocation recorded goodwill of $7,341. Included in the goodwill is $320 resulting from the recording of deferred tax liabilities as part of the acquisition. Set forth below is a summary of the amount of purchase price allocated to intangibles related to the Entran acquisition:

Description
 
Life
 
Value
 
Customer relationships
   
7 years
 
$
700
 
Backlog
   
1 year
   
100
 
 
     
$
800
 

Below is a condensed balance sheet for the acquired business on the date of acquisition:
 
ENTRAN DEVICES, INC. AND ENTRAN SA
 
CONDENSED BALANCE SHEET
 
OF ACQUIRED ENTITY AT
 
JULY 16, 2004
 
 
 
 
 
Assets:
 
 
 
Cash
 
$
246
 
Accounts receivable
   
2,002
 
Inventory
   
1,648
 
Property and equipment
   
979
 
Others
   
264
 
 
   
5,139
 
 
     
Liabilities:
     
Accounts payable
   
(2,013
)
Others
   
(225
)
 
   
(2,238
)
Net Assets Acquired
 
$
2,901
 

Encoder:

On July 16, 2004, the Company acquired the assets of Encoder Devices, LLC ("Encoder") for $4,601 ($4,000 in cash at the closing, $400 in deferred payment and $201 in acquisition costs). The Company paid the deferred payment of $400 on July 16, 2005. Encoder, based in Plainfield, IL, is a designer and manufacturer of rotational sensors (encoders) utilizing magnetic encoding technology. The transaction was recorded as a purchase and is included in the consolidated financial results from the date of acquisition through September 30, 2005. The Company’s final allocation recorded goodwill of $3,883. Set forth below is a summary of the amount of purchase price allocated to intangibles related to the Encoder acquisition:

15

Description
 
Life
 
Value
 
Patents
   
19.5 years
 
$
137
 
Covenants not-to-compete
   
3 years
   
283
 
 
     
$
420
 

Below is a condensed balance sheet for the acquired business on the date of acquisition:

ENCODER DEVICES LLC
 
CONDENSED BALANCE SHEET
 
OF ACQUIRED ENTITY AT
 
JULY 16, 2004
 
 
 
 
 
Assets:
     
Accounts receivable
 
$
96
 
Inventory
   
134
 
Property and equipment
   
245
 
Others
   
36
 
 
   
511
 
 
     
Liabilities:
     
Accounts payable
   
(204
)
Others
   
(9
)
 
   
(213
)
Net Assets Acquired
 
$
298
 
 
Humirel:

Effective on December 1, 2004, the Company acquired the stock of Humirel SA ("Humirel"), a designer/manufacturer of humidity sensors and assemblies based in France, for 19,000 Euro. The total purchase price in U.S. dollars based on the September 30, 2005 exchange rate was $24,388 ($21,609 at close, $1,747 in deferred payment, and $1,032 in acquisition costs). The deferred payment is due payable on the second anniversary of the closing date (less any applicable offsets) and bears interest at the rate of 3% per annum. In addition, the sellers can earn up to an additional 6,300 Euro, or $7,585, if certain performance hurdles, including achieving established net sales and gross margin levels in 2005, are achieved. Included in the purchase price is $476 for the 20,000 shares of restricted stock of the Company received by management shareholders as part of the closing consideration. The transaction was financed with a term credit facility issued by a syndicate of lending institutions, led by a new lender for the Company (See Note 4). The transaction was recorded as a purchase, and is included in the consolidated financial results from the date of acquisition. Set forth below is a summary of the amount of purchase price allocated to intangibles related to the Humirel acquisition. The Company has recorded goodwill of $18,069 for the acquisition. Included in the goodwill is $654 resulting from the recording of deferred tax liabilities as part of the acquisition. Set forth below is a summary of the amount of purchase price allocated to intangibles related to the Humirel acquisition:

Description
 
Life
 
Value
 
Customer relationships
   
8 years
 
$
2,446
 
Patents
   
13 years
   
1,359
 
Tradename
   
3 years
   
216
 
Backlog
   
1 year
   
244
 
 
     
$
4,265
 

16

Below is a condensed balance sheet for the acquired business on the date of acquisition:

HUMIREL SA
 
CONDENSED BALANCE SHEET
 
OF ACQUIRED ENTITY AT
 
DECEMBER 1, 2004
 
 
 
 
 
Assets:
     
Cash
 
$
994
 
Accounts receivable
   
1,513
 
Inventory
   
1,755
 
Property and equipment
   
1,472
 
Others
   
744
 
 
   
6,478
 
Liabilities:
     
Accounts payable
   
(1,268
)
Current portion of long-term debt
   
(588
)
Long-term debt, net of current
   
(1,914
)
 
   
(3,770
)
Net Assets Acquired
 
$
2,708
 

MWS Sensorik:

Effective January 1, 2005, the Company acquired 100% of the capital stock of MWS Sensorik GmbH ("MWS" or "Sensorik"), for 900 Euro, or $1,261 ($879 at close, $320 in deferred payments, and $62 in acquisition costs). The Company has placed this deferred payment into escrow at closing. The deferred payment will be released from escrow on the first anniversary of the closing date. MWS, based in Pfaffenhofen, Germany, integrates and distributes accelerometers and other sensors, sold primarily to the automotive crash test market. MWS has historically used MSI's silicon micromachined accelerometer as their die for piezoresistive sensors. The transaction was recorded as a purchase, and is included in the consolidated financial results from the date of acquisition through September 30, 2005. The Company has recorded goodwill of $504 and intangibles of $751 for the acquisition. Included in the goodwill is $257 resulting from the recording of deferred tax liabilities as part of the acquisition. Set forth below is a summary of the amount of purchase price allocated to intangibles related to the MWS acquisition:
 
Description
 
Life
 
Value
 
Customer relationships
   
8 years
 
$
700
 
Backlog
   
1 year
   
51
 
 
     
$
751
 

17

Below is a condensed balance sheet for the acquired business on the date of acquisition:

MWS SENSORIK GMBH
 
CONDENSED BALANCE SHEET
 
OF ACQUIRED ENTITY AT
 
JANUARY 1, 2005
 
 
 
 
 
Assets:
     
Accounts receivable
 
$
252
 
Inventory
   
189
 
Property and equipment
   
49
 
Others
   
6
 
 
   
496
 
Liabilities:
     
Accounts payable
   
(58
)
Others
   
(175
)
 
   
(233
)
Net Assets Acquired
 
$
263
 

Polaron:

Effective February 1, 2005, the Company has acquired certain assets of the industrial pressure sensing business of Polaron Components Limited in the United Kingdom, for GBP 1,200 or approximately $2,491 ($2,460 at close and $31 in acquisition costs). The assets were acquired by the Company's Chinese subsidiary, MSI Sensors (China) Limited. The transaction is a vertical integration move for the Company, as Polaron distributed certain of the Company's products in the UK and the Company distributed Polaron products in North America and Asia. MSI had been manufacturing Polaron pressure products in its wholly owned subsidiary in China. The transaction was recorded as a purchase, and is included in the consolidated financial results from the date of acquisition through September 30, 2005. The Company has recorded goodwill of $1,093 and intangibles of $1,003 for the acquisition. Set forth below is a summary of the amount of purchase price allocated to intangibles related to the Polaron acquisition:

Description
 
Life
 
Value
 
Customer relationships
   
8 years
 
$
900
 
Backlog
   
1 year
   
103
 
 
     
$
1,003
 

Below is a condensed balance sheet for the acquired business on the date of acquisition:
 
POLARON COMPONENTS LTD.
 
CONDENSED BALANCE SHEET
 
OF ACQUIRED ENTITY AT
 
FEBRUARY 1, 2005
 
 
 
 
 
Assets:
     
Inventory
 
$
388
 
Property and equipment
   
7
 
Net Assets Acquired
 
$
395
 

The following represents the Company's pro forma consolidated results of operations for the period assuming all the above acquisitions had occurred as of April 1, 2004, giving effect to purchase accounting adjustments. The pro forma data is for informational purposes only and may not necessarily reflect results of operations had all the acquired companies been operated as part of the Company since April 1, 2004.

 
 
Three months ended
 
Six months ended
 
 
 
September 30, 2004
 
September 30, 2004
 
 
 
 
 
 
 
Net sales
 
$
38,261
 
$
73,925
 
Net income
   
3,381
   
6,519
 
Net income per common share:
         
Basic
   
0.25
   
0.49
 
Diluted
   
0.24
   
0.46
 
 
18

Acquired Intangibles:

In connection with current and previous acquisitions, the Company acquired certain identifiable intangible assets, including customer relationships, proprietary technology, patents, trade names, covenants not-to-compete and order backlogs. The gross amounts and accumulated amortization of acquired and existing intangible assets, along with the range of amortizable lives are as follows:

       
September 30, 2005
 
March 31, 2005
 
   
Life in years
 
Gross Amount
 
Accumulated Amortization
 
Net
 
Gross Amount
 
Accumulated Amortization
 
Net
 
Amortizable intangible assets:
                                           
Customer relationships
   
7-8
 
$
4,746
   
($516
)
$
4,230
 
$
4,923
   
($230
)
$
4,693
 
Patents
   
6-19.5
   
2,462
   
(324
)
 
2,138
   
2,559
   
(221
)
 
2,338
 
Tradenames
   
3
   
216
   
(60
)
 
156
   
232
   
(41
)
 
191
 
Backlogs
   
1
   
498
   
(410
)
 
88
   
515
   
(177
)
 
338
 
Covenants not-to-compete
   
3
   
903
   
(372
)
 
531
   
903
   
(222
)
 
681
 
Proprietary technology
   
10
   
510
   
(64
)
 
446
   
510
   
(38
)
 
472
 
           
9,335
   
(1,746
)
 
7,589
   
9,642
   
(929
)
 
8,713
 
Unamortizable intangible assets:
                                       
-
 
Customer relationships
   
Indefinite
   
1,870
   
-
   
1,870
   
1,870
   
-
   
1,870
 
         
$
11,205
   
($1,746
)
$
9,459
 
$
11,512
   
($929
)
$
10,583
 

Annual amortization expense is expected to approximate as follows:

Fiscal Year
 
Amortization Expense
 
2006
 
$
1,571
 
2007
   
1,220
 
2008
   
973
 
2009
   
840
 
2010
   
839
 
Thereafter
   
3,270
 

Deferred Acquisition Payments:

In connection with the acquisitions, following is a summary of the deferred acquisition payments outstanding at September 30, 2005:

   
Current
 
Long-term
 
Total
 
Entran
 
$
2,254
       
$
2,254
 
Humirel
   
-
   
1,747
   
1,747
 
MWS Sensorik
   
320
   
-
   
320
 
   
$
2,574
 
$
1,747
 
$
4,321
 

19

8. SEGMENT INFORMATION:

The Company has two business segments, a Sensor segment and a Consumer Products segment.

The Company's Sensor segment designs and manufactures sensors for original equipment manufacturers and end users. These sensors are used for automotive, medical, consumer, military/aerospace and industrial applications. These sensor products include pressure and electromagnetic displacement sensors, piezoelectric polymer film sensors, panel sensors, custom microstructures, load cells, accelerometers, optical sensors, and humidity sensors.

The Company's Consumer Products segment designs and manufactures sensor-based consumer products that are sold to retailers and distributors in both the United States and Europe. Consumer products include bathroom and kitchen scales, tire pressure gauges and distance estimators. The Company sold its branded bathroom and kitchen scale business to Conair Corporation on January 30, 2004. Accordingly, in the scale business, the Company sells primarily as an original equipment manufacturer (OEM) to retailers and distributors.

Segment data have been presented on a basis consistent with how business activities are reported internally to management. The Company has no material inter-segment sales. The following is information related to industry segments:

 
 
Three months ended September 30,
 
Six months ended September 30,
 
 
 
2005
 
2004
 
2005
 
2004
 
Net sales:
                 
Sensors
 
$
29,570
 
$
23,553
 
$
54,848
 
$
40,694
 
Consumer Products
   
14,835
   
12,658
   
30,064
   
23,537
 
Total
   
44,405
   
36,211
   
84,912
   
64,231
 
Operating income :
                 
Sensors
   
6,326
   
5,444
   
10,651
   
10,917
 
Consumer Products
   
2,550
   
2,060
   
4,777
   
3,374
 
Total segment operating income
   
8,876
   
7,504
   
15,428
   
14,291
 
Corporate expenses
   
(1,675
)
 
(1,662
)
 
(3,739
)
 
(3,868
)
Total operating income
   
7,201
   
5,842
   
11,689
   
10,423
 
Interest expense, net
   
486
   
108
   
958
   
97
 
Other expense (income), net
   
(64
)
 
67
   
(21
)
 
50
 
Income before income taxes
   
6,779
   
5,667
   
10,752
   
10,276
 
Income taxes
   
2,434
   
1,613
   
3,472
   
2,927
 
Net income
 
$
4,345
 
$
4,054
 
$
7,280
 
$
7,349
 

 
 
September 30,
 
March 31,
 
 
 
2005
 
2005
 
Segment Assets
           
Consumer Products
 
$
19,968
 
$
16,812
 
Sensors
   
79,586
   
74,029
 
Unallocated
   
34,907
   
35,163
 
Total
 
$
134,461
 
$
126,004
 

The following is geographic information related to net sales and long-lived assets. Net sales are specific to the country from which the product is invoiced. Long-lived assets include net property, plant and equipment, but exclude net intangible assets and goodwill, based on respective location of the Company’s operation.

20


   
Six months ended September 30,
 
   
2005
 
2004
 
Net Sales:
             
               
United States
 
$
35,107
 
$
31,783
 
Europe
   
8,197
   
2,698
 
Asia and Other
   
41,608
   
29,750
 
Total:
 
$
84,912
 
$
64,231
 
 
   
September 30, 2005
 
March 31, 2005
 
Long lived assets:
     
United States
 
$
3,740
 
$
2,904
 
Europe
   
3,036
   
3,182
 
China
   
9,434
   
8,838
 
Total:
 
$
16,210
 
$
14,924
 
 
9. COMMITMENTS AND CONTINGENCIES:

Legal Proceedings

Pending Matters

Robert L. DeWelt v. Measurement Specialties, Inc. et al., Civil Action No. 02-CV-3431. On July 17, 2002, Robert DeWelt, the former acting Chief Financial Officer and former acting general manager of the Company’s Schaevitz Division, filed a lawsuit against the Company and certain officers and directors of the Company in the United States District Court of the District of New Jersey. Mr. DeWelt resigned on March 26, 2002 in disagreement with management’s decision not to restate certain of our 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 filed a Motion to Dismiss this case, which was denied on June 30, 2003. The Company has answered the complaint and is engaged in the discovery process. This litigation is ongoing and the Company cannot predict its outcome at this time.

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 was defendant in a lawsuit filed in March 2001 by Service Merchandise Company, Inc. ("SMC") and its related debtors (collectively, the "Debtors") in the United States District Court for the Middle District of Tennessee 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. On March 30, 2004, the court entered an order allowing written discovery in the form of interrogatories and requests for production of documents to begin. All other discovery remains stayed. The action alleged that the Company received approximately $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 we would have received if the cases were cases under Chapter 7 of the United States Bankruptcy Code. The action sought to disgorge the sum of approximately $645 from the Company. During the quarter ended September 30, 2005, the Company settled the SMC suit by paying $303, which was approximately the amount that had been accrued for this matter.

21

SEB Patent Issue. On December 12, 2003, Babyliss, SA, a wholly owned subsidiary of Conair Corporation, received notice from the SEB Group ("SEB") alleging that certain bathroom scales manufactured by the Company and sold by Babyliss in France violated certain patents owned by SEB. On May 19, 2004, SEB issued a Writ of Summons to Babyliss and the Company, alleging patent infringement and requesting the Tribunal de Grande Instance de Paris to grant them unspecified monetary damages and injunctive relief. Pursuant to the indemnification provisions of the Conair transaction, the Company has assumed defense of this matter. After thorough review, the Company believes SEB's allegations of patent infringement are without merit and the Company intends to defend the Company’s position vigorously.   On November 9, 2004, the Company requested of the Tribunal de Grande Instance de Paris a declaration of non-infringement of the SEB patent with regard to certain weighing sensor design known as an "M" design included in certain of our bathroom scales other than those to which SEB has alleged infringement.  On March 14, 2005, the Company filed pleadings with the Tribunal seeking nullity of the SEB patent and a ruling of non-infringement of the SEB patent with respect to the "M" design.  On June 13, 2005, SEB filed a reply with the Tribunal arguing validity of its patent, requesting dismissal of the request for nullity of the SEB patent and the request for the declaration of non-infringement with regard to the "M" design, and again requesting a ruling and relief on the patent infringement charge. On September 26, 2005, the Company filed reply pleadings with the Tribunal addressing the matters raised by SEB in its reply dated June 13, 2005, and again requested the Tribunal nullify claims of the SEB patent, declare the infringement action groundless, and provide a ruling of non-infringement of the SEB patent with respect to the "M" design.  At this time, the Company cannot predict the outcome of this matter.

From time to time, the Company is 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 the Company believes will have, individually or in the aggregate, a material adverse effect on the Company’s business, financial condition, or operating results.
 
Warranty Reserve

The Company's sensor products generally have a warranty period of 1 year, and consumer products generally are marketed under warranties to retailers up to five years. Factors affecting the Company's warranty liability include the number of products sold and historical and anticipated rates of claims and cost per claim. The Company provides for estimated product warranty obligations at the time of sale, based on its historical warranty claims experience and assumptions about future warranty claims. This estimate is susceptible to changes in the near term based on introductions of new products, product quality improvements and changes in end user application and/or behavior.
 
Acquisition Earn-outs

As disclosed in Note 7 above, in connection with the Humirel acquisition, the Company has potential performance based earn-outs totaling 6,300 Euro (or approximately $7,585), if the maximum performance targets are achieved.

10. DERIVATIVE INSTRUMENTS

The Company has a number of forward purchase currency contracts with exercise dates through September 30, 2006 with a total notional amount of $8,428 at an average exchange rate of $1.26 (in US dollars) to hedge Humirel’s exposure to fluctuation in the US dollar relative to the Euro. As of September 30, 2005, the fair value of the currency contracts was a loss of $28.

11. RELATED PARTY TRANSACTIONS:

Executive Services and Non-Cash Equity Based Compensation

On April 21, 2003, the Compensation Committee of the Company's Board of Directors reached a verbal agreement with Frank Guidone regarding his long term retention as Chief Executive Officer. Definitive agreements memorializing this arrangement were entered into on July 22, 2003, between the Company and Four Corners Capital Partners, LP ("Four Corners"), a limited partnership of which Mr. Guidone is a principal. Pursuant to this arrangement, Four Corners will make Mr. Guidone available to serve as the Company's Chief Executive Officer for which it will receive an annual fee of $400 (plus travel costs for Mr. Guidone) and will be eligible to receive a performance-based bonus. The agreement is for an indefinite period of time and both parties have the right to terminate the agreement on sixty day's advance notice. Payments under this agreement to Four Corners in the six months ended September 30, 2005 and 2004 were $263 ($200 for executive services and $63 for expenses), and $241 ($200 for executive services and $41 for expenses), respectively.

22

In addition, in connection with this arrangement, Mr. Guidone entered into a non-competition agreement.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

FORWARD-LOOKING STATEMENTS

This discussion 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 are forward-looking statements. The forward-looking statements below 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:

·   
Conditions in the general economy and in the markets served by us;
·   
Competitive factors, such as price pressures and the potential emergence of rival technologies;
·   
Interruptions of suppliers' operations or the refusal of our suppliers to provide us with component materials;
·   
Timely development, market acceptance and warranty performance of new products;
·   
Changes in product mix, costs and yields and fluctuations in foreign currency exchange rates;
·   
Uncertainties related to doing business in Europe, Hong Kong and China;
·   
The continued decline in the European consumer products market;
·   
A decline in the United States consumer products market;
·   
Legal proceedings described below under "Part II. Item 1 - Legal Proceedings"; and
·   
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.

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, position, force, vibration, humidity and photo optics. We have two segments, the Sensor and Consumer Products.

Our Sensor segment designs and manufactures sensors for original equipment manufacturers and end users. These sensors are used for automotive, medical, consumer, military/aerospace and industrial applications. Our sensor products include pressure and electromagnetic displacement sensors, piezoelectric polymer film sensors, panel sensors, custom microstructures, load cells, accelerometers, optical sensors and humidity sensors.

Our Consumer Products segment designs and manufactures sensor-based consumer products that we sell primarily as an original equipment manufacturer to retailers and distributors in both the United States and Europe. Consumer products include bathroom and kitchen scales, tire pressure gauges and distance estimators.

23

OUR VISION AND STRATEGY

Our Vision is to become a leading, global provider of sensors and sensor-based solutions to the OEM and end-user markets. Our Strategy to achieve this Vision is to:
 
-  
Provide application specific solutions - not simply products - to our customers with respect to their needs regarding sensing physical characteristics;
-  
Focus on OEM, medium-to-high volume, application-engineered opportunities, where our design strength can make the difference;
-  
Take market share by leveraging the breadth of our technology portfolio and low-cost operating model. Grow 15% organically per year by:
o  
Our willingness to customize (standard platforms, custom solutions)
o  
Being a cost and service leader
o  
Expanding our share in Europe and Asia
o  
Efficiently servicing the low volume/end-user market
-  
Expand our addressable market by acquiring additional sensing technologies and expanding horizontally in the marketplace (versus vertically integrating). These acquisitions will allow us to address a larger portion of the sensor market, and increase our effectiveness cross-selling various sensor solutions to the same customer.

Our Sensor Division’s net sales grew organically by 15% during fiscal year 2004 as compared to fiscal year 2003, and by 23% during fiscal year 2005 as compared to fiscal year 2004. We estimate the market growth at approximately 5%. While this implies we are taking market share, we estimate our addressable market at $3 to $4 billion worldwide, and as such, our share of market is relatively small (approximately 3%). Consistent with our expansion strategy, we acquired six companies in fiscal year 2005. Of these, three were considered “tuck” acquisitions, where we acquired similar technology, but gained new customers. In these cases, we look to leverage our existing assets as much as possible and drive operational synergies. The remaining three acquisitions represented technology expansions, where we acquired a new technology that allowed us to expand our total addressable market. We intend to continue to focus on small, accretive acquisitions in the future, and leverage the fragmentation in the marketplace.

To finance our acquisitions, we have used a combination of cash, seller financing (including earn-out structures) and bank debt. We currently have a $35 million credit facility with General Electric Capital Corporation, which includes a $20 million term loan and a $15 million revolving credit facility of which $12,500 was available at September 30, 2005. It is our expectation and intent to use cash and add additional debt as appropriate to finance future acquisitions, generally staying within a two times senior debt to EBITDA (defined as “earnings before interest, taxes, depreciation and amortization”) ratio. Additionally, to fund future acquisitions we would consider the issuance of subordinated debt, or the sale of equity securities, or the sale of existing Company assets, and are actively pursuing sale of assets in our Consumer Products segment. Consistent with our Vision and Strategy to transition to a sensor-only business, we are currently engaged in preliminary discussions with a potential buyer to sell our Consumer Products segment, subject to the satisfactory completion of the negotiations and the drafting of a definitive agreement.
 

The following table sets forth, for the periods indicated, certain items in our consolidated statements of operations as a percentage of net sales:

 
 
For three months ended September 30,
 
For six months ended September 30,
 
 
 
2005
 
2004
 
2005
 
2004
 
Net Sales:
                 
Sensors
   
66.6
%
 
65.0
%
 
64.6
%
 
63.4
%
Consumer Products
   
33.4
   
35.0
   
35.4
   
36.6
 
Total net sales
   
100.0
   
100.0
   
100.0
   
100.0
 
 
                 
Cost of Sales
   
60.7
   
58.2
   
60.5
   
56.9
 
Gross profit
   
39.3
   
41.8
   
39.5
   
43.1
 
 
                 
Operating expenses (income)
                 
Selling, general, and administrative
   
20.5
   
23.4
   
22.8
   
24.5
 
Research and development, net
   
2.1
   
2.3
   
2.2
   
2.6
 
Customer funded development
   
(0.4
)
 
(0.1
)
 
(0.3
)
 
(0.2
)
Amortization of acquired intangibles
   
0.9
   
-
   
1.0
   
-
 
Interest expense, net
   
1.0
   
0.3
   
1.1
   
0.2
 
Other expenses (income), net
   
(0.1
)
 
0.2
   
(0.0
)
 
0.0
 
 
   
24.0
   
26.1
   
26.8
   
27.1
 
 
                 
Income before income taxes
   
15.3
   
15.6
   
12.7
   
16.0
 
Income tax expense
   
5.5
   
4.5
   
4.1
   
4.6
 
Net income
   
9.8
%
 
11.1
%
 
8.6
%
 
11.4
%

Trends.

Sensor Business: As discussed above, the sensors market is highly fragmented with hundreds of niche players. While the worldwide sensors market that we serve is expected to have a 5% Compound Annual Growth Rate (CAGR), we expect to gain share and grow our Sensor business in excess of the market. As a result of this growth strategy, we anticipate pursuing high volume sensor business that will carry lower gross margins than our traditional averages, which may influence our overall sensor gross margins. Accordingly, we anticipate average gross margins in the sensor division to decline to 46% from 50% for the fiscal year ending March 31, 2006.

Consumer Products Business: As a result of the Conair transaction, we now supply bath and kitchen scales solely as an OEM supplier for sale under their labels. As OEM margins historically have been lower than retail margins, including the effect of the amortized gain related to the Conair transaction, we anticipate gross margins in the Consumer Products for Conair, non-Conair scales, and tire gauge business to be in the 21% - 22% range for the fiscal year ending March 31, 2006.

RESULTS OF OPERATIONS

THE FOLLOWING TABLE SETS FORTH CERTAIN ITEMS IN OUR CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004, RESPECTIVELY:

 
 
For the three months
 
 
 
ended September 30,
 
(Dollars in thousands)
 
2005
 
2004
 
Net Sales - Sensor
 
$
29,570
 
$
23,553
 
Net Sales - Consumer Products
   
14,835
   
12,658
 
Net sales
   
44,405
   
36,211
 
Cost of goods sold
   
26,950
   
21,082
 
Gross profit
   
17,455
   
15,129
 
Operating expenses (income):
         
Selling, general and administrative
   
9,118
   
8,474
 
Research and development
   
918
   
848
 
Customer funded development
   
(184
)
 
(43
)
Amortization of acquired intangibles
   
402
   
8
 
Total operating expenses
   
10,254
   
9,287
 
Operating income
   
7,201
   
5,842
 
Interest expense, net
   
486
   
108
 
Other expense, net
   
(64
)
 
67
 
Income before taxes
   
6,779
   
5,667
 
Income taxes
   
2,434
   
1,613
 
Net income
 
$
4,345
 
$
4,054
 

24

THREE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2004

The consolidated financial statements for the three month periods ended September 30, 2005 and September 30, 2004 include the results of the ongoing operations of Measurement Specialties, Inc. and its subsidiaries.

Net Sales.

Sensor Business. Net sales of the Sensor business increased 25.5% or $6,017 from $23,553 to $29,570. Excluding net sales from acquisitions completed during the year ended March 31, 2005, of $8,340 and $4,556 for quarters ended September 30, 2005 and 2004, respectively, net sales increased $2,233, or 11.8%. The increase in net sales for our base Sensor business for the quarter ended September 30, 2005 is primarily a result of increased demand in our Pressure product line, the Company’s largest.

This increased demand is primarily in the automotive sector, the result of continued platform expansion of our existing Microfused™ pressure products. In addition, we are seeing adoption of MSI's proprietary Microfused™ load cell technology (force sensors) for occupant weight sensing in automobiles.  We would expect sales growth in this sector to continue to grow as compared to last year. We are also seeing moderate growth in the Pressure line for a variety of applications in the non-automotive segment, as our customer base grows and key customer’s ramp up production. Sales in our Position product line decreased due to one time shipments made in the prior year. However, we expect the Position portion of our business to pick up slightly in the remaining months of fiscal 2006. The Sensor business remains very healthy and we anticipate growth prospects for both new and existing product lines.

Consumer Products Business. Net sales for our Consumer Products business increased 17.2% or $2,177 in the quarter ended September 30, 2005.  Net sales were strong for bath scales to U.S. and European customers. Worldwide tire gauge business increased 7%, or $238. Worldwide bath scale business increased 17% or $1,939. On an overall basis, we expect full year net sales for the Consumer Products business to be up slightly as compared to fiscal year 2005.

Gross Margin.

Gross margin as a percent of net sales decreased to 39.3% for the quarter ended September 30, 2005 from 41.8% for the quarter ended September 30, 2004.

Sensor Business. Gross margin as a percent of net sales for our base Sensor business (which excludes the effects of acquisitions) decreased to 49.4% for the quarter ended September 30, 2005 from 50.6% for the quarter ended September 30, 2004. This decline in margin is mainly due to the decrease in pricing in order to secure a larger volume of business with a major automotive customer, and the resulting increase in sales of these automotive sensors, which carry a lower gross margin than our average sensor business. Also contributing to the margin decline is higher commodity costs in our core sensors business. Including acquisition sales, gross margin as a percent of sales for our Sensor business decreased to 46.5% from 48.6%. Average gross margin of the acquired businesses is approximately 39.4% which is significantly less than the core sensor business.

25

Consumer Products Business.  Gross margin as a percent of net sales in our Consumer Products business decreased to 25.0% for the quarter ended September 30, 2005 from 27.6% for the quarter ended September 30, 2004.  The decrease in margin was the result of declining prices for products due to competitive pressures in the bath scale business, and changing product and customer mix in the tire gauge business. Declining prices for bath scales were offset somewhat by the sourcing of some finished goods at lower cost factories in China.

On a continuing basis our gross margin in the Sensor and Consumer Products businesses may vary due to product mix, sales volume, availability of raw materials, foreign currency exchange rates, and other factors.

Selling , General and Administrative. Selling, General and Administrative (SG&A) expenses increased from $8,474 for the quarter ended September 30, 2004 to $9,118 for the quarter ended September 30, 2005. Excluding SG&A expenses specifically associated with the acquired companies, SG&A expenses increased by approximately $300, which is due mainly to an increase in wage and benefit expense.

Research and Development. Customer-funded development for the quarter ended September 30, 2005 increased to $184 compared to $43 for the quarter ended September 30, 2004. On a net basis, research and development costs decreased $71. The overall decrease on a net basis is due to higher customer funded development associated with related research and development costs, which more than offset the increase in related engineering costs.

Amortization of acquired intangibles. The $394 increase in amortization expense is due to the amortization of the acquired intangibles, such as customer relationships, patents and trade-names, directly related to the acquisitions during fiscal 2005.

Interest Expense, Net. The increase in interest expense is attributable to an increase in average debt outstanding from $3,681 for the quarter ended September 30, 2004 to $19,584 for the quarter ended September 30, 2005, as well as higher interest rates. The increase in debt was due to the acquisitions.

Income Taxes. The increase in the effective tax rate from 28.5% during the quarter ended September 30, 2004 to approximately 35.9% during the quarter ended September 30, 2005 primarily reflects the impact of an adjustment to reduce the net deferred tax assets resulting from a lower US tax rate. Excluding the effects of the adjustments described below, the Company’s effective tax rate during the quarter ended September 30, 2005 would have been approximately 25.45%.

During the quarter ended September 30, 2005, there was a larger apportionment to a state with a lower tax rate, since the Company has centralized the principal headquarters and much of the manufacturing operations in the U.S. to Hampton, Virginia from New Jersey. This has resulted in a lower effective tax rate for the U.S. The effective tax rate in the United States has decreased from 40% to approximately 38.20%. Accordingly, there was a $695 adjustment to write-down the related net deferred tax assets based on this lower U.S. tax rate, as well as a $14 adjustment related to a change in foreign tax rates.

Our provision for income taxes differs from the statutory U.S. federal income tax rate due to our estimation and distribution of the full year's tax rate based upon the expected taxable income taxed at the applicable jurisdiction tax rates. The aforementioned expectations and other estimates utilized in calculating the tax provision and our effective tax rate on a quarterly basis involve complex domestic and foreign tax issues and are monitored closely and subject to change based on ultimate circumstances. The utilization of a portion of the Company's net operating loss carry forward will reduce the Company's cash payment for the U.S. portion of the provision for income taxes.

We continue to evaluate the implications of the recently enacted American Jobs Creation Act of 2004. Due to, among other things, the volume of manufacturing in the U.S. and our net operating loss carry-forwards, we do not expect this Act to have an immediate or significant impact on our effective tax rates.

26

THE FOLLOWING TABLE SETS FORTH CERTAIN ITEMS IN OUR CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2005 AND 2004, RESPECTIVELY:

 
 
For the six months
 
 
 
ended September 30,
 
(Dollars in thousands)
 
2005
 
2004
 
Net Sales - Sensor
 
$
54,848
 
$
40,694
 
Net Sales - Consumer Products
   
30,064
   
23,537
 
Net sales
   
84,912
   
64,231
 
Cost of goods sold
   
51,366
   
36,525
 
Gross profit
   
33,546
   
27,706
 
Operating expenses (income):
         
Selling, general and administrative
   
19,405
   
15,748
 
Research and development
   
1,862
   
1,657
 
Customer funded development
   
(240
)
 
(138
)
Amortization of acquired intangibles
   
830
   
16
 
Total operating expenses
   
21,857
   
17,283
 
Operating income
   
11,689
   
10,423
 
Interest expense, net
   
958
   
97
 
Other expense, net
   
(21
)
 
50
 
Income before taxes
   
10,752
   
10,276
 
Income taxes
   
3,472
   
2,927
 
Net income
 
$
7,280
 
$
7,349
 

SIX MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30, 2004

The consolidated financial statements for the six month period ended September 30, 2005 and September 30, 2004 include the results of the ongoing operations of Measurement Specialties, Inc. and its subsidiaries.

Net Sales.

Sensor Business. Net sales for our Sensor business increased 34.8% or $14,154 from $40,694 to $54,848. Excluding fiscal 2006 net sales for fiscal 2005 acquisitions of $14,980, and fiscal 2005 net sales for fiscal 2005 acquisitions of $4,639, net sales for the six months ended September 30, 2005 and 2004, respectively, increased $3,813, or 10.6%. The increase in net sales for our base Sensor business in the six months ended September 30, 2005 is primarily a result of increased demand in our Pressure product line.

This increased demand is primarily in the automotive sector, the result of continued platform expansion of our existing Microfused™ pressure products. In addition, we are seeing adoption of  our proprietary Microfused™ load cell technology (force sensors) for occupant weight sensing in automobiles. We expect this growth to continue and perhaps accelerate this year’s net sales as compared to last year's net sales for this sector. We are also seeing moderate growth in the Pressure line for a variety of applications in the non-automotive segment as our customer base grows and key customer’s ramp up production. Sales in our Position product line decreased due to one time shipments made in the prior year. However, we expect the Position portion of our business to pick up slightly in the remaining months of fiscal 2006. The Sensor business remains very healthy and we anticipate growth prospects for both new and existing product lines.

Consumer Products Business Net sales for our Consumer Products business increased 27.7%, or $6,527 for the six month period ended September 30, 2005. Net sales of bathroom scales were strong for both quarters as compared with the prior year, as Conair and other large customers continue to win more new placements with our designs. On an overall basis, we expect full year net sales for the Consumer Products business to be up slightly as compared to fiscal year 2005.

27

Gross Margin.

Gross margin as a percent of net sales for the six months ended September 30, 2005 decreased to 39.5% from 43.1% for the six months ended September 30, 2004.

Sensor Business. Gross margin as a percent of net sales for our base Sensor business (which excludes the effects of acquisitions) decreased to 51.1% for the six months ended September 30, 2005 from 53.5% for the six months ended September 30, 2004. This decline in margin is due to the decrease in pricing in order to secure a larger volume of business with a major automotive and industrial customers, and the resulting increase in net sales of these automotive sensors, which carry a lower gross margin than our average sensor business. Also contributing to the margin decline is higher raw material costs in our core sensors business, as well as the change in the US dollar/Chinese renminbi currency exchange rate. Including acquisition sales, gross margin as a percent of sales for our Sensor business decreased to 48.0% from 52.0%. Average gross margin of the acquired businesses is approximately 39.9% which is significantly less than the core sensor business.

Consumer Products Business.  Gross margin as a percent of net sales in the Consumer Products business decreased to 24.1% for the six month period ended September 30, 2005 from 26.1% for the six month period ended September 30, 2004.  The decrease in margin was the result of declining prices for products due to competitive pressures and customer mix, as outlined for the three month period ending September 30, 2005 above.

On a continuing basis our gross margin in the Sensor and Consumer Products businesses may vary due to product mix, sales volume, availability of raw materials, foreign currency exchange rates and other factors.

Selling , General and Administrative. Selling, General and Administrative (SG&A) expenses increased from $15,748 for the six months ended September 30, 2004 to $19,405 for the six months ended September 30, 2005. Excluding SG&A expenses specifically associated with the acquired companies, SG&A expenses increased by approximately $650. The prior year SG&A costs were lower than normal due to several miscellaneous items including a $200 insurance refund received during the six months ended September 30, 2004. Additionally, SG&A expenses were higher than normal because of severance and relocation costs incurred during the six months ended September 30, 2005.

During the quarter ended June 30, 2005, the Company executed certain cost reduction efforts to reduce operating expenses, including fully vacating the Entran facility in the U.S., as well as an overall staff reduction at other locations, resulting in severance and other related costs of approximately $379. The positive effect of these efforts will not be fully realized until later quarters in fiscal 2006. Additionally, professional fees increased largely to support the continued efforts associated with Sarbanes-Oxley compliance and the acquisitions.

Research and Development. Customer-funded development for the six months ended September 30, 2005 increased to $240 compared to $138 for the six months ended September 30, 2004. On a net basis, research and development costs increased $103. The overall increase has occurred as additional engineering resources have been utilized in order to support anticipated growth, as well as the effect of acquisitions.

Amortization of acquired intangibles. The $814 increase in amortization expense is due to the amortization of the acquired intangibles, such as customer relationships, patents and trade-names, directly related to the acquisitions during fiscal 2005.

Interest Expense, Net. The increase in interest expense is attributable to an increase in average debt outstanding from $2,103 for the six months ended September 30, 2004 to $19,761 for the six months ended September 30, 2005, as well as higher interest rates. The increase in debt was due to the acquisitions.

Income Taxes. The increase in the effective tax rate from 28.5% during the six months ended September 30, 2004 to approximately 32.3% during the six months ended September 30, 2005 primarily reflects the impact of an adjustment to reduce the net deferred tax assets resulting from a lower U.S. tax rate.
 
28

During the six months ended September 30, 2005, there was a larger apportionment to a state with a lower tax rate, since the Company has centralized the principal headquarters and much of the manufacturing operations in the U.S. to Hampton, Virginia from New Jersey. This has resulted in a lower effective tax rate for the U.S. The effective tax rate in the United States has decreased from 40% to approximately 38.2%. Accordingly, there was a $695 adjustment that increased income tax expense to write-down the related U.S. net deferred tax assets based on this lower U.S. tax rate, as well as a $14 adjustment related to a change in foreign tax rates.
 
Excluding the effects of the above adjustments, the Company’s effective tax rate during the six months ended September 30, 2005 would have been approximately 25.50%.

We continue to evaluate the implications of the recently enacted American Jobs Creation Act of 2004. Due to, among other things, the volume of manufacturing in the U.S. and our net operating loss carry-forwards, we do not expect this Act to have an immediate or significant impact on our effective tax rates.

Chinese Renminbi Revaluation.

On July 21, 2005, the renminbi increased in value by approximately 2.1% as compared to the U.S. dollar. The Chinese government announced that it will no longer peg the renminbi to the U.S. dollar, but established a currency policy letting the renminbi trade in a narrow band against a basket of currencies. Based on our net exposure of renminbi to U.S. dollars for the fiscal year ended March 31, 2005 and forecast information for fiscal 2006, we estimate a negative operating income impact of approximately $135 for every 1% appreciation in renminbi against the U.S. dollar (assuming no associated cost increases or currency hedging). The July 21, 2005 revaluation has resulted in a realized foreign exchange currency loss of approximately $60 included in "Other expenses." The Company continues to consider various alternatives to hedge this exposure, and has considered, but does not currently use, foreign currency contracts as a hedging strategy. The Company is attempting to manage this exposure through, among other things, pricing and monitoring balance sheet exposures for payables and receivables. See Item 3 below, “Quantitative and Qualitative Disclosures about Market Risk”, for additional details regarding the Company’s exposure to fluctuations in foreign currency exchange rates.

LIQUIDITY AND CAPITAL RESOURCES

Operating working capital (accounts receivable plus inventory less accounts payable) increased by $2,116 from $27,257 as of March 31, 2005 to $29,373 as of September 30, 2005. The increase in operating working capital was attributable to a increase in accounts receivable of $2,840 from $20,369 at March 31, 2005 to $23,209 at September 30, 2005, an increase in inventory of $3,022 from $20,282 at March 31, 2005 to $23,304 at September 30, 2005, and slightly offset by the increase in accounts payable of $3,746 to $17,140 at September 30, 2005 from $13,394 at March 31, 2005. The increase in accounts payable is due mainly to the overall increase in sales.

Cash provided from operating activities was $9,246 for the six months ended September 30, 2005, as compared to $2,006 provided for the six months ended September 30, 2004. The increase in cash provided by operations is mainly due to the increase in trade payables and income tax payable, higher collections from customers resulting from higher sales, as well as higher than normal payments last year for litigation expenses and larger non-cash amortization/depreciation and tax benefit on the exercise of stock options in fiscal 2006 as compared to the same period last year.

Net cash used in investing activities for the six months ended September 30, 2005 decreased relative to the corresponding period last year, primarily because there was no major activity for acquisitions of businesses during the current fiscal year. During the six months ended September 30, 2004, the Company made three acquisitions. The current year activity for acquisitions of businesses mainly reflects the final adjustments for related costs and purchase accounting. In addition, capital spending increased to $3,389 for the six months ended September 30, 2005 from $1,152 for the six months ended September 30, 2004. Capital spending is expected to be in the range of $5,500 to $6,500 for the fiscal year ended March 31, 2006.

29

Financing activities for the six months ended September 30, 2005 used $1,563, reflecting payments for promissory notes, term loan and deferred acquisition payments, which was partially offset by proceeds from the exercise of employee stock options and short-term debt borrowings.

On December 17, 2004, the Company entered into a $35,000 five-year credit agreement with GE Commercial Finance, Commercial & Industrial Finance (“GE” or “GECC”), comprised of a $20,000 term loan and $15,000 revolving credit facility. JP Morgan Chase Bank, N.A. and Wachovia Bank, National Association, participated in the syndication. Interest accrues on the principal amount of borrowings at a rate based on either a London Inter-bank Offered Rate (LIBOR) rate plus a LIBOR margin or at an Index (a prime based) Rate plus an Index Margin. The LIBOR or Index Rate is at the election of the borrower. From the closing date to the second anniversary date of the closing, the applicable LIBOR and Index Margins are 4.50% and 2.75%, respectively, and from the second anniversary, the applicable LIBOR and Index Margins are 4.25% and 2.50%, respectively, subject to a 2% increase upon the occurrence of an event of default under the credit agreement. The term loan is payable in nineteen equal quarterly installments beginning on March 1, 2005 through December 17, 2009. Proceeds from the new credit facility were primarily used to support the acquisition of Humirel (See Note 7 to the Condensed Consolidated Financial Statements), for ordinary working capital and general corporate needs and to replace the $15,000 revolving credit facility with Bank of America Business Capital (formerly Fleet Capital Corporation). The Company has provided a security interest in substantially all of the Company’s assets as collateral for the new credit facilities. Borrowings under the line are subject to certain financial covenants and restrictions on indebtedness, dividend payments, financial guarantees, and other related items. At September 30, 2005, the Company was in compliance with applicable debt covenants.

As of September 30, 2005, the Company utilized the LIBOR based rate for the term loan and the prime based Index Rate for the revolving credit facility. As of September 30, 2005, the outstanding borrowings on the term loan and revolver were $18,500 and $2,500, respectively, and the Company had the right to borrow an additional $12,500 under the revolving credit facility. The revolving credit facility is not directly based on any borrowing base requirements.

The weighted average interest rate for the above credit facilities was 7.89% for the six months ended September 30, 2005. The average amount outstanding under the agreements for the six months ended September 30, 2005 was $19,761. As of September 30, 2005, the Company accrued interest of $269 in accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheet.

Promissory Notes

In connection with the acquisition of Elekon Industries USA, Inc. (See Note 7 to the Condensed Consolidated Financial Statements), the Company issued unsecured Promissory Notes (“Notes”) totaling $3,000, of which $1,600 was outstanding and $1,000 was considered current at September 30, 2005. The Notes amortize over a period of three years, are payable quarterly and bear interest at 6%.

Other Short-Term Debt

In connection with the acquisition of Entran and Humirel, the Company assumed outstanding short-term borrowings. At September 30, 2005, $441 of this assumed short-term borrowing remains outstanding and is included in short-term debt in the accompanying condensed consolidated balance sheet.

Liquidity:

At November 1, 2005, we had approximately $8,236 of available cash and $12,500 of borrowing capacity under our revolving credit facility. This amount includes the increased borrowing capacity resulting from the acquisitions.

OTHER COMPREHENSIVE INCOME

Other comprehensive income consists primarily of foreign currency translation adjustments. The increase in other comprehensive loss is due to the changes in the exchange rate of the U.S. dollar relative to the Euro for the Euro denominated operations of Humirel and Entran, as well as the recent fluctuation in the Chinese renminbi relative to the U.S. dollar.

30

DEFERRED REVENUE

On January 30, 2004, Conair Corporation purchased certain assets of our Thinner® branded bathroom and kitchen scale business, and now owns worldwide rights to the Thinner® brand name and exclusive rights to the Thinner® designs in North America. We accounted for the sale of this business under the guidance of EITF 00-21. During the six months ended September 30, 2005, the Company recognized $2,346 of the deferred revenue, and at September 30, 2005, there remained $1,418 in deferred revenue. As this deferred revenue becomes fully utilized, the Company expects to transition this business to products with higher prices, but there remains the risk that margins may decline after the deferred revenue is fully recognized.

DIVIDENDS

We have not declared cash dividends on our common equity. The payment of dividends is prohibited under the existing credit agreement with GE. 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. Sales of sensor products are not seasonal.

INFLATION

We compete on the basis of product design, features, and value. Accordingly, our revenues generally have kept pace with inflation, notwithstanding that inflation in the countries where our subsidiaries are located has been consistently higher than inflation in the United States. Increases in labor costs have not had a significant impact on our business because most of our employees are in China, where prevailing labor costs are low. However, we have experienced and may continue to experience some significant increases in materials costs, in particular increases in steel and resin costs in our consumer business, and as a result have suffered a decline in margin.

OFF BALANCE SHEET ARRANGEMENTS

We do not have any financial partnerships with unconsolidated entities, such as entities often referred to as structured finance, special purpose entities or variable interest entities which are often established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Accordingly, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had such relationships.

AGGREGATE CONTRACTUAL OBLIGATIONS

As of September 30, 2005, the Company's contractual obligations, including payments due by period, are as follows:

Contractual Obligations
 
   
Payment due by period
             
 
 
Year 1
 
Year 2
 
Year 3
 
Year 4
 
Year 5
 
Thereafter
 
Total
 
Long-Term Debt Obligations
 
$
3,247
 
$
2,862
 
$
2,445
 
$
2,359
 
$
10,640
 
$
47
 
$
21,600
 
                                             
Interest Obligation on Long-term Debt
   
1,665
   
1,404
   
1,215
   
1,035
               
5,319
 
                                             
Capital Lease Obligations
   
182
   
318
   
197
   
39
   
5
   
-
   
741
 
                                             
Operating Lease Obligations
   
1,939
   
1,998
   
1,082
   
1,050
   
1,076
   
2,978
   
10,123
 
                                             
Purchase Obligations
   
-
   
-
   
-
   
-
   
-
   
-
   
-
 
                                             
Deferred Acquisition Payments
   
2,254
   
2,067
   
-
   
-
   
-
   
-
   
4,321
 
                                             
Other Long-Term Liabilities Reflected on the Registrant's Balance Sheet Under GAAP
   
2,941
   
-
   
-
   
-
   
-
   
-
   
2,941
 
                                             
Total
 
$
12,228
 
$
8,649
 
$
4,939
 
$
4,483
 
$
11,721
 
$
3,025
 
$
45,045
 

31

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

(Dollars in thousands)

Foreign Currency Exchange Risk

We are exposed to a certain level of foreign currency exchange risk. Most of our revenues are priced in U.S. dollars. Most of our costs and expenses are priced in U.S. dollars, with the remaining priced in Chinese renminbi, Euros and Hong Kong dollars. Accordingly, the competitiveness of our products relative to products produced locally (in foreign markets) may be affected by the percentage of net sales in U.S. dollars compared with that of our foreign customers' currencies. U.S. net sales were approximately $35,100, or 41.3% of consolidated net sales for the six months ended September 30, 2005. Net sales from our China facility were approximately $24,300 (inclusive of approximately $11,500 intercompany sales) or 28.6% of consolidated net sales for the six months ended September 30, 2005. Net sales from our Hong Kong operation were approximately $28,800 or 33.9% of consolidated net sales for the six months ended September 30, 2005. Net sales from our European operations were approximately $8,200 or approximately 9.7% of consolidated net sales for the six months ended September 30, 2005. We are exposed to foreign currency transaction and translation losses, which might result from adverse fluctuations in the value of the Euro, Hong Kong dollar and Chinese renminbi.

At September 30, 2005 and March 31, 2005, we had net assets of approximately $49,100 and $48,000, respectively, in the United States. At September 30, 2005, we had net assets of $185 in Europe, subject to fluctuations in the value of the Euro against the U.S. dollar, and at March 31, 2005, we had net assets of $49 in Europe. The change in the value of the U.S. dollar relative to the Euro from March 31, 2005 to September 30, 2005 resulted in a translation decrease in total assets and total liabilities of approximately $2,000. At September 30, 2005 and March 31, 2005, we had net assets of approximately $14,300 and $9,500, respectively, in Hong Kong subject to fluctuations in the value of the Hong Kong dollar. At September 30, 2005 and March 31, 2005, we had net assets of approximately $11,700 and $10,455, respectively, in China subject to fluctuations in the value of the Chinese renminbi.

On July 21, 2005, the renminbi increased in value by approximately 2.1% as compared to the U.S. dollar. The Chinese government announced that it will no longer peg the renminbi to the US dollar, but established a currency policy letting the renminbi trade in a narrow band against a basket of currencies. Based on our net exposure of renminbi to U.S. dollars for the fiscal year ended March 31, 2005 and forecast information for fiscal 2006, we estimate a negative operating income impact of approximately $135 for every 1% appreciation in renminbi against the U.S. dollar (assuming no associated cost increases or currency hedging). We continue to consider various alternatives to hedge this exposure, and have considered, but do not currently use, foreign currency contracts as a hedging strategy. The Company is attempting to manage this exposure through, among other things, pricing and monitoring balance sheet exposures for payables and receivables.

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.

32

Based on the net exposures of Euros to the U.S. dollars for the quarter ended September 30, 2005, we estimate a positive operating income impact of $95 for every 1% appreciation in Euros relative to the US dollar (assuming no associated costs increases or currency hedging).

We have acquired a number of foreign currency exchange contracts with the purchase of Humirel. We have currency contracts which have a total notional amount of $8,428 with exercise dates through September 30, 2006 at an average exchange rate of $1.26 (Euro to U.S. dollar conversion rate) with a fair value of a loss of approximately $28 at September 30, 2005. The fair value and the change in the fair value of these currency contracts are not material to the condensed consolidated financial statements.

There can be no assurance that these currencies will remain stable or will fluctuate to our benefit. To manage our exposure to foreign currency transaction 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, other than for the foreign currency exchange contracts acquired with the purchase of Humirel, we have not done so.

Interest Rate Risk

We are exposed to a certain level of interest rate risk. Interest on the principal amount of our borrowings under our revolving credit facility accrues at a rate based on either a London Inter-bank Offered Rate (LIBOR) rate plus a LIBOR margin or at an Indexed (prime based) Rate plus an Index Margin. The LIBOR or Index Rate is at our election. Our results will be adversely affected by any increase in interest rates. For example, for every $1,000 of debt outstanding, an annual interest rate increase of 100 basis points would increase interest expense and decrease our after tax profitability by $10. We do not currently hedge this interest rate exposure.

ITEM 4. CONTROLS AND PROCEDURES

The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures as of September 30, 2005. Based on this evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective for gathering, analyzing and disclosing the information the Company is required to disclose in the reports it files under the Securities Exchange Act of 1934, within the time periods specified in the SEC's rules and forms. Such evaluation did not identify any change in the Company's internal control over financial reporting that occurred during the quarter ended September 30, 2005 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting, except that relating to the acquisitions of Humirel, and MWS Sensorik as of September 30, 2005 (See Note 2 to the condensed consolidated financial statements included in this Quarterly Report Filed on Form 10-Q.). The Company will be making changes to the internal controls of these newly acquired companies as part of the integration into the Company. However, for purposes of this evaluation, the impact of these acquisitions on the Company's internal controls over financial reporting have been excluded. The total of the Humirel and MWS Sensorik acquisitions represents approximately $5,846 in net sales; operating income of $800 for the six months ended September 30, 2005 and $6,049 in total assets and $5,669 in total liabilities at September 30, 2005, which are included as part of the Company's Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

33

PART II.  OTHER INFORMATION
 

ITEM 1. LEGAL PROCEEDINGS

(DOLLARS IN THOUSANDS)

Pending Matters

Robert L. DeWelt v. Measurement Specialties, Inc. et al., Civil Action No. 02-CV-3431. On July 17, 2002, Robert DeWelt, the former acting Chief Financial Officer and former acting general manager of the Company’s Schaevitz Division, filed a lawsuit against us and certain of our officers and directors in the United States District Court of the District of New Jersey. Mr. DeWelt resigned on March 26, 2002 in disagreement with management’s decision not to restate certain of our 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. We have filed a Motion to Dismiss this case, which was denied on June 30, 2003. We have answered the complaint and are engaged in the discovery process. This litigation is ongoing and we cannot predict its outcome at this time.

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 were defendant in a lawsuit filed in March 2001 by Service Merchandise Company, Inc. ("SMC") and its related debtors (collectively, the "Debtors") in the United States District Court for the Middle District of Tennessee 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. On March 30, 2004, the court entered an order allowing written discovery in the form of interrogatories and requests for production of documents to begin. All other discovery remains stayed. The action alleged that we received approximately $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 sought to disgorge the sum of approximately $645 from us. During the quarter ended September 30, 2005, we settled the suit by paying $303, which was approximately the amount that had been accrued for this matter.

SEB Patent Issue. On December 12, 2003, Babyliss, SA, a wholly owned subsidiary of Conair Corporation, received notice from the SEB Group ("SEB") alleging that certain bathroom scales manufactured by us and sold by Babyliss in France violated certain patents owned by SEB. On May 19, 2004, SEB issued a Writ of Summons to Babyliss and us, alleging patent infringement and requesting the Tribunal de Grande Instance de Paris to grant them unspecified monetary damages and injunctive relief. Pursuant to the indemnification provisions of the Conair transaction, the we have assumed defense of this matter. After thorough review, we believe SEB's allegations of patent infringement are without merit and we intend to defend the our position vigorously.   On November 9, 2004, we requested of the Tribunal de Grande Instance de Paris a declaration of non-infringement of the SEB patent with regard to certain weighing sensor design known as an "M" design included in certain of our bathroom scales other than those to which SEB has alleged infringement.  On March 14, 2005, we filed pleadings with the Tribunal seeking nullity of the SEB patent and a ruling of non-infringement of the SEB patent with respect to the "M" design.  On June 13, 2005, SEB filed a reply with the Tribunal arguing validity of its patent, requesting dismissal of the request for nullity of the SEB patent and the request for the declaration of non-infringement with regard to the "M" design, and again requesting a ruling and relief on the patent infringement charge. On September 26, 2005, we filed reply pleadings with the Tribunal addressing the matters raised by SEB in its reply dated June 13, 2005, and again requested the Tribunal nullify claims of the SEB patent, declare the infringement action groundless, and provide a ruling of non-infringement of the SEB patent with respect to the "M" design.  At this time, we cannot predict the outcome of this matter.

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. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS
 
Since January 1, 2000, our Savings Plan for Employees of Measurement Specialties, Inc. (the “401(k) Plan”) has offered, as one of several investment alternatives, the option to allocate contributions toward the purchase of shares of our common stock. Prior to today, such sales, and interests in the 401(k) Plan were not registered under federal or state securities laws. As a result, we may have failed to comply with the registration or qualification requirements of applicable federal and state securities laws. We are in the process of gathering information on the number of shares so purchased and the prices per share. We did not receive any of the proceeds of any election to allocate contributions toward the purchase of our shares under the 401(k) Plan.
 
To remedy the situation, we plan to file a registration statement on Form S-8 covering future sales of stock, and interests in the 401(k) Plan, on or about November 30, 2005. Participants in the 401(k) Plan who purchased shares of our common stock prior to the effectiveness of this registration statement on Form S-8 may have the right to rescind such prior purchase under federal and state securities laws.
 
ITEM 6.   EXHIBITS
 
EXHIBITS

EXHIBIT
NUMBER
DESCRIPTION
 
31.1*
Certification of Frank D. Guidone required by Rule 13a-14(a) or Rule 15d-14(a)
   
31.2 *
Certification of John P. Hopkins required by Rule 13a-14(a) or Rule 15d-14(a)
   
32.1
Certification of Frank D. Guidone and John P. Hopkins required by Rule 13a-14(b) or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
 
*     Revised Exhibit as set forth in the Explanatory Note above, filed herewith.
 
34

 
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)
 
 
 
 
 
 
Date: January 24, 2006 By:   /s/ John P. Hopkins
 
John P. Hopkins
 
Chief Financial Officer
(authorized officer and principal financial officer)
 
35