Edgar Filing: MEASUREMENT SPECIALTIES INC

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2004

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER: 1-11906

MEASUREMENT SPECIALTIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

NEW JERSEY 22-2378738
----------------------------- ---------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

10 WASHINGTON AVE., FAIRFIELD, NJ 07004-3877
----------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

(973) 808-3020
----------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

710 ROUTE 46 EAST, SUITE 206, FAIRFIELD, NJ 07004-3877
(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
--- ---

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act ).
Yes X No
--- ---
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: 13,536,344
shares of common stock, no par value per share, at February 4, 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. . . . . . . . . . . . . . . . . . . . . . . . 19

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK . . . . . 27

ITEM 4. CONTROLS AND PROCEDURES. . . . . . . . . . . . . . . . . . . . . . . 28

PART II. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . 28

ITEM 1. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . 28

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . 29

SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

ITEM 1. FINANCIAL STATEMENTS

MEASUREMENT SPECIALTIES, INC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)

FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
-----------------------------------------------------
2004 2003 2004 2003
-----------------------------------------------------

Net sales $ 36,016 $ 31,869 $ 100,247 $ 86,469
Cost of goods sold 20,898 17,823 57,424 47,527
-----------------------------------------------------
Gross profit 15,118 14,046 42,823 38,942
-----------------------------------------------------
Operating expenses (income):
Selling, general and administrative 9,037 8,018 24,785 23,019
Litigation expense - 400 - 400
Non-cash equity based compensation - 3,046 - 4,954
Research and development 919 850 2,576 2,610
Customer funded development (80) - (218) -
Restructuring costs and other costs - 545 - 545
-----------------------------------------------------
Total operating expenses 9,876 12,859 27,143 31,528
-----------------------------------------------------
Operating income 5,242 1,187 15,680 7,414
Interest expense, net 148 22 245 322
Other expense (income) 78 51 144 46
-----------------------------------------------------
Income from continuing operations before income tax 5,016 1,114 15,291 7,046
Income tax 1,429 226 4,358 772
-----------------------------------------------------
Income from continuing operations 3,587 888 10,933 6,274
Discontinued operations:
Income from discontinued units - - - 112
-----------------------------------------------------
Net income $ 3,587 $ 888 $ 10,933 $ 6,386
=====================================================
Income per common share - Basic
Income from continuing operations $ 0.27 $ 0.07 $ 0.82 $ 0.51
Income from discontinued units - - - 0.01
-----------------------------------------------------
Net income $ 0.27 $ 0.07 $ 0.82 $ 0.52
=====================================================
Income per common share - Diluted
Income from continuing operations $ 0.25 $ 0.06 $ 0.78 $ 0.45
Income from discontinued units - - - 0.01
-----------------------------------------------------
Net income $ 0.25 $ 0.06 $ 0.78 $ 0.46
-----------------------------------------------------
Weighted average shares outstanding - Basic 13,439,320 12,402,445 13,344,886 12,234,849
=====================================================

Weighted average shares outstanding - Diluted 14,204,853 14,004,490 14,089,032 13,905,942
=====================================================

SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

DECEMBER 31, MARCH 31,
2004 2004
----------------------------------------------------------- ------------- ----------

ASSETS

CURRENT ASSETS:
Cash and cash equivalents $ 7,480 $ 19,274
Accounts receivable, trade, net of allowance for doubtful
accounts of $1,104 and $327, respectively 19,671 14,010
Inventories, net 21,296 10,170
Deferred income taxes - current 6,728 6,317
Prepaid expenses and other current assets 2,267 3,267
------------- ----------
Total current assets 57,442 53,038
------------- ----------

PROPERTY AND EQUIPMENT, NET 14,254 10,628
------------- ----------

OTHER ASSETS:
Goodwill 40,998 4,191
Intangibles 5,082 -
Deferred income taxes - long term 5,195 8,486
Other assets 1,846 657
------------- ----------
53,121 13,334
------------- ----------
Total assets $ 124,817 $ 77,000
============= ==========

SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MEASUREMENT SPECIALTIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)

DECEMBER 31, MARCH 31,
2004 2004
------------------------------------------------------------------------------------- -----------

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Current portion of promissory notes payable $ 1,000 $ -
Current portion of deferred acquisition payments 1,400 -
Short-term debt 649 -
Current portion of long-term debt 2,000 -
Accounts payable 15,985 7,919
Accrued compensation 2,751 3,224
Accrued expenses and other current liabilities 4,340 1,886
Accrued litigation expense-Shareholders' Class Action - 2,800
Accrued litigation expenses-SEC - 2,100
Deferred gain on sale of assets, current 2,925 2,830
Income taxes payable 787 -
------------- -----------
Total current liabilities 31,837 20,759

OTHER LIABILITIES:
Deferred gain on sale of assets, net of current portion 1,722 3,914
Promissory notes payable 1,750 -
Long-term debt, net of current portion 19,914 -
Deferred acquisition payments 4,264 -
Other liabilities 1,210 1,487
------------- -----------
Total liabilities 60,697 26,160
------------- -----------

SHAREHOLDERS' EQUITY
Serial preferred stock; 221,756 shares authorized; none outstanding
Common stock, no par; 20,000,000 shares authorized; 13,533,044
and 12,466,950 shares issued and outstanding, respectively 5,502 5,502
Additional paid-in capital 55,106 53,509
Retained earnings (Accumulated deficit) 2,836 (8,097)
Accumulated other comprehensive income (loss) 676 (74)
------------- -----------
Total shareholders' equity 64,120 50,840
------------- -----------
Total Liabilities and Shareholders' Equity $ 124,817 $ 77,000
============= ===========

SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MEASUREMENT SPECIALTIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED DECEMBER 31, 2004 AND 2003
(DOLLARS IN THOUSANDS)
(UNAUDITED)

Additional Accumulated Other
Common paid-in Earnings Comprehensive Comprehensive
stock capital (Deficit) Loss Total Income (Loss)
----------------------------------------------- ---------------

BALANCE, APRIL 1, 2003 $ 5,502 $ 43,197 $ (29,683) $ (70) $18,946
Net income - - 6,386 - 6,386 $ 6,386
Currency translation adjustment - - - (1) (1) (1)
---------------
Comprehensive income $ 6,385
===============
Warrants issued for non-cash equity based
compensation - 4,954 - - 4,954
Proceeds from exercise of stock options - 440 - - 440
Tax benefit from stock options - 90 - - 90
Proceeds from exercise of stock warrants - 504 - - 504
--------------------------------------------------------------
BALANCE, DECEMBER 31, 2003 $ 5,502 $ 49,185 $ (23,297) $ (71) $31,319
==============================================================

BALANCE, APRIL 1, 2004 $ 5,502 $ 53,509 $ (8,097) $ (74) $50,840
Net income - - 10,933 - 10,933 $ 10,933
Currency translation adjustment - - - 750 750 750
---------------
Comprehensive income $ 11,683
===============
Issuance of common stock for acquisition of
Humirel S.A. - 476 - - 476

Proceeds from exercise of stock options - 1,055 - - 1,055
Tax benefit from stock options - 66 - - 66
--------------------------------------------------------------
BALANCE, DECEMBER 31, 2004 $ 5,502 $ 55,106 $ 2,836 $ 676 $64,120
==============================================================

SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

FOR THE NINE MONTHS ENDED FOR THE NINE MONTHS ENDED
--------------------------- ---------------------------
DECEMBER 31, 2004 DECEMBER 31, 2003
--------------------------- ---------------------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,933 $ 6,386
Adjustments to reconcile net income to net cash provided by
(used in) operating activities income:
Depreciation and amortization 2,236 2,124
Assets written-off 111 175
Deferred rent 5 (20)
Deferred taxes 684 -
Amortization deferred gain (2,097) -
Provision for bad debt 484 161
Provision for obsolete inventory 429 -
Non-cash equity based compensation 4,954
Tax benefit from stock options 66 90
Net changes in operating assets and liabilities:
Accounts receivable, trade (2,011) (4,738)
Inventories (5,346) 1,368
Deferred income tax asset 1,777 -
Prepaid expenses and other current assets 2,946 (147)
Other assets (1,431) 175
Accounts payable 2,209 (1,744)
Accrued litigation costs (2,100) (2,125)
Accrued expenses and other liabilities 523 1,836
--------------------------- ---------------------------
Net cash (used in) provided by operating activities 9,418 8,495
--------------------------- ---------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (3,089) (1,369)
Purchase of acquisitions, net of cash acquired (39,084) -
--------------------------- ---------------------------
Net cash (used in) provided by investing activities (42,173) (1,369)
--------------------------- ---------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under short-term debt and promissory notes payable, net - 3,000
Repayments of debt (156) (8,260)
Long-term debt proceeds 20,000
Proceeds from exercise of options and warrants 1,055 944
--------------------------- ---------------------------
Net cash used in financing activities 20,899 (4,316)
--------------------------- ---------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS, CONTINUING OPERATIONS (11,856) 2,810
Effect of exchange rates 62 (1)
Cash and cash equivalents, beginning of period 19,274 2,694
--------------------------- ---------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,480 $ 5,503
=========================== ===========================
SUPPLEMENTAL CASH FLOW INFORMATION:
Non cash:
Notes from acquisitions $ 3,000 $ -
Deferred acquisition payments $ 4,264 $ -
Issuance of stock for Humirel SA Acquisition $ 476 $ -
Cash paid during the period for:
Interest $ 219 $ 335
Income taxes $ 814 $ 260

SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MEASUREMENT SPECIALTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2004

(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

1. BASIS OF PRESENTATIONS:

Interim financial statements:

These interim financial statements and notes to condensed consolidated
financial statements were prepared pursuant to accounting principles for
interim financial information, the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X of the Rules and Regulations of the Securities and Exchange
Commission, and have not been audited. Accordingly, while they conform to the
measurement and classification provisions of accounting principles generally
accepted in the United States, they do not include the footnote information
required by accounting principles generally accepted in the United States for
annual financial statements. Preparation of these financial statements requires
management to make estimates and assumptions, which affect the amounts
reported. Actual results could differ from those estimates. In the opinion of
management, these financial statements include all normal and accrual
adjustments necessary for a fair presentation. Reference is made to the annual
financial statements included in the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 2004. Operating results for the three months
and nine months ended December 31, 2004 are not necessarily indicative of the
results that may be expected for the fiscal year ending March 31, 2005. These
statements have been prepared on a basis that is substantially consistent with
the accounting principles applied in our annual report on Form 10-K for the
fiscal year ended March 31, 2004.

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, motion, force,
displacement, tilt/angle, flow, distance and humidity. The Company has two
segments, a Sensor business and a Consumer Products business.

The Sensor segment designs and manufactures sensors for original equipment
manufacturers. These sensors are used for automotive, medical, consumer,
military/aerospace and industrial applications. The Company's sensor products
include pressure and electromagnetic displacement 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 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.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of consolidation:

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

In the quarter ended June 30, 2004, the Company reorganized its Asian operations
under an offshore holding company, Kenabell Holding Limited, a British Virgin
Island Company ("Kenabell Holding BVI"). As part of the reorganization, a new
entity was formed under Kenabell Holding BVI in the Cayman Islands, Measurement
Limited ("ML Cayman"). A significant portion of the Consumer business in Asia
was transferred into ML Cayman during the quarter ended June 30, 2004. These
holding companies were formed as part of a foreign tax planning restructuring,
and to facilitate any potential future sale of assets of our Consumer Products
business.

MSI Sensors (Asia) (formerly named Measurement Limited, organized in Hong Kong)
owns the shares of MSI Sensors (China) Ltd. (formerly named Jingliang
Electronics (Shenzhen) Co. Ltd, organized in the peoples Republic of China).
Kenabell Holding BVI owns the shares of MSI Sensors (Asia) and ML Cayman. All
the companies are included in the consolidated financial statements of the
group.

In the quarter ended December 31, 2004, as part of a foreign tax planning
restructuring, the Company reorganized its European operations under an offshore
holding company, named Acalon, based in Cyprus, as well as establishing
Measurement Specialties Foreign Holdings Corporation, a Delaware corporation,
which owns Kenabell Holdings BVI, Entran SA and Humirel SA

IC Sensors Inc., a California corporation ("IC Sensors") continues as a
wholly-owned subsidiary of the Company.

The Company has made the following acquisitions which are included in the
consolidated financial statements as of the effective date of acquisition (See
Notes 7 and 12):

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 SA 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 presentation.

The Company reclassified $6,300 of the current deferred tax asset as of March
31, 2004 to long-term, since a portion of the deferred tax assets will be
utilized beyond twelve months. Additionally, the Company reclassified $2,830 as
of March 31, 2004 of the deferred gain on sale of assets to current from
long-term, since a portion of the deferred gain on sale would be recognized
during the next twelve months.

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 as a result of options issued. The table below illustrates the effect
on net income and earnings 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 NINE MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
2004 2003 2004 2003
-------------------------- --------------------------

Net income, as reported $ 3,587 $ 888 $ 10,933 $ 6,386
Add: Stock-based employee compensation expense
included in reported income, net of related tax effects - - - -

Deduct: Total stock-based employee compensation under
fair value based method for awards granted,
net of related tax effects (177) (277) (506) (332)
-------------------------- --------------------------
Pro forma net income $ 3,410 $ 611 $ 10,427 $ 6,054
========================== ==========================

Net Income per share
Basic-as reported $ 0.27 $ 0.07 $ 0.82 $ 0.52
Basic Proforma 0.25 0.05 0.78 0.49
Diluted- as reported 0.25 0.06 0.78 0.46
Diluted proforma 0.24 0.04 0.74 0.44

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 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. 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 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. Statement 123R will be
required to be applied as of the first interim or annual reporting period that
begins after June 15, 2005. The Company is currently quantifying the impact of
FASB 123R, but the Company does believe the adoption of FASB Statement 123R will
have a material effect on its financial position and results of operations.

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. 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, 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 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 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. Statement 153 amends APB Opinion No. 29, Accounting for Nonmonetary
Transactions, that was issued in 1973. The amendments made by 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, 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 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.

3. INVENTORIES:

Inventories net, consists of the following:

DECEMBER 31, MARCH 31,
2004 2004
------------- ----------

RAW MATERIALS $ 10,955 $ 6,777
WORK-IN-PROCESS 3,051 1,210
FINISHED GOODS 7,290 2,183
------------- ----------
$ 21,296 $ 10,170
============= ==========

Inventory reserves were $3,950 at December 31, 2004 and $ 4,206 at March 31,
2004.

4. SHORT AND LONG-TERM DEBT:

NEW TERM LOAN AND REVOLVING CREDIT FACILITY
-------------------------------------------

acquisition of Humirel (See Note 7), ordinary working capital and general
corporate needs and replaced 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 December 31, 2004,
the Company was in compliance with applicable debt covenants.

As of December 31, 2004, the Company utilized the prime based Index Rate, and
the interest rate applicable to borrowings under the revolving credit facility
was 8%. As of December 31, 2004, the outstanding borrowings on the term loan
and revolver were $20,000 and zero, respectively, and the Company had the right
to borrow an additional $15,000 under the revolving credit facility. The
revolving credit facility is not directly based on any borrowing base
requirements.

OLD REVOLVING CREDIT FACILITY
-----------------------------

On January 31, 2003, the Company entered into a $15,000 revolving credit
facility with Bank of America Business Capital ("BOA") (formerly Fleet Capital
Corporation). On December 17, 2004, the revolving credit facility with BOA was
replaced by the new $35,000 credit agreement with GE. In connection with the
refinancing, the Company expensed in December 2004, the $125 in related deferred
financing costs, as well as a $100 early loan termination fee in selling,
general and administrative expenses. The BOA credit facility was secured by a
lien on substantially all of the Company's assets. Interest accrued on the
principal amount of borrowings under this facility at a fluctuating rate per
year equal to the lesser of BOA's prime rate for commercial loans plus one
percent (subject to a two percent increase upon the occurrence of an event of
default under the loan agreement). As of December 17, 2004, the interest rate
applicable to borrowings under the old revolving credit facility was 6.25%.
Commitment fees on the unused balance are equal to .375% per annum of the
average monthly amount by which $15,000 exceeded the sum of the outstanding
principal balance of the revolving credit loans. Commitment fees paid during the
quarter ended December 31, 2004 were $5.

The weighted average short-term interest rate for the above credit facilities
was 5.72% for the nine months ended December 31, 2004. The average amount
outstanding under the agreements for the period from April 1, 2003 through March
31, 2004 was zero. The average amount outstanding for the three and nine months
ended December 30, 2004 was $4,859 and $2,855, respectively.

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 $2,750 was outstanding and $1,000 considered current at December 31, 2004.
The Notes amortize over a period of three years, are payable quarterly and bear
interest at 6%.

OTHER DEBT AND SHORT-TERM DEBT
------------------------------

In connection with the acquisition of Entran Devices, Inc., Entran SA and
Humirel SA, the Company has outstanding short-term borrowing of $649 and
long-term borrowings of $1,914 at December 31, 2004. These amounts are included
in short-term and long-term debt, respectively, in the condensed consolidated
balance sheet.

5. PROPERTY AND EQUIPMENT:

Property and equipment are summarized as follows:

DECEMBER 31, MARCH 31, ESTIMATED USEFUL
2004 2004 LIFE
-------------- ----------- -----------------

Building, production machinery and equipment $ 16,412 $ 14,616 5-7 years
Tooling costs 4,770 3,846 5-7 years
Furniture and equipment 5,841 4,138 3-10 years
Leasehold improvements 2,204 1,780 Term of the lease
Construction in progress 895 296
-------------- -----------
Total 30,122 24,676
Less: accumulated depreciation and
amortization (15,868) (14,048)
-------------- -----------
$ 14,254 $ 10,628
============== ===========

Depreciation expense was $754 and $2,156 for the three and nine months ended
December 31, 2004, respectively, and

was $670 and $2,124 for the three and nine months ended December 31, 2003,
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 anti-dilutive shares in the
periods present.

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

FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED DECEMBER 31, 2003 ENDED DECEMBER 31, 2003

Income Shares Per Share Income Shares Per Share
-------- ---------- ----------- -------- ---------- -----------

Income from continuing operations $ 888 12,402,445 $ 0.07 $ 6,274 12,234,849 $ 0.51
Income from discontinued operations
Basic EPS: - 12,402,445 - 112 12,234,849 $ 0.01
-------- ---------- ----------- -------- ---------- -----------
Income available to common shareholders $ 888 12,402,445 $ 0.07 $ 6,386 12,234,849 $ 0.52

Effect of dilutive securities:
Warrants 469,151 - - 630,968 -
Options - 1,132,894 (0.01) - 1,040,125 (0.06)
-------- ---------- ----------- -------- ---------- -----------
- 1,602,045 (0.01) - 1,671,093 (0.06)

Diluted EPS:
Income available to common stockholders
and assumed conversions $ 888 14,004,490 $ 0.06 $ 6,386 13,905,942 $ 0.46
======== ========== =========== ======== ========== ===========

For The Three Months For The Nine Months
Ended December 31, 2004 Ended December 31, 2004

Income Shares Per Share Income Shares Per Share
-------- ---------- ----------- -------- ---------- -----------

Income from continuing operations $ 3,587 13,439,320 $ 0.27 $ 10,933 13,344,886 $ 0.82

Basic EPS:
-------- ---------- ----------- -------- ---------- -----------
Income available to common shareholders $ 3,587 13,439,320 $ 0.27 $ 10,933 13,344,886 $ 0.82

Effect of dilutive securities:
Stock options - 765,533 (0.02) - 744,146 (0.04)
-------- ---------- ----------- -------- ---------- -----------

Diluted EPS:
Income available to common stockholders
and assumed conversions $ 3,587 14,204,853 $ 0.25 $ 10,933 14,089,032 $ 0.78
======== ========== ========== ========= ========== ===========

7. ACQUISITIONS:

As part of its growth strategy in the Sensors segment, the Company has made four
acquisitions during the nine months ended December 31, 2004. Proforma financial
statements are not presented for Elekon, Entran, and Encoder acquisitions
because the test of significance for the acquired companies is below the
prescribed thresholds. Only the Humirel, SA acquisition meets the test of
significance, and accordingly, proforma financial statements are presented
below.

On June 24, 2004, the Company acquired 100% of the capital stock of Elekon
Industries USA, Inc. ("Elekon") for $7,750 ($4,500 in cash at the closing,
$3,000 in unsecured Promissory Notes ("Notes") and $250 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 are
achieved, an additional $3,000 could be paid to the principals of Elekon. If
paid, these amounts will be treated as additional acquisition costs and

will increase the amount of goodwill associated with the acquisition. 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 December 31, 2004. The Company has recorded goodwill of
$3,230 for the acquisition. The Company has allocated $3,155 as personally held
intangibles and $620 to a covenant not to compete from the previously recorded
goodwill. $1,870 of the personally held intangibles has an indefinite life and
is therefore not amortized. The remaining $1,285 of personally held intangibles
is for patented and proprietary technology and is being amortized over the
asset's estimated useful lives, ranging from 10 to 18.5 years. The covenant not
to compete is being amortized over its estimated useful life of 3 years. While
substantially completed, the purchase price allocation has not been finalized.

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
Cash $ 174
Accounts receivable 707
Inventory 1,418
Property and equipment 168
Others 20
--------
2,487
--------
Liabilities
Accounts payable (1,286)
Others (6)
--------
(1,292)
--------
Net Assets Acquired $ 1,195
========

On July 16, 2004 the Company acquired 100% of the capital stock of Entran
Devices, Inc. and Entran SA ("Entran") for $10,539 ($6,000 in cash at the
closing, $1,195 in certain liabilities discharged at closing, $3,254 in deferred
payments and $90 in acquisition costs). The Company will pay a deferred payment
of $2,254 on July 16, 2006, and will pay an additional $1,000 upon the earlier
of October 31, 2005 or the date of 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 December 31, 2004. The Company has recorded goodwill of
$8,269 for the acquisition. While substantially completed, the purchase price
allocation has not been finalized.

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 1,513
Property and equipment 489
Others 266
--------
4,516
--------
Liabilities
Accounts payable (2,085)
Others (161)
--------
(2,246)
--------
Net Assets Acquired $ 2,270
========

On July 16, 2004 the Company acquired the assets of Encoder Devices, LLC.
("Encoder") for $4,564 ($4,000 in cash at the closing, $400 in deferred payments
and $164 in acquisition costs). The Company will pay the deferred payment of
$400 on July 16, 2005. Encoder, based in Plainfield, IL, is a designer
/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 December 31,
2004. The Company has recorded goodwill of $3,736 and intangibles of $420 for
the acquisition. The intangibles, consisting of $137 of patents and a covenant
not to compete valued at $283, are estimated to have a useful life of 19.5 and
3 years, respectively, and are being amortized over those periods. While
substantially completed, the purchase price allocation has not been finalized.

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 251
Others 7
-----
488
-----
Liabilities
Accounts payable (80)
-----
(80)
-----
Net Assets Acquired $408
=====

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, or $25,300 ($23,400 at close, $1,914 in deferred
payment, and $498 in acquisition costs). In addition, the sellers can earn up to
an additional 6,300 Euro, or $8,400, if certain performance hurdles, including
achieving established gross margin levels in 2005, are achieved. Management
shareholders also received $476 of the closing consideration in restricted
stock, or 20,000 shares. 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
through December 31, 2004. The Company has initially recorded goodwill of
$22,214 for the acquisition. The final purchase price allocation has not been
completed.

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 1,730
--------
7,464
--------
Liabilities
Accounts payable (1,236)
Current portion of long-term debt (588)
--------
Long-term debt, net of current portion (1,914)
--------
(3,738)
--------
Net Assets Acquired 3,726
========

Since the Humirel acquisition meets the test of significance threshold for the
investment calculation, the following represents the Company's un-audited pro
forma consolidated results of operations for the period assuming the Humirel
acquisition 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 Humirel been operated
as part of the Company since April 1, 2003.

Nine Months Ended (Un-Audited)

DECEMBER 31, DECEMBER 31,
2004 2003
------------- -------------

Net Sales $ 106,146 $ 90,385
Net Income 11,437 6,514
Net Income per common share
-Basic $ 0.86 $ 0.53
-Diluted $ 0.81 $ 0.47

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. 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 now sells exclusively to the
original equipment manufacturer market.

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:

For The Three Months For The Nine Months
Ended Ended

December 31, December 31,
------------------------------ -------------------------------
2004 2003 2004 2003
% Change % Change
------------------------------ -------------------------------

Net sales
Sensors $ 22,956 $14,761 55.5% $ 63,649 $ 43,772 45.4%
Consumer Products 13,060 17,108 -23.7% 36,598 42,697 -14.3%
------------------------------ -------------------------------
Total 36,016 31,869 13.0% 100,247 86,469 15.9%
------------------------------ -------------------------------

Operating income
Sensors 5,522 4,025 37.2% 16,432 12,312 33.5%
Consumer Products 1,701 3,731 -54.4% 5,076 8,524 -40.5%
------------------------------ -------------------------------
Total segment operating income 7,223 7,756 -6.9% 21,508 20,836 3.2%
Unallocated expenses (1,981) (6,569) 69.8% (5,828) (13,422) 56.6%
------------------------------ -------------------------------
Total operating income 5,242 1,187 341.6% 15,680 7,414 111.5%

Interest expense, net of interest (income) 148 22 572.6% 245 322 -23.9%
Other (income) 78 51 52.9% 144 46 213.0%
------------------------------ -------------------------------
Income from continuing operations before income tax 5,016 1,114 350.2% 15,291 7,046 117.0%
Income Tax 1,429 226 532.3% 4,358 772 464.5%
------------------------------ -------------------------------
Income from continuing operations 3,587 888 303.9% 10,933 6,274 74.3%
Income from Discontinued Operations - - 112 -100.0%
------------------------------ -------------------------------
Net Income $ 3,587 $ 888 303.9% $ 10,933 $ 6,386 71.2%
============================== ===============================

DECEMBER 31, MARCH 31,
2004 2004
------------- ----------

Segment Assets
Sensor $ 82,960 $ 30,326
Consumer Products 11,379 9,527
Unallocated 30,478 37,147
------------- ----------
Total $ 124,817 $ 77,000
============= ==========

9. COMMITMENTS AND CONTINGENCIES:

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 our Schaevitz Division, filed a
lawsuit against the Company and certain of the Company's 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 the Company's financial statements. The lawsuit alleges a
claim for constructive wrongful discharge and violations of the New Jersey
Conscientious Employee Protection Act. Mr. DeWelt seeks an unspecified amount
of compensatory and punitive damages. The Company 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 is currently the defendant in a lawsuit filed in March
2001 by Service Merchandise Company, Inc. ("SMC") and its related debtors
(collectively, the "Debtors") in the 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 alleges 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 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 the
Company to receive more than the Company would have received if the cases were
cases under Chapter 7 of the United States Bankruptcy Code. The action seeks to
disgorge the sum of approximately $645 from the Company. It is not possible at
this time to predict the outcome of the litigation or estimate the extent of any
damages that could be awarded in the event that the Company found liable to the
estates of SMC or the other Debtors.

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 our 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 sensors design known as "M" design included in

certain of the Company's bathroom scales other than those to which SEB has
alleged infringement. 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. The Company is currently 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 our business,
financial condition, or operating results.

SETTLEMENT

In re: Measurement Specialties, Inc. Securities Litigation, 02 Civ. No. 1071
(D.N.J.). On March 20, 2002, a class action lawsuit was filed on behalf of
purchasers of the Company's common stock in the United States District Court for
the District of New Jersey against the Company and certain of its present and
former officers and directors. The complaint was subsequently amended to include
the underwriters of the Company's August 2001 public offering as well as its
former auditors. The lawsuit alleged violations of the federal securities laws.
The lawsuit sought an unspecified award of money damages. After March 20, 2002,
nine additional similar class actions were filed in the same court. The ten
lawsuits were consolidated into one case under the caption In re: Measurement
Specialties, Inc. Securities Litigation, 02 Civ. No. 1071 (D.N.J.). Plaintiffs
filed a Consolidated Amended Complaint on September 12, 2002. The underwriters
made a claim for indemnification under the underwriting agreement.

On April 1, 2004, the Company reached an agreement in principle to settle this
class action lawsuit. On July 20, 2004, the court approved the settlement
agreement. Pursuant to the agreement, the case has been settled as to all
defendants in exchange for payments of $7,500 from the Company and $590 from
Arthur Andersen, the Company's former auditors. Both the Company's primary and
excess D&O insurance carriers initially denied coverage for this matter. After
discussion, the Company's primary D&O insurance carrier agreed to contribute
$5,000 and the Company's excess insurance carrier agreed to contribute $1,400 to
the settlement of this case. As part of the arrangement with its primary
carrier, the Company agreed to renew its D&O coverage for the period from April
7, 2003 through April 7, 2004. The $3,200 renewal premium paid represented a
combination of the market premium for an aggregate of $6,000 in coverage for
this period plus a portion of the Company's contribution toward the settlement.

SEC Investigation. In February 2002, the Company contacted the staff of the SEC
after discovering that its former chief financial officer had made the
misrepresentation to senior management, its board of directors and its auditors
that a waiver of a covenant default under its credit agreement had been obtained
when, in fact, its lenders had refused to grant such a waiver. Since February
2002, the Company and a special committee formed by its board of directors have
been cooperating with the staff of the SEC. In June 2002, the staff of the
Division of Enforcement of the SEC informed the Company that it was conducting a
formal investigation relating to matters reported in the Company's Quarterly
Report on Form 10-Q for the quarter ended December 31, 2001.

On June 28, 2004, the Company reached a definitive settlement agreement with the
SEC which resolved the SEC's investigation of the Company. On June 30, 2004, the
court approved the settlement agreement. Pursuant to the definitive settlement
agreement, the Company paid one dollar in disgorgement and $1,000 in civil
penalties.

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 ten
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.

The following summarizes the warranty reserve:

Three Months Ended Nine Months Ended
December 31, December 31,
----------------------- ----------------------
2004 2003 2004 2003
---------- ----------- ---------- ----------

Total Warranty Reserve (Beginning) ($956) ($354) ($669) ($385)
Warranties issued during the period 377 (168) (10) (282)
Costs to repair products 34 69 83 174
Costs to replace products 20 24 71 64
---------- ----------- ---------- ----------
Total Warranty Reserve (Ending) ($525) ($429) ($525) ($429)
========== =========== ========== ==========

ACQUISITION EARN-OUTS

As disclosed in Note 7 above, in connection with the Elekon and Humirel
acquisitions, the Company has potential performance based earn-outs totaling
$3,000 and 6,300 Euro (or approximately $8,400), respectively, if the maximum
performance targets are achieved.

10. DERIVATIVE INSTRUMENTS

As part of the acquisition of Humirel SA, the Company has a number of forward
purchase currency contracts with exercise dates beginning January 25, 2005
through October 26, 2005 with a total notional amount of $8,200 at an average
exchange rate of $1.23 (in US dollars) to hedge Humirel's exposure to
fluctuation in the US dollar relative to the Euro. As of December 31, 2004, the
fair value of these currency contracts was $62, and this unrealized gain was
recorded in Other Comprehensive Income. The Company adopted SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," on April 1,
2001. SFAS No. 133, as amended by SFAS No. 138 and SFAS No. 149, establishes
accounting and reporting standards for derivative instruments and hedging
activities.

11. RELATED PARTY TRANSACTIONS:

RESTRUCTURING SERVICES

In May 2002, the Company retained Corporate Revitalization Partners ("CRP") to
conduct its ongoing operational/financial restructuring efforts. In June 2002,
Frank Guidone, a Managing Director of CRP, became the Company's Chief Executive
Officer (See "Executive Services and Non-Cash Equity Based Compensation" below
for a discussion of the current agreement relating to Mr. Guidone's services as
Chief Executive Officer of the Company). As of March 31, 2004, on a cumulative
basis, the Company has incurred $3,613 in consulting fees and expenses to CRP.
The Company has not utilized the services of CRP since March 31, 2004.

In the fiscal year ended March 31, 2003, CRP earned an aggregate "success fee"
of $138 and warrants exercisable to purchase an aggregate of 120,615 shares of
the Company's common stock (at an exercise price of $2.28/share) as a result of
the achievement of certain goals in connection with the Company's restructuring
program. On June 12, 13, and July 14, 2003, CRP exercised its warrant to
purchase 120,615 shares of stock at an exercise price of $2.28.

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 three months and nine months ended December 31, 2004 were $124
($100 for executive services and $24 for expenses), and $364 ($300 for executive
services and $64 for expenses).

In connection with the retention of the services of Mr. Guidone, Four Corners
was also issued a warrant to purchase up to 600,000 shares of the Company's
common stock at an exercise price of $3.16 per share. As a result of the
performance of the Company's common stock, all warrant shares became vested
during the fiscal year ended March 31, 2004. The Company recorded a non-cash
equity based compensation charge of $3,046 ($0.22 per share diluted) and $4,954
($0.36 per share diluted) during the three month and nine month periods ended
December 31, 2004, respectively, representing the estimated fair value of the
portion of the warrant that vested.

In addition, in connection with this arrangement, Mr. Guidone entered into a
non-competition agreement and Four Corners was granted registration rights
relating to any shares purchased under the warrant.

12. OTHER MATTERS:

SUBSEQUENT EVENTS:

Effective January 1, 2005, the Company acquired MWS Sensorik GmbH ("MWS" or
"Sensorik"), for 900 Euro (650 Euro at close and 250 in deferred payments) or
approximately $1.2 million.

Effective February 1, 2005, the Company has acquired certain assets of the
industrial pressure sensing business of Polaron Components Ltd. in the United
Kingdom, for GBP 1.2 million (approximately $2.25 million). The assets were
acquired by the Company's China operation, MSI Sensors (China) Ltd.

RESTRUCTURING AND OTHER COSTS:

At March 31, 2004, the Company maintained an accrual of $440 to cover the
expected cost of a lease termination during its restructuring. The Company did
not make any payments in the nine month period ended December 31, 2004 related
to these costs.

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

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

FORWARD-LOOKING STATEMENTS

The following discussion of our results of operations and financial condition
should be read together with the other financial information, consolidated
financial statements and related notes included in this Quarterly Report on Form
10-Q. 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 "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.

Our fiscal year begins on April 1 and ends on March 31. References in this
report to the year 2004 or fiscal 2004 refer to the 12-month period from April
1, 2003 through March 31, 2004 and references in this report to the year 2005 or
fiscal 2005 refer to the 12-month period from April 1, 2004 through March 31,
2005.

OVERVIEW

We are a designer and manufacturer of sensors and sensor-based consumer
products. We produce a wide variety of sensors that use advanced technologies to
measure precise ranges of physical characteristics including pressure, motion,
force, displacement, tilt/angle, flow, distance and humidity. We have two
segments, a Sensor and a Consumer Products.

Our Sensor segment designs and manufactures sensors for original equipment
manufacturers. 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 to retailers and distributors in both the United States
and Europe. Consumer products include bathroom and kitchen scales, tire pressure
gauges and distance estimators.

EXECUTIVE SUMMARY

Measurement Specialties has seen a significant amount of change over the last
several years. We experienced very poor historical margin performance due
mainly to under-absorption of the then in place overhead structure. In May 2002,
we embarked upon an aggressive restructuring effort to improve the operating
performance of the company. A key component of this restructuring was the
elimination of underutilized facilities to consolidate our operations in
Shenzhen, China and Hampton, Virginia. Having completed this

restructuring, Measurement Specialties is now a global sensor solutions company
with a broad range of technologies and capabilities. With recent acquisitions of
Elekon Industries, Inc., Entran Devices, Inc. Entran SA, Encoder Devices, LLC,
Humirel SA, MWS Sensorik GMBH, and Polaron Components Ltd. (the "Acquisitions")
(See Notes 7 and 12 to the Condensed Consolidated Financial Statements included
in this Quarterly Report on Form 10-Q) as part of our strategic plans, our focus
remains engineered solutions where we can use our engineering and manufacturing
talent and depth of knowledge and experience in sensors to provide a complete
solution to our customers. A key to our manufacturing strategy is leveraging the
significant infrastructure we now have in Shenzhen, China. This infrastructure
has enabled us to reduce costs and improve financial performance while
continuing to provide our customers with low cost, highly reliable products.

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

THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
--------------------------- -----------------------------
2004 2003 2004 2003
----------------------------------------------------------

Net Sales
Sensor 63.7% 46.3% 63.5% 50.6%
Consumer products 36.3% 53.7% 36.5% 49.4%
---------- ---------- --------- ----------
Total net sales 100.0% 100.0% 100.0% 100.0%

Cost of Sales 58.0% 55.9% 57.3% 55.0%
---------- ---------- --------- ----------
Gross profit 42.0% 44.1% 42.7% 45.0%
Expenses (income)
Selling, general, and administrative 25.0% 25.2% 24.7% 26.6%
Litigation expense 0.0% 1.3% 0.0% 0.5%
Non-cash equity based compensation 0.0% 9.6% 0.0% 5.7%
Research and development 2.6% 2.7% 2.6% 3.0%
Customer funded development -0.2% 0.0% -0.2% 0.0%
Restructuring costs 0.0% 1.7% 0.0% 0.6%
Interest expense, net 0.4% 0.1% 0.2% 0.4%
Gain on sale of wafer fab 0.0% 0.0% 0.0% 0.0%
Other expenses 0.2% 0.1% 0.1% 0.0%
28.0% 40.7% 27.4% 36.8%

Income from continuing operations before income taxes 14.0% 3.4% 15.3% 8.1%
Income tax provision 4.0% 0.7% 4.4% 0.9%
Income from discontinued units 0.0% 0.0% 0.0% 0.1%
---------- ---------- --------- ----------
Net income 10.0% 2.7% 10.9% 7.1%
========== ========== ========= ==========

OUR STRATEGY

Development Strategy. We focus our development efforts in both our Sensor
business and Consumer Products business on the original equipment manufacturers
(OEM) market. In the Consumer Products business, having both a branded and OEM
consumer scale business created some channel conflicts historically. As part of
this focus, we sold certain assets associated with our Thinner branded bathroom
and kitchen scale business to Conair Corporation on January 30, 2004. We
previously sold our Thinner branded scales directly to retailers, predominately
in the U.S. and Canada. On a going-forward basis, we expect to supply these
scales directly to Conair and intend to continue our efforts in the design,
development and manufacture of innovative scale products for sale to our
worldwide base of OEM customers. Although our development focus is on the OEM
market, we intend to continue to develop and manufacture our tire pressure
gauges, which are sold directly to retail customers. As OEM margins have
historically been lower than margins on sales to retail customers, we expect our
Consumer Products segment margins will decline as a result of this transaction.

Growth Strategy. We are focused on aggressively growing our Sensor segment. We
expect that this growth will come through a combination of organic growth and
the acquisition of sensor businesses. To that end, since March 31, 2004, the
Company has made six Acquisitions referenced above. To finance the
Acquisitions, we entered into an expanded $35 million credit facility (See Note
4 to the Condensed Consolidated Financial Statements included in this Quarterly
Report on Form 10-Q) and to finance additional acquisitions we would consider
additional borrowings, the sale of equity securities, or the sale of existing
Company assets, including assets in our Consumer Products segment.

Establishment of Offshore Holding Companies. In the quarter ended June 30,
2004, we reorganized our Asia operations under an offshore holding company,
Kenabell Holding Limited, a British Virgin Island Company ("Kenabell Holding
BVI"). As part of the reorganization, a new entity was formed under Kenabell
Holding BVI in the Cayman Islands, Measurement Limited, ("ML Cayman"). A
significant portion of the Consumer business in Asia was transferred into ML
Cayman during the quarter ended June 30, 2004. These holding companies were
formed as part of a foreign tax planning restructuring, and to facilitate any
future sale of assets of our Consumer Products business.

RESULTS OF OPERATIONS

THE FOLLOWING TABLE SETS FORTH CERTAIN ITEMS IN OUR CONSOLIDATED STATEMENTS OF
INCOME FOR THE THREE MONTHS AND NINE MONHS ENDED DECEMBER 31, 2004 AND 2003,
RESPECTIVELY:

FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
--------------------------- ---------------------------
% of % of
2004 2003 Change 2004 2003 Change
--------------------------- ---------------------------

Net sales
Sensor $ 22,956 $14,761 55.5 $ 63,649 $43,772 45.4
Consumer products 13,060 17,108 (23.7) 36,598 42,697 (14.3)
--------- ------- --------- -------
Total net sales 36,016 31,869 100,247 86,469
Cost of goods sold 20,898 17,823 17.3 57,424 47,527 20.8
--------- ------- --------- -------
Gross profit 15,118 14,046 7.6 42,823 38,942 10.0
Operating expenses (income):
Selling, general and administrative 9,037 8,018 12.7 24,785 23,019 7.7
Litigation - 400 (100.0) - 400 (100.0)
Non-cash equity based compensation - 3,046 (100.0) - 4,954 (100.0)
Research and development 919 850 8.1 2,576 2,610 (1.3)
Customer funded development (80) - (218) -
Restructuring costs and other costs - 545 (100.0) - 545 (100.0)
--------- ------- --------- -------
Total operating expenses 9,876 12,859 27,143 31,528
--------- ------- --------- -------
Operating income 5,242 1,187 15,680 7,414
Interest expense, net 148 22 572.6 245 322 (23.8)
Other (income) 78 51 53.2 144 46 213.5
--------- ------- --------- -------
Income from continuing operations before income tax 5,016 1,114 350.2 15,291 7,046 117.0
Income tax 1,429 226 532.0 4,358 772 464.7
--------- ------- --------- -------
Income from continuing operations 3,587 888 304.0 10,933 6,274 74.3
Discontinued operations:
Income from discontinued units - - - 112
--------- ------- --------- -------
Net income $ 3,587 $ 888 304.0 $ 10,933 $ 6,386 71.2
--------- ------- --------- -------

THREE MONTHS ENDED DECEMBER 31, 2004 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
2003

The consolidated financial statements for the three month periods ended December
31, 2004 and December 30, 2003 include the results of the ongoing operations of
Measurement Specialties, Inc.

NET SALES.

Sensor Business. Sensors sales increased $8,195, excluding sales from recent
Acquisitions of $5,814, sales increased $2,381, or 16.1%. The increase in net
sales for our base Sensor business during the three months ended December 31,
2004, is a result of increased demand in our pressure, displacement, and
vibration product lines. Significant contributors to the increase in net sales
for our pressure line are the expanded demand for automotive sensors, as well as
alternative fuel vehicle sensors. Sales of automotive sensors increased by
approximately 74%. Sales of the alternative fuel vehicle sensors is new
business for MSI. The improved displacement sales are attributed to the
application of existing electromagnetic fluid level sensors to new automotive
off road platforms, as well as dual axis sensors for safety applications. The
sales of existing electromagnetic fluid level sensors increased by approximately
47%. The sale of dual axis sensors for safety applications is new business
application for MSI. The vibration line has seen increased sales primarily in
the area of our traffic sensor programs, as well as ramping sales due to
customer introduction of new products using Piezo film. Traffic sensor sales
increased by approximately 70%. Piezo Film sales increased by 21%. The
majority of the sales from recent acquisitions are attributable to the Elekon
and Entran acquisitions.

Consumer Business. Net sales in the US consumer market decreased in the three
months ended December 31, 2004 as compared to the same period in the prior
fiscal year. The majority of this decrease is found in the non-scale product
lines. Changes in product assortment in two large retailers resulted in a 45%
decrease in sales in tire gauge line in the three month period ending December
31, 2004, as compared to the similar period in the prior fiscal year, or 77% of
the overall decline. The balance of the decrease occurred in the bath scale
line. In spite of a 19.7 % increase in units sold, the net decline in the bath
scale line decrease is attributable to lower per unit selling price due to the
Conair transaction.

GROSS MARGIN.

Gross margin as a percent of sales for the three months ended December 31, 2004
decreased to 42.0% from 44.1% for the three months ended December 31, 2003.

Sensor Business. Gross margin as a percent of sales for our base Sensor
business increased from 54.7% for the quarter ending December 31, 2003 to 55.3%
for the quarter ending December 31, 2004. This increased gross margin occurred
as the result of more efficient manufacturing operations. Our improved
efficiency in manufacturing operations was the result of our continuing
production improvements. Including acquisition sales, gross margin as a percent
of sales for our Sensor business decreased to 51.1%. Elekon represents 36% of
the acquired sales, and carries a substantially lower gross margin than our base
sensor business.

Consumer business. Gross margin as a percent of sales for our Consumer Products
business decreased to 24.4% for the three months ended December 31, 2004 from
33.8% for the same period ending December 31, 2003. Gross margin decreased as a
result of lower tire gauge sales and the effect of the Conair transaction. Tire
gauge sales historically contribute a higher margin than the scale business.
Additionally, as a result of the Conair transaction, the entire scale business
is now realizing OEM margins, which are historically lower than retail margins.
Also contributing to the lower margins was the effect of lower pricing and
higher cost of sales in certain of our bath scale lines.

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 and other factors.

SELLING, GENERAL AND ADMINISTRATIVE.

The increase in selling, general and administrative expenses is primarily due to
the Acquisitions. These Acquisitions resulted in an increase of approximately
$2,000 for the three months ended December 31, 2004, as compared to the three
months ended December 31, 2003. The additional selling, general and
administrative costs resulting from the Acquisitions were more than offset by
lower expenses for employee profit sharing and lower costs in the Consumer
Product segment resulting from the Conair transaction. Offsetting the decline
were higher increased professional fees, primarily associated with the
implementation of Sarbanes-Oxley requirements, as well as deferred financing
costs, early loan termination fees and severance costs of a former executive
recorded in the quarter ended December 31, 2004.

NON-CASH EQUITY BASED COMPENSATION.

During the three months ended December 31, 2003, we recorded a non-cash equity
based compensation charge of $3,046, or $0.22 per share diluted, for the vesting
of the warrant issued to Four Corners Capital Partners LP, a limited partnership
of which Mr. Guidone is a principal. All warrants issued to Four Corners vested
in fiscal 2004, and there was no comparable charge in the three months ended
December 31, 2004. See Note 10 to the Condensed Consolidated Financial
Statements included in this Quarterly Report on Form 10-Q for a discussion of
non-cash equity based compensation and the arrangement with Four Corners.

LITIGATION

We recorded a net charge of $400 during the three months ended December 31, 2003
relating to the SEC investigation and the Hibernia Capital Partners litigation.
This net charge represents the combination of a $1,000 charge relating to the
SEC investigation offset by the reversal of $600 from the prior accrual upon the
favorable settlement of the Hibernia lawsuit. See Note 9 to the condensed
consolidated financial statements included in this Quarterly Report on Form
10-Q.

RESEARCH AND DEVELOPMENT

We had $80 of customer-funded development for the three months ended December
31, 2004, compared with zero for the three months ended December 31, 2003. On a
net basis, research and development costs decreased $11, or 1.3%, to $839 for
the three months ended December 31, 2004 from $850 for the three months ended
December 31, 2003.

RESTRUCTURING COSTS

During the three months ended December 31, 2003, we recorded a charge of $545
for additional costs relating to our restructuring plan. This charge resulted
from the settlement of litigation related to our former facility in Valley
Forge, Pennsylvania. There were no such restructuring costs during the nine
months ended December 31, 2004.

INTEREST EXPENSE, NET

Net interest expense increased $126 to $148 for the three months ended December
31, 2004, from $22 for the three months ended December 31, 2003. The increase
in interest expense is attributable to the Company having average debt
outstanding of $4,859 for the three months ended December 31, 2004, compared to
no debt outstanding for the three months ended December 31, 2003. On a going
forward basis, the Company's interest expense will increase as a result of
entering into term loan and revolving credit facility. (See Note 4 to the
condensed consolidated financial statements included in this Quarterly Report
Filed on Form 10-Q.)

INCOME TAXES

The increase in the provision for income taxes is mainly due to the lower than
normal prior year balance. Based on the evaluation of relevant factors last
year, a valuation allowance for deferred tax assets was recorded because it was
determined that it was more likely than not that a portion or all of the
deferred tax assets would not be realized. In arriving at our conclusion to
reverse the valuation allowance at March 31, 2004, we took into consideration
the guidance provided by FAS 109, after considering both positive and negative
evidence. Our analysis of positive evidence supporting the conclusion that the
valuation allowance was no longer applicable included the assessment of three
key issues that principally lead to the allowance: substantial operating
losses, debt and pending litigation.

Our analysis supporting the reversal of the valuation allowance was
straight-forward, as the positive evidence which could be objectively verified
outweighed the negative evidence. The current and expected results of the
Company, as well as taking into account the status of litigation, indicated that
the valuation allowance was not needed. The Company had fully executed a
restructuring whereby the Company returned to profitability, as supported by the
earnings during fiscal 2004. Our provision for income taxes differs from the
statutory US federal income tax rate due to our estimate and distribution of the
full year's tax rate based upon the expected taxable income taxed at the
applicable jurisdiction. 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 are monitored
closely and subject to change base on ultimate circumstances. The utilization of
a portion of the Company's net operating loss carry forward of $26,681 at March
31, 2004 will greatly 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 our net operating loss carry-forwards, we do not
expect this Act to have an immediate and significant impact on our effective tax
rates.

NINE MONTHS ENDED DECEMBER 31, 2004 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
2003

The consolidated financial statements for the nine month period ended December
31, 2004 and December 31, 2003 include the results of the ongoing operations of
Measurement Specialties, Inc.

NET SALES.

Sensor Business. Sensor sales increased $19,877, excluding sales from recent
Acquisitions of $10,453, sales increased $9,424, or 21.5%. The increase in net
sales for our base Sensor business during the nine months ended December 31,
2004, is a result of increased demand in our pressure, displacement, and
vibration product lines. The pressure product line sales have increased due to
a one time refurbishment program for a military aircraft. This accounts for
1.4% of the total base Sensors sales for this period. Pressure

sales also increased due to expanded demand for automotive braking system
sensors, as well as alternative fuel vehicle sensors. Sales of automotive
sensors increased by approximately 67.7%. A significant contributor to the
increase in net sales for our displacement product line for the nine month
period ended December 31, 2004 is higher sales in the automotive sector, as one
of our products has been designed into a new platform. These sales increased by
89%. Vibration product line sales increased primarily as a result of increased
traffic sensor programs. Additional increase is due to customer introduction of
new products using Piezo film. Traffic sensor sales increased by approximately
38.9% while Piezo Film sales increased by approximately 11%. The majority of
the sales from recent acquisitions are attributable to the Elekon and Entran
acquisitions.

Consumer Business. Lower non-scale product line sales in the U.S. consumer
market accounted for 97% of the decline in net sales of our Consumer Products
business for the nine month period ended December 31, 2004 as compared to the
same period in the prior fiscal year. The decrease is due to changes in
customer product assortments of tire gauges in retail customers such as Sears
and Target. In spite of a 37.4% increase in units sold, the net decline in the
bath scale line is attributable to lower per unit selling prices due to the
Conair transaction.

GROSS MARGIN.

Gross margin as a percent of sales for the nine month period ended December 31,
2004 decreased to 42.7% from 45.0% for the nine months ended December 31, 2003.

Sensor Business. Gross margin as a percent of sales for our base Sensor
business decreased from 55.1% for the nine month period ended December 31, 2003
to 54.1% for the same period ending December 31, 2004. This decreased gross
margin occurred as the result of a shift in overall product mix to lower margin
products, both in automotive and non-automotive businesses. Automotive sensor
sales for the pressure line increased from 13.4% of total sales in FY 04 to
18.5% of total sales in FY 05. This product carries a gross margin lower than
the average gross margin for the base business, thereby causing the decrease in
average gross margin. Including acquisition sales, gross margin as a percent of
sales for our Sensor business decreased to 51.7%. Elekon represents 41.6% of
the acquired sales, and carries a substantially lower gross margin than our base
sensor business.

Consumer Business. Gross margin as a percent of sales for our Consumer Products
business decreased to 25.5% for the nine month period ended December 31, 2004
from 33.1% for the nine month period ended December 31, 2003. The drivers of
the margin decline are essentially for the same reasons detailed in the three
months ended December 31, 2004 compared to the three months ended December 31,
2003 discussion 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 and other factors.

SELLING, GENERAL AND ADMINISTRATIVE.

The increase in selling, general and administrative expenses ("SG&A") is
primarily due to the Acquisitions. These Acquisitions resulted in additional
SG&A expense of approximately $3,600 for the nine months ended December 31,
2004. Also contributing to the increase in SG&A expenses were increased legal
and professional fees, due principally to costs associated with the
implementation of Sarbanes-Oxley requirements. In addition, the nine months
ended December 31, 2004, reflects a severance charge for one of the Company's
executives. These higher expenses were partially offset by lower expenses for
employee profit sharing and lower costs in the Consumer Products segment
resulting from the Conair transaction.

NON-CASH EQUITY BASED COMPENSATION.

During the nine month period ended December 31, 2003, we recorded a non-cash
equity based compensation charge of $4,954, or $0.36 per share diluted, for the
vesting of the warrant issued to Four Corners Capital Partners LP, a limited
partnership of which Mr. Guidone is a principal. All warrants issued to Four
Corners vested in fiscal 2004, and there was no comparable charge in the nine
month period ended December 31, 2004. See Note 10 to the Condensed Consolidated
Financial Statements included in this Quarterly Report on Form 10-Q for a
discussion of non-cash equity based compensation and the arrangement with Four
Corners.

RESEARCH AND DEVELOPMENT

We had $218 of customer-funded development for the nine month period ended
December 31, 2004 compared with zero for the nine month period ended December
31, 2003. On a net basis, research and development costs decreased $252, or
9.7%, to $2,358 for the nine month period ended December 31, 2004 from $2,610
for the nine month period ended December 31, 2003.

INTEREST EXPENSE, NET

Net interest expense decreased $77, or 24%, to $245 for the nine month period
ended December 31, 2004 from $322 for the nine month period ended December 31,
2003. The decrease in interest expense is attributable to the Company having an
average debt outstanding of $2,855 for the nine month period ended December 31,
2004, compared to $3,138 of debt outstanding for the nine

month period ended December 31, 2003.

INCOME TAXES

The drivers of the higher tax provision are essentially for the same reasons
detailed in the three months ended December 31, 2004 compared to the three
months ended December 31, 2003 discussion above.

LIQUIDITY AND CAPITAL RESOURCES

Operating working capital (accounts receivable plus inventory less accounts
payable) increased by $8,721 from $16,261 as of March 31, 2004 to $24,982 as of
December 31, 2004. The increase was attributable to an increase in accounts
receivable of $5,661 from $14,010 at March 31, 2004 to $19,671 at December 31,
2004, an increase in inventory of $11,126 from $10,170 at March 31, 2004 to
$21,296 at December 31, 2004 and offset by an increase in accounts payable of
$8,066 from $7,919 at March 31, 2004 to $15,985 at December 31, 2004.
Contributing to the increase in working capital was the acquisition of Elekon,
Entran, Encoder, and Humirel, which added $3,817 to accounts receivable, $6,109
in inventory and $4,700 in accounts payable at December 31, 2004. The increase
in inventory is attributable to higher sales, as well as our attempt to
reposition and establish inventory buffers in order to reduce manufacturing
lead times. We anticipate improving turnover to historical levels over the next
several quarters.

Cash provided from operating activities was $9,418 for the nine month period
ended December 31, 2004, as compared to $8,495 provided for the nine month
period ended December 31, 2003. Included in cash provided from operations for
the nine month period ended December 31, 2004 is $2,100 of costs paid to settle
our SEC and securities class action legal actions, as compared to $2,125 for
same period last year (See Note 9 to the Condensed Consolidated Financial
Statements included in this Quarterly Report on Form 10-Q.).

Investing activities included cash payments of $39,084 for the acquisition of
Elekon, Entran, Encoder, and Humirel SA. In addition, capital spending increased
to $3,089 for the nine month period ended December 31, 2004 from $1,369 for the
nine month period ended December 31, 2003. The increase in capital spending is
primarily attributable to investment in revenue generating projects at our
Shenzhen, China facility. Financing activities for the nine month period ended
December 31, 2004 provided $20,899, reflecting financing for the acquisitions,
and proceeds from the exercise of employee stock options.

NEW TERM LOAN AND REVOLVING CREDIT FACILITY
-------------------------------------------

On December 17, 2004, the Company entered into a new, $35,000 five-year credit
agreement with GE Commercial Finance, Commercial & Industrial Finance ("GE"),
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), ordinary working capital and general corporate needs and replaced 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, business combinations, and other related items. At December 31,
2004, the Company was in compliance with applicable debt covenants.

OLD REVOLVING CREDIT FACILITY
-----------------------------

PROMISSORY NOTES
----------------

OTHER SHORT-TERM DEBT
---------------------

In connection with the acquisition of Entran Devices, Inc., Entran SA and
Humirel SA, the Company has outstanding short-term and long-term borrowing of
$649 and $1,914 at December 31, 2004. These amounts are included in short-term
and long-term debt, respectively, in the condensed consolidated balance sheet.

CURRENT AND NON-CURRENT DEFERRED INCOME TAXES

The Company reclassified $6.3 million of the current deferred tax asset as of
March 31, 2004 to long-term, since a portion of the deferred tax assets will be
utilized beyond twelve months. A portion of the deferred tax assets should have
been classified as non-current. Prior year balances have been reclassified to
conform with current year presentation. This reclassification did not have an
impact on the preceding discussion concerning the Company's liquidity and
capital resources due to the non-cash nature of deferred tax assets.

LIQUIDITY

At February 4, 2005, we had approximately $6,000 of available cash and $11,500
of borrowing capacity under our revolving credit facility. This amount includes
the increased borrowing capacity resulting from the Acquisitions. The decline
in the cash balance and increase in borrowing from March 31, 2004 primarily
reflects the use of $38,586 of cash and borrowings of $20,000 to fund the
Acquisitions. See Note 7 included as part of the Company's Condensed
Consolidated Financial Statements included in the quarterly report on form 10-Q
for a discussion on the Acquisitions.

OTHER COMPREHENSIVE INCOME

Other comprehensive income consists of foreign currency translation adjustments
and unrealized gains on currency hedging contracts. The increase in other
comprehensive income is due the changes in the exchange rate of the US dollar
relative to the Euro for the Euro denominated operations of Humirel S.A and
Entran.

DEFERRED REVENUE

On January 30, 2004, Conair Corporation purchased certain assets of the
Company's 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. The Company has accounted for the sale of this
business under the guidance of EITF 00-21. Except for the Conair transaction,
the Company does not believe that the adoption of EITF 00-21 will have a
material effect on its financial position or results of operations.

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.

OBLIGATIONS AND COMMITMENTS

Long-term Debt and Notes Payable:

The following long-term debt was outstanding at December 31, 2004:

Index/Prime plus 2.75% (X%) five year term
loan payable in sixteen equal quarterly
installments of $500 through 2008, and four $3,000
quarterly payments through December 17,
2009 $20,000

6% Promissory notes payable in twelve equal
installments through September 20, 2007 2,750
-------
22,750
Less long-term debt due currently 3,000
-------
$19,750
=======

The principal payments of long-term debt are as follows:

Term Loan Note Payable Total

2005 $ 2,000 $ 1,000 $ 3,000
2006 2,000 1,000 3,000
2007 2,000 750 2,750
2008 2,000 - 2,000
2009 12,000 - 12,000
Thereafter - - -
---------- ------------- -------
Total $ 20,000 $ 2,750 $22,750
========== ============= =======

In connection with the Entran and Humirel SA acquisitions, the Company has
$2,563 in debt, of which $1,914 is long-term.

Leases: The Company leases certain property and equipment under non-cancelable
operating leases expiring on various dates through July 2011. Company leases
that include escalated lease payments are straight-lined over that base lease
period, in accordance with SFAS 13. At December 31, 2004, total minimum rent
payments under leases with initial or remaining non-cancelable lease terms
of more than one year were:

YEAR ENDING December 31,
--------------------------

2005 $2,197
2006 1,231
2007 1,115
2008 982
2009 948
Thereafter 3,350

Severance: The Company has a severance commitment of $210 accrued at December
31, 2004 with a former executive whereby the Company pays equal amounts over the
next twelve month.

Product Returns

As a result of a defective component in a custom manufactured tire gauge, in
the quarter ended December 31, 2004 the Company agreed to accept the associated
defective products back from this customer. The Company has reversed the effect
of this sale in the quarter and has accrued for certain costs associated with
the product returns based upon our best estimate at this point in time. As a
result, revenues and cost of goods sold were reduced by $286 and $77,
respectively, resulting in a reduction in gross margin of $209.

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.

The majority of our net sales are priced in United States dollars. Our costs and
expenses are priced in United States dollars, Hong Kong dollars, Chinese
renminbi and Euros. Accordingly, the competitiveness of our products relative to
products produced domestically (in foreign markets) may be affected by the
performance of the United States dollar compared with that of our foreign
customers' currencies. Additionally, we are exposed to the risk of foreign
currency transaction and translation losses, which might result from adverse
fluctuations in the values of the Hong Kong dollar, the Chinese renminbi and the
Euros. At December 31, 2004, we had net assets of approximately $17,116 subject
to fluctuations in the value of the Hong Kong dollar, net assets of
approximately $7,586 subject to fluctuations in the value of the Chinese
renminbi, net assets of approximately $29,900 subject to fluctuations in the
value of the Euro, and net assets of approximately $69 subject to fluctuations
in the value of the British pound. At March 31, 2004, we had net assets of
approximately $4,836 subject to fluctuations in the value of the Hong Kong
dollar and the net assets of

approximately $7,330 subject to fluctuations in the value of Chinese renminbi.

Fluctuations in the value of the Hong Kong dollar have not been significant
since October 17, 1983, when the Hong Kong government tied the value of the Hong
Kong dollar to that of the United States dollar. However, there can be no
assurance that the value of the Hong Kong dollar will continue to be tied to
that of the United States dollar. China adopted a floating currency system on
January 1, 1994, unifying the market and official rates of foreign exchange.
China approved current account convertibility of the Chinese renminbi on July 1,
1996, followed by formal acceptance of the International Monetary Fund's
Articles of Agreement on December 1, 1996. These regulations eliminated the
requirement for prior government approval to buy foreign exchange for ordinary
trade transactions, though approval is still required to repatriate equity or
debt, including interest thereon.

There can be no assurance that these currencies will remain stable or will
fluctuate to our benefit. To manage our exposure to foreign currency and
translation risks, we may purchase currency exchange forward contracts, currency
options, or other derivative instruments, provided such instruments may be
obtained at suitable prices. As part of the purchase of Humirel, we acquired a
number of currency contracts, and we will continue to evaluate our exposures and
alternatives for possible hedging strategies.

INTEREST RATE RISK

On December 17, 2004, the Company entered into a new, $35 million five-year
credit agreement, comprised of a $20 million term loan and $15 million revolving
credit facility. Interest accrues on the principal amount of borrowings at a
rate based on either a LIBOR rate plus a LIBOR margin or at an Index 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. 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
thus decrease our after tax profitability by $10.

We do not 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 December 31, 2004.
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 December
31, 2004 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 Elekon, Entran, Encoder, and Humirel, as of
December 31, 2004, and MWS Sensorik and Polaron Components Ltd subsequent to
that date (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 six acquisitions on the Company's internal
controls over financial reporting have been excluded. The total of the Elekon,
Entran, Encoder, and Humirel acquisitions represents approximately $10,500 in
net sales; $572 in operating income for the nine months ended December 31, 2004
and $55,151 in total assets and $53,166 in total liabilities at December 31,
2004, which are included as part of the Company's Condensed Consolidated
Financial Statements included in this Quarterly Report on Form 10-Q.

The Company is currently undergoing a comprehensive effort to ensure compliance
with the new regulations under Section 404 of the Sarbanes-Oxley Act of 2002
that will be effective for our fiscal year ending March 31, 2005. Our effort
includes identification and documentation of internal controls in our key
business processes, as well as formalization of the Company's overall control
environment. We are currently in the process of evaluating and testing these
controls. As a result of this process, enhancements to the Company's internal
controls over financial reporting have been or are being implemented. Management
regularly discusses the results of our testing, identified deficiencies and
proposed improvements to our control environment with the audit committee and
our board of directors. To date, we have not identified any material weaknesses
in our internal control as defined by the Public Company Accounting Oversight
Board. However, since our evaluation is not yet complete, we can provide no
assurance as to our or our independent auditor's conclusions as of March 31,
2005 with respect to the design and effectiveness of the Company's internal
controls over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

(DOLLARS IN THOUSANDS)

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 our Schaevitz Division, filed a
lawsuit against the Company 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. 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 is currently the defendant in a lawsuit filed in March
2001 by Service Merchandise Company, Inc. ("SMC") and its related debtors
(collectively, the "Debtors") in the 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 on
order allowing written discovery in the form of interrogatories and requests for
production of documents to begin. All other discovery remains stayed. The
action alleges 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 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 the
Company to receive more than the Company would have received if the cases were
cases under Chapter 7 of the United States Bankruptcy Code. The action seeks to
disgorge the sum of approximately $645 from the Company. It is not possible at
this time to predict the outcome of the litigation or estimate the extent of any
damages that could be awarded in the event that the Company found liable to the
estates of SMC or the other Debtors.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) EXHIBITS

SEE EXHIBIT INDEX.

(b) REPORTS ON FORM 8-K.

The following reports on Form 8-K were filed during the three months ended
December 31, 2004:

On December 23, 2004, we filed a current report on Form 8-K pursuant to Item 1
(Entry into a Material Definitive Agreement and Termination of a Material
Definitive Agreement), and Item 8 (Other Events), to attach a press release
reporting our entering into a definitive agreement to purchase the capital stock
of Humirel SA, and the replacement of Bank of America revolver with a new $35
million credit agreement, and a press release reporting the acquisition of MWS
Sensorik GmbH.

On December 28, 2004, we filed a current report on Form 8-K pursuant to Item 2
(Completion of Acquisition) to attach a press release reporting the closing of
our purchase of the capital stock of Humirel SA

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

MEASUREMENT SPECIALTIES, INC.

(Registrant)

/s/ John P. Hopkins
----------------------------
Date: February 8, 2005 John P. Hopkins
Chief Financial Officer
(authorized officer and
principal financial officer)

EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION

10.01 Loan and Security Agreement dated December 17, 2004, between Measurement Specialities,
Inc. and General Electric Capital Corporation, Wachovia Bank and JPMorgan Chase Bank

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