form_10ksb-033102
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 2002
Commission File Number 0-11740
MESA LABORATORIES, INC.
(Name of small business issuer in its charter)
Colorado 84-0872291
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
12100 West Sixth Avenue Lakewood, Colorado 80228
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (303) 987-8000
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, No Par Value
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 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
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Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $9,043,844.
State the aggregate market value of the voting and non-voting equity held by
non-affiliates of the Registrant: As of May 31, 2002: $15,604,709*.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: No Par Value Common Stock--3,323,476
shares as of May 31, 2002.
Documents incorporated by reference: none.
Transitional Small Business Disclosure Format: Yes ; No X .
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* The aggregate market value was determined by multiplying the number of
outstanding shares (excluding those shares held of record by officers,
directors and greater than five percent shareholders) by $6.42, the last
sales price of the Registrant's common stock as of May 31, 2002, such date
being within 60 days prior to the date of filing.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Introduction
Mesa Laboratories, Inc. (hereinafter referred to as the "Company" or
"Mesa") was incorporated as a Colorado corporation on March 26, 1982. The
Company designs, develops, acquires, manufactures and markets instruments and
systems utilized in connection with industrial applications and hemodialysis
therapy. In August 1984, the Company acquired Western Laboratories Corp., a
manufacturer and marketer of a line of instruments for use in calibrating
hemodialysis proportioning equipment. In June 1989, the Company acquired the
DATATRACE(R)product line of Ball Corporation. In February 1993, the Company
acquired the assets of NUSONICS, Inc., a manufacturer of ultrasonic flow meters
and analyzers. In December 1999, the Company acquired Automata Instrumentation,
Inc., a manufacturer and marketer of a line of instruments for use in
calibrating and verifying performance of hemodialysis equipment.
The Company presently markets the DATATRACE(R)and ELOGG(R)recording systems
which are used in various industrial applications; NUSONICS(R)Concentration
Analyzers, Pipeline Interface Detectors and Flow Meter products which are used
in various industrial applications; and two product lines used in kidney
dialysis [Dialysate Meters and the ECHO Reprocessing Products]. The Company is
also performing research and development to expand the application of its
technology.
All statements other than statements of historical fact included in this
annual report regarding the Company's financial position and operating and
strategic initiatives and addressing industry developments are forward-looking
statements. Where, in any forward-looking statement, the Company, or its
management, expresses an expectation or belief as to future results, such
expectation or belief is expressed in good faith and believed to have a
reasonable basis, but there can be no assurance that the statement of
expectation or belief will result or be achieved or accomplished. Factors which
could cause actual results to differ materially from those anticipated, include
but are not limited to general economic, financial and business conditions;
competition in the data logging market; competition in the kidney dialysis
market; competition in the fluid measurement market; the discontinuance of the
practice of dialyzer reuse; the business abilities and judgment of personnel;
the impacts of unusual items resulting from ongoing evaluations of business
strategies; and changes in business strategy.
Mesa's executive offices are located at 12100 West Sixth Avenue, Lakewood,
Colorado 80228, telephone (303) 987-8000.
Data Logging
The world market for temperature sensors, indicators and recorders is
currently estimated at over $2 billion and is projected to grow at an annual
rate of 4-6% over the next several years. The electronics-based thermal sensor
market to which DATATRACE(R)products belong currently exceeds $100 million.
The temperature and humidity recording markets are highly segmented.
DATATRACE(R)products have developed application niches within major industry
segments such as food processing, medical sterilization, pharmaceutical
processing, transportation, electronics, aerospace, storage facilities and
textile manufacturing. DATATRACE(R)products are used in any industry where
temperature, pressure or humidity is critical to the manufacturing process,
quality of the product or where product temperature, pressure or humidity
profiles are required in a continuous or moving process environment.
DATATRACE(R)Micropack Tracers, FRB Tracers and Flatpack Tracers
The Micropack Tracer utilizes the latest advances in microcircuitry, power
supply and sensor technologies. The instrument is computer based and can be
programmed by the user to take and store temperature, temperature and humidity
or temperature and pressure readings. A lithium battery is utilized so that the
device is completely self-contained and requires no external wires or cables.
The devices operate at temperatures from - 40(0)F to 680(0)F and provide both
high accuracy and reliability. Late in March 2002, the Company introduced its
Micropack III line of Tracers for temperature recording. The Micropack III
offers many new features including reduced size, optical data transfer, wider
temperature ranges and increased data points. Currently, the Micropack Tracers
for temperature are sold with various probe configurations in three temperature
ranges: LoTemp(R)which records temperatures from -40(0)F to 185(0)F; Standard
Temp(R), which records temperatures from 50(0)F to 302(0)F; and HiTemp(R), which
records temperatures from 212(0)F to 680(0)F. The Flatpack Tracer provides the
customer with a flat profile instrument in addition to the round Micropack
Tracer. The Flatpack Tracer is offered in the same temperature ranges and probe
configurations as the Micropack Tracer. Offering the same features but slightly
larger than the Micropack Tracer, the FRB Tracer provides users with the ability
to replace batteries at their facility, lowering operating cost and down time
for factory replacement of the battery. Utilizing the same electronics and FRB
Tracer packaging, the Company offers a humidity and temperature version of its
FRB Tracer product and a pressure and temperature version of its FRB Tracer
product.
The DATATRACE(R)Tracers can be placed completely inside a container or
process to provide true time and temperature or time, temperature and humidity,
or time, temperature and pressure profiles of manufacturing processes,
transportation systems and storage facilities. Optional probe configurations and
attachments allow the Tracers to be adapted to a wide variety of applications.
By eliminating the need for wires or cable connections, the Tracer greatly
reduces set up time while increasing measurement reliability.
DATATRACE(R)PC Interface
The DATATRACE(R)product line also includes PC Interface Modules and system
software for user programming of the Tracer instruments for graphics software
and displaying and analyzing results. Programming and retrieval of data from the
Tracer is achieved by placing the instrument in the PC Interface Module, which
is linked to a personal computer. The system's software is menu driven, allowing
the operator to quickly and easily program start time and date, sample intervals
and run ID. Programming can be accomplished within fifteen seconds by the
operator. After a process run, data is retrieved by returning the Tracer to the
PC Interface Module and following the menu instructions.
ELOGG(R)Dataloggers
The Company distributes the ELOGG(R)Datalogger product line in North
America. The ELOGG(R)line is similar in concept to the DATATRACE(R)line,
featuring different benefits to the end-user such as longer battery life,
extended memory and humidity logging in certain models. Unlike the DATATRACE(R)
products, the ELOGG(R)is a larger device which is not as environmentally
resistant and is ideally suited for long-term monitoring applications, such as
transportation and warehousing. The ELOGG(R)line also features a PC Interface
Module and software for user programming.
Sonic Fluid Measurement
The Company's sonic fluid measurement product line consists of two major
components: Sonic Flow Meters and Concentration Monitors. While the total market
for flow meters is very large, the NUSONICS(R)Sonic Flow Meters best serve
applications where cleanliness, resistance to corrosives or portability are
required. Specific applications where the NUSONICS(R) products are particularly
well suited include water treatment, chemical processing and heating,
ventilation and air conditioning (HVAC) applications.
The Concentration Monitor component of the product line consists of
Pipeline Interface Detectors and Concentration Analyzers. The Pipeline Interface
Detector serves a smaller market niche while the Concentration Analyzers serve a
wider variety of industry application, such as chemical, food, pharmaceutical
and polymerization processes.
NUSONICS(R)Sonic Flow Meters
The Sonic Flow Meter line is a range of products, which are suited to
various fluid measurement applications. The Model CM800 Sonic Flow Meter is the
Company's main wetted transducer meter. With transducers that are mounted
through the pipe wall and in contact with the material flowing through the pipe,
it is the most accurate type of ultrasonic flow meter. The Model 90 Sonic Flow
Meter features strap-on transducers and is sold in portable and fixed process
versions. This product offers flexibility and portability for measuring flow and
is totally noninvasive, measuring flow rates through the pipe wall. The Company
offers flow measurement products directed toward the heating, ventilation and
air conditioning (HVAC) market. The Balance Master Meter is a hand-held portable
meter, which quickly plugs into specialized flow stations with window seal
ports. This meter allows the plant engineer to quickly read and adjust flow
within a building. The CM800 Flow Meter utilizes the same window seal flow
stations as the Balance Master to provide continuous flow monitoring for use in
energy management systems. In addition, the Company markets Doppler flow meters
in both permanent and strap-on transducer models. Unlike the transit-time
technology that the Company's other flow products utilize to measure clean
fluids with dissolved solids, the Doppler technology is utilized when the fluids
to be measured contain either suspended solids or entrained gases. Over the past
five years, the ultrasonic flow meter market has shifted preference to strap-on
transducer flow meters and has become highly price competitive. While the
Company continues to sell its flow meters for certain applications, demand for
this product line has contracted and the contribution of this product line has
declined to less than 5% of total revenues in fiscal 2002.
NUSONICS(R)Sonic Concentration Analyzers
Liquid composition can be determined by measuring sound velocity. Since the
sound velocity of any liquid is unique, the relationship between sound velocity,
liquid composition and temperature is different for every liquid. Once the
relationship is known, sound velocity can be used to monitor changes in liquid
composition, often with much greater precision than can be realized with other
measuring devices.
Composition Analyzers are marketed to various industrial users and are
currently used to monitor more than 250 different materials. On a real time
basis, the analyzer will monitor the composition of materials for process
control of blending operations or for tracking the progress of polymerization
processes. The CP20 Analyzer is the Company's newest analyzer product.
Incorporating state-of-the-art electronic design and a new transducer design,
this product offers advanced features, smaller size, reduced manufacturing cost
and simpler installation. In addition, the Company also offers its Model 86,
Model 87 (a laboratory model) and the Model 88 Composition Meters.
Based on the same technology as the Composition Analyzers, the Company also
markets Pipeline Interface Detectors to the petroleum pipeline industry. This
instrument is used to monitor the interface of similar materials in a pipeline,
such as different grades of unleaded fuel. By detecting these interfaces, the
pipeline operator can accurately perform switching operations within the
pipeline system.
Kidney Hemodialysis Treatment
Patients with kidney failure (known as end stage renal disease, or ESRD)
require the removal of toxic waste products and excess water through artificial
means. This process is generally performed three times per week and is most
often accomplished through the use of hemodialysis.
Hemodialysis requires the treatment to be conducted on a dialysis machine
through the use of a disposable cartridge known as a dialyzer. Blood is brought
extracorporally to the dialysis machine for control and monitoring and passes
through the dialyzer where waste products and excess water are removed. This
treatment generally lasts three to four hours and is conducted three times per
week. These hemodialysis procedures are performed in kidney dialysis centers,
hospitals and in the home. The bulk of the treatments are conducted in over
3,500 clinics and hospital centers. Currently, there are over 275,000 patients
in the U.S. undergoing dialysis therapy.
In addition to the reimbursement policies of the United States Government
and state agencies, the Company's revenues from its dialysis products can be
expected to be dependent upon the policies of insurance companies and kidney
foundations.
Dialysate Meters
Mesa's Dialysate Meters are instruments that are used to test various
parameters of the dialysis fluid (dialysate). Each measures some combination of
temperature, pressure, pH and conductivity to ensure that the dialysate has the
proper constituency to promote the transfer of waste products from the blood to
the dialysate. The meters are used to check the conductivity and other variables
of the dialysate before the dialysis process begins. The meters provide a
digital readout that the patient, physician or technician uses to verify that
the dialysis unit is working within prescribed limits.
The Company's Western Meter product, Model 90DX, measures conductivity,
temperature, pressure and pH. Model 90DX is microprocessor-based and features
improved accuracy and user convenience and field calibration capabilities.
In December 1999, the Company acquired Automata Instrumentation, Inc. and
its line of Dialysate Meters. This line features the NEO-2, Phoenix, Neo-Stat +
and Hydra meters. The NEO-2 Meter, introduced in October 1999, is a next
generation meter that replaces the Company's NEO-1 Meter and measures
conductivity, pressure, temperature and pH. The remaining meters are smaller
sample meters utilizing a patented, simple and unique syringe sampling system.
With its ease of operation and lower cost, this group of meters is usually
utilized by the patient care staff of hemodialysis facilities.
The ECHO MM-1000 Dialyzer Reprocessor
Dialyzer reuse is a procedure in which a patient's dialyzer is cleaned,
performance tested and disinfected before it is reused by the same patient. The
approximate cost of the dialyzer is $10-$40, and each patient requires
approximately 156 dialyzers annually if no reuse is employed. Although the
Company has not conducted a scientific market survey, it estimates that more
than 80% of the hemodialysis patients being treated in centers are involved with
reuse programs.
The ECHO MM-1000 Dialyzer Reprocessor is a fully automated dialyzer reuse
machine for which the Company received permission to market from the FDA in June
1982. It automatically cleans, rinses, tests and delivers disinfectants to
dialyzers after dialysis therapy, thereby allowing the dialyzer cartridges to be
reused rather than disposed of after each use. It is designed to accommodate
virtually all manual reprocessing procedures in use today and can be programmed
to automate them without extensive modification or rework. Manual procedures
have been used to reprocess dialyzers effectively for over 30 years and are the
basis of most automated systems in use today. Additionally, the system can be
programmed to use prescribed chemicals. The ECHO System is totally
self-contained, aside from water and chemicals, and requires no user
adjustments.
The Reuse Data Management (RDM) System
The Company markets its Reuse Data Management (RDM) System. The system
consists of a custom database management software package, computer system,
barcode scanner and label printer. The RDM System is stand alone, and is capable
of operating with any reuse method whether automated or manual. Utilizing
barcode technology, the RDM System automates much of the data entry involved in
the record keeping process of managing reuse, and will provide record keeping
and reporting to satisfy both patient management and regulatory requirements.
Manufacturing
The Company assembles its manufactured products at its facility in
Lakewood, Colorado. The Company's manufacturing consists primarily of assembling
and testing materials and component parts purchased from others.
Most of the materials and components used in the Company's product lines
are available from a number of different suppliers. Mesa generally maintains
multiple sources of supplies for most items but is dependent on a single source
for certain items. Mesa believes that alternative sources could be developed, if
required, for present single supply sources. Although the Company's dependence
on these single supply sources may involve a degree of risk, to date, Mesa has
been able to acquire sufficient stock to meet its production schedules.
Marketing and Distribution
The Company's domestic sales of its dialysis products are generated by its
in-house marketing staff while the Company maintains an organization of
independent manufacturers' representatives to distribute its DATATRACE(R)and
ELOGG(R)product lines. For its NUSONICS(R)product lines, a separate organization
of manufacturers' representatives is maintained. International sales are
conducted through over 50 distributors. During the fiscal year ended March 31,
2002, approximately 58% of sales have been domestic and 42% have been
international to countries throughout Europe, Africa, Australia, Asia and South
America, as well as Canada and Mexico.
Sales promotions include attendance by Mesa representatives at conventions,
the continuation of direct mail campaigns and trade journal advertising in
industry related publications.
Customers of Mesa's dialysis products primarily include dialysis centers
and dialysis equipment manufacturers. The primary emphasis of the Company's
marketing effort is to offer quality products to the healthcare market, which
will aid in cost containment and improved patient well-being.
DATATRACE(R)and ELOGG(R)customers include numerous industrial users who
utilize the products within a variety of manufacturing, transportation and
storage applications. The emphasis of the Company's marketing effort is to offer
a quality product that provides a unique and flexible solution to monitoring
temperature or humidity without interfering with the processing, transportation
or storage of the product.
NUSONICS(R)customers include various industries such as water treatment,
manufacturing, HVAC and petroleum product transportation. The Company's
marketing efforts are focused on offering flow measurement and concentration
monitoring in difficult environments where noninvasive monitoring techniques are
required.
During the fiscal year ended March 31, 2002 two customers represented
approximately 12% and 11% of the Company's revenues, respectively. At March 31,
2002, these customers represented approximately 28% and 8% of the Company's
account receivable balances. During the fiscal year ended March 31, 2001, one
customer represented approximately 13% of the Company's revenues. At March 31,
2001 this customer represented approximately 12% of the Company's account
receivable balance.
Competition
Mesa competes with major medical and instrumentation companies as well as a
number of smaller companies, many of which are well established, with
substantially greater capital resources and larger research and development
facilities. Furthermore, many of these companies have an established product
line and a significant operating history. Accordingly, the Company may be at a
competitive disadvantage due to such factors as its limited resources and
limited marketing and distribution network.
Companies with which Mesa's medical products compete include Minntech
Corporation. Companies with which Mesa's DATATRACE(R)and ELOGG(R)instrumentation
products compete include Kaye Instruments, Ellab and Orion. Companies with which
Mesa's NUSONICS(R)products compete include Controlotron, Badger Meter,
Rosemount, Great Lakes Instruments and Panametrics.
In the area of dialyzer reuse, management believes that the availability of
an automated reprocessing system which consistently cleans, rinses and
disinfects dialyzers, as well as tests them for physical performance and leaks,
can dramatically alter the reuse patterns. Mesa believes that it is the largest
supplier of meters used to calibrate hemodialysis equipment, although it has not
conducted independent market surveys. The DATATRACE(R)and ELOGG(R) products
offer unique solutions to monitoring temperature or humidity and temperature or
pressure and temperature through a continuous process or long-term
transportation and warehousing applications. Although there are other solutions
to temperature, humidity and pressure monitoring available, the
DATATRACE(R)products offer a miniaturized, self-contained, environmentally
resistant, wireless solution. NUSONICS(R)products offer solutions to monitoring
of clean fluids as well as highly corrosive materials, which are either
noninvasive or do not disturb the flow of the product through the pipe.
NUSONICS(R)products also offer a unique solution to monitoring variations in a
fluid's concentration as the fluid passes through a pipeline into or out of a
process.
Government Regulation
Medical devices marketed by Mesa are subject to the provisions of the
Federal Food, Drug and Cosmetic Act, as amended by the Medical Device Amendments
of 1976 (hereinafter referred to as the "Act"). A medical device, which was not
marketed prior to May 28, 1976, or is not substantially equivalent to a device
marketed prior to that date, may not be marketed until certain data is filed
with the FDA and the FDA has affirmatively determined that such data justifies
marketing under conditions specified by the FDA. A medical device is defined by
the Act as an instrument which (1) is intended for use in the diagnosis or the
treatment of disease, or is intended to affect the structure of any function of
the human body; (2) does not achieve its intended purpose through chemical
action; and (3) is not dependent upon being metabolized for the achievement of
its principal intended purpose. The Act requires any company proposing to market
a medical device to notify the FDA of its intention at least ninety days before
doing so, and in such notification must advise the FDA as to whether the device
is substantially equivalent to a device marketed prior to May 28, 1976. As of
the date hereof, the Company has received permission from the FDA to market all
of its medical products.
Mesa's medical products are subject to FDA regulations and inspections,
which may be time-consuming and costly. This includes on-going compliance with
the FDA's current Good Manufacturing Practices regulations, which require, among
other things, the systematic control of manufacture, packaging and storage of
products intended for human use. Failure to comply with these practices renders
the product adulterated and could subject the Company to an interruption of
manufacture and sale of its medical products and possible regulatory action by
the FDA.
The manufacture and sale of medical devices is also regulated by some
states. Although there is substantial overlap between state regulations and the
regulations of the FDA, some state laws may apply. Mesa, however, does not
anticipate that complying with state regulations will create any significant
problems. Foreign countries also have laws regulating medical devices sold in
those countries.
Employees
At March 31, 2002, the Company had a total of 52 employees, of which 50
were full-time employees. Currently, ten persons are employed for marketing,
three for research and development, 32 for manufacturing and quality assurance
and seven for administration.
Additional Information
For the fiscal years ended March 31, 2002 and 2001, Mesa spent
approximately $289,939 and $308,166, respectively, on Company-sponsored research
and development activities.
Compliance with federal, state and local provisions which have been enacted
regarding the discharge of materials into the environment or otherwise relating
to the protection of the environment has not had, and is not expected to have,
any adverse effect upon capital expenditures, earnings or the competitive
position of the Company. Mesa is not presently a party to any litigation or
administrative proceedings with respect to its compliance with such
environmental standards. In addition, the Company does not anticipate being
required to expend any significant capital funds in the near future for
environmental protection in connection with its operations.
The Company has been issued patents for its DATATRACE(R)temperature
recording devices, its NUSONICS(R)sonic flow measurement and sonic concentration
monitoring products and its Automata dialysis meters. Failure to obtain patent
protection on the Company's remaining products may have a substantially adverse
effect upon the Company since there can be no assurance that other companies
will not develop functionally similar products, placing the Company at a
competitive disadvantage. Further, there can be no assurance that patent
protection will afford protection against competitors with similar inventions,
nor can there be any assurance that the patents will not be infringed or
designed around by others. Moreover, it may be costly to pursue and to prosecute
patent infringement actions against others, and such actions could interfere
with the business of the Company.
ITEM 2. DESCRIPTION OF PROPERTY.
Mesa owns its 39,616 square foot facility at 12100 W. 6th Avenue, Lakewood,
Colorado 80228. All manufacturing, warehouse, marketing, research and
administrative functions are based at this location. The facility is
approximately 80% utilized and the Company currently utilizes only one shift.
The Company does not invest in, and has not adopted any policy with respect
to investments in, real estate or interests in real estate, real estate
mortgages or securities of or interests in persons primarily engaged in real
estate activities. It is not the Company's policy to acquire assets primarily
for possible capital gain or primarily for income.
ITEM 3. LEGAL PROCEEDINGS.
No material legal proceedings to which the Company is a party or to which
any of its property is the subject are pending, and no such proceedings are
known by the Company to be contemplated. The Company is not presently a party to
any litigation or administrative proceedings with respect to its compliance with
federal, state and local provisions which have been enacted regarding the
discharge of materials into the environment or otherwise relating to the
protection of the environment and no such proceedings are known by the Company
to be contemplated. No legal actions are contemplated nor judgments entered
against any officer or director of the Company concerning any matter involving
the business of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of Shareholders of Mesa Laboratories, Inc. was held on
March 14, 2002. Of the 3,334,169 Shares entitled to vote, 2,952,522 were
represented either in person or by proxy. Four Directors were elected to serve
until the next Annual Meeting of Shareholders.
The four directors elected were:
FOR WITHHELD
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Michael T. Brooks 2,938,724 13,798
H. Stuart Campbell 2,941,624 10,898
Paul D. Duke 2,924,524 27,998
Luke R. Schmieder 2,929,524 22,998
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) Mesa's common stock is traded on the NASDAQ National Market under the
symbol "MLAB". For the last two fiscal years, the high and low last sales prices
of the Company's common stock as reported to the Company by the National
Association of Securities Dealers, Inc. were as follows:
Quarter Ended High Low
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June 30, 2000 6.25 4.1875
September 30, 2000 7.00 5.25
December 31, 2000 6.75 5.375
March 31, 2001 6.50 5.125
Quarter Ended High Low
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June 30, 2001 5.15 4.80
September 30, 2001 4.80 4.20
December 31, 2001 6.22 4.66
March 31, 2002 7.70 6.01
The NASDAQ National Market quotations set forth herein reflect inter-dealer
prices, without retail mark-up, markdown, or commission and may not represent
actual transactions.
(b) As of March 31, 2002, there were approximately 1,200 record and beneficial
holders of Mesa's common stock.
(c) The Company has not declared or paid any dividends to date.
(d) During the fiscal year ended March 31, 2002, the Company did not sell any
equity securities that were not registered under the Securities Act of
1933, as amended.
For information regarding securities authorized for issuance under our
equity compensation plans, please see Note 7 to the financial statements.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Results of Operations
Fiscal Year 2002 Compared to Fiscal Year 2001
Net Sales
Net sales for fiscal 2002 decreased less than one percent from fiscal 2001.
In real dollars, net sales of $9,043,844 in fiscal 2002 decreased $56,119 from
$9,099,963 in 2001. Net sales decreased in fiscal 2002 due to lower Datatrace
sales, which were mostly offset by higher medical product sales. A weak economy
in the United States, the tragedies that occurred in September, 2001 and a
strong US dollar in comparison to key foreign currencies all had a negative
impact on Datatrace product sales in fiscal 2002. Overall, medical product sales
were stronger during fiscal 2002. Medical sales were helped by a key sale during
the year into the South American market, which resulted in over $800,000 of
sales of Dialysate Meters and ECHO Reprocessors.
Cost of Sales
Cost of sales as a percent of net sales in fiscal 2002 increased one
percent from fiscal 2001 to 40.4%. During fiscal 2002 medical product sales
continued to grow as a percentage of the overall sales mix. Gross margins for
the medical products tend to be lower than the Datatrace products, which led to
a small increase in cost of goods as a percentage of sales during the year.
Selling, General and Administrative
Selling costs increased 7% from fiscal 2001 to fiscal 2002. In real
dollars, selling expenses increased $80,445 to $1,224,835 in fiscal 2002 from
$1,144,390 in fiscal 2001. The increase in selling expenses in fiscal 2002 was
due to increases in Medical and Datatrace selling expenses, which were partially
offset by a decrease in Nusonics expenses. The increases in Datatrace selling
expenses were due chiefly to increased compensation costs during the year.
General and administrative expenses were $934,536 in fiscal 2002 and
$1,252,812 in fiscal 2001, which represents a $318,276 or 25% decrease from
fiscal 2001 to fiscal 2002. Decreased costs in fiscal 2002 were due to the
elimination of goodwill amortization in accordance with new accounting standards
implemented during the year. This elimination of expense was partially offset by
increased consulting and business development costs.
Research and Development
Company sponsored research and development cost $289,939 in fiscal 2002 and
$308,166 in fiscal 2001, which represents a 6% decrease from year to year. The
decrease in fiscal 2002 was due to lower compensation and material costs for the
year due to a decrease in permanent staff during the year. This decrease in
compensation costs was partially offset by increased consulting expense as
specialized portions of projects were outsourced.
Net Income
Net income increased to $2,030,947 or $.59 per share on a diluted basis in
fiscal 2002 from $1,832,268 or $.49 per share on a diluted basis in fiscal 2001.
Fiscal 2002 profits increased 11% from 2001 levels, due chiefly to the
elimination of amortization expense during the year. Diluted per share profits
grew 20% from year to year due to the higher net income and lower average shares
outstanding. The lower shares outstanding were due to the Company's continuing
share buy back program. The elimination of amortization also lowered the
Company's net income tax rate for the fiscal year, due to the fact that most of
these expenses were not tax deductible.
Fiscal Year 2001 Compared to Fiscal Year 2000
Net Sales
Net sales for fiscal 2001 increased 5% from fiscal 2000. In real dollars,
net sales of $9,099,963 in fiscal 2001 increased $444,632 from $8,655,331 in
2000. Net sales increase in fiscal 2001 was due to an increase in sales
resulting from the acquisition of Automata Instrumentation, Inc. on December 7,
1999. This increase was offset by declines in Datatrace and Nusonics products.
Sales of Datatrace products declined over 20% during fiscal 2001. While the
worldwide market for capital goods was weak, these products were significantly
hurt by the decrease in the value of the EURO in comparison to the Dollar, which
made the product more expensive in the European market during fiscal 2001. The
market in Japan was also softer for these products during the year adding to the
decline in international sales. The decline in Nusonics products was almost
identical to the decline in Datatrace products during fiscal 2001, but reflects
the declining investment in our flow meter products.
Cost of Sales
Cost of sales as a percent of net sales in fiscal 2001 increased 3.2% from
fiscal 2000 to 39.4%. There were two main factors, which impacted this increase
during fiscal 2001. Incorporation of the Automata products into the sales mix
for the full year had a slightly negative impact on the Company's mix of product
gross margins. The decline in Datatrace product sales during the year had a
further negative impact on the Company's sales mix, since these products
currently provide our highest gross margin by product.
Selling, General and Administrative
Selling costs in 2001 decreased 12% from fiscal 2000. In dollars, selling
costs declined $149,630 to $1,144,390 in fiscal 2001 from $1,294,020 in fiscal
2000. The decrease in selling expense during fiscal 2001 was due chiefly to a
reduction in outside commission expenses. Decreases in sales of Datatrace and
Nusonics products, which are sold primarily through independent sales
representatives, led to a significant decrease in commissions. Increased medical
product sales, which are primarily sold through direct sales personnel, led to
higher salesperson commissions for the year, but these were partially off-set by
lower bonuses.
General and administrative expenses were $1,252,812 in fiscal 2001 and
$1,099,585 in fiscal 2000, which represents a $153,227 or 14% increase from
fiscal 2000 to fiscal 2001. During fiscal 2001, increased amortization expense
was incurred due to the Automata acquisition in fiscal 2000. The newly
implemented 401 (k) plan also increased benefit expenses. These costs were
partially offset by decreased acquisition costs.
Research and Development
Company sponsored research and development cost $308,166 in fiscal 2001 and
$281,651 in fiscal 2000, which represents a 9% increase from year to year.
Increases in compensation and materials costs accounted for the increase in
expense during fiscal 2001. Current projects in development during the fiscal
year include a new generation Datatrace instrument, enhancements to the
Datatrace user software and feasibility work on a new meter product for the
dialysis market.
Net Income
Net income decreased to $1,832,268 or $.49 per share on a diluted basis in
fiscal 2001 from $2,106,619 or $.55 per share on a diluted basis in fiscal 2000.
The decrease in net income during fiscal 2001 was partially due to the changes
in product mix highlighted in the Cost of Goods Sold section of this report.
Additionally, higher amortization expense and increased charges against accounts
receivable, inventory and fixed assets were taken during the year, which did not
recur, in fiscal 2002.
Liquidity and Capital Resources
On March 31, 2002, the Company had cash and short-term investments of
$3,461,978. In addition, the Company had other current assets totaling
$5,137,405 and total current assets of $8,599,383. Current liabilities of Mesa
Laboratories, Inc. were $500,705, which resulted in a current ratio of 17:1. For
comparison purposes at March 31, 2001, Mesa had cash and short-term investments
of $2,316,769, other current assets of $5,822,592, total current assets of
$8,139,361, current liabilities of $860,715 and a current ratio of 9:1.
Mesa has made capital acquisitions of $41,824 during fiscal 2002 and
$80,053 during fiscal 2001. The Company has instituted a program to repurchase
up to 500,000 shares of its outstanding common stock. Under the plan, the shares
may be purchased from time to time in the open market at prevailing prices or in
negotiated transactions off the market. Shares purchased will be canceled and
repurchases will be made with existing cash reserves.
Forward Looking Statements
All statements other than statements of historical fact included in this
annual report regarding the Company's financial position and operating and
strategic initiatives and addressing industry developments are forward-looking
statements. Where, in any forward-looking statement, the Company, or its
management, expresses an expectation or belief as to future results, such
expectation or belief is expressed in good faith and believed to have a
reasonable basis, but there can be no assurance that the statement of
expectation or belief will result or be achieved or accomplished. Factors which
could cause actual results to differ materially from those anticipated, include
but are not limited to general economic, financial and business conditions;
competition in the data logging market; competition in the kidney dialysis
market; competition in the fluid measurement market; the discontinuance of the
practice of dialyzer reuse; the business abilities and judgment of personnel;
the impacts of unusual items resulting from ongoing evaluations of business
strategies; and changes in business strategy. We do not intend to update these
forward-looking statements. You are advised to review the "Additional Cautionary
Statements" section below for more information about risks that could affect the
financial results of Mesa Laboratories, Inc.
Additional Cautionary Statements
We Face Intense Competition
The markets for some of our current and potential products are intensely
competitive. We face competition from companies that possess both larger sales
forces and possess more capital resources. In addition, there are growing
numbers of competitor for certain of our products.
Our Growth Depends on Introducing New Products and the Efforts of Third Party
Distributors
Our growth depends on the acceptance of our products in the marketplace,
the penetration achieved by the companies, which we sell to, and rely on, to
distribute and represent our products, and our ability to introduce new and
innovative products that meet the needs of the various markets we serve. There
can be no assurance that we will be able to continue to introduce new and
innovative products or that the products we introduce, or have introduced, will
be widely accepted by the marketplace, or that the companies which we contract
with to distribute and represent our products will continue to successfully
penetrate our various markets. Our failure to continue to introduce new products
or gain wide spread acceptance of our products would adversely affect our
operations.
We Depend on Attracting New Distributors and Representatives for Our Products
In order to successfully commercialize our products in new markets, we will
need to enter into distribution arrangements with companies that can
successfully distribute and represent our products into various markets.
Our Products are Extensively Regulated Which Could Delay Product Introduction or
Halt Sales
The process of obtaining and maintaining required regulatory approvals is
lengthy, expensive and uncertain. Although we have not experienced any
substantial regulatory delays to date, there is no assurance that delays will
not occur in the future, which could have a significant adverse effect on our
ability to introduce new products on a timely basis. Regulatory agencies
periodically inspect our manufacturing facilities to ascertain compliance with
"good manufacturing practices" and can subject approved products to additional
testing and surveillance programs. Failure to comply with applicable regulatory
requirements can, among other things, result in fines, suspensions of regulatory
approvals, product recalls, operating restrictions and criminal penalties. While
we believe that we are currently in compliance, if we fail to comply with
regulatory requirements, it could have an adverse effect on our results of
operations and financial condition.
We May be Unable to Effectively Protect Our Intellectual Property
Our ability to compete effectively depends in part on developing and
maintaining the proprietary aspects of our technology and processes. We cannot
assure you that the patents we have obtained, or any patents we may obtain, will
provide any competitive advantages for our products. We also cannot assure you
that those patents will not be successfully challenged, invalidated or
circumvented in the future. In addition, we cannot assure you that competitors,
many of which have substantial resources and have made substantial investments
in competing technologies, have not already applied for or obtained, or will not
seek to apply for or obtain, patents that will prevent, limit or interfere with
our ability to make, use and sell our products either in the United States or in
international markets. Patent applications are maintained in secrecy for a
period after filing. We may not be aware of all of the patents and patent
applications potentially adverse to our interests.
We May Have Product Liability Claims
Our products involve a risk of product liability claims. Although we
maintain product liability insurance at coverage levels, which we believe are
adequate, there is no assurance that, if we were to incur substantial liability
for product liability claims, insurance would provide adequate coverage against
such liability.
Our Operating Results May Fluctuate
Our results of operations may fluctuate significantly from quarter to
quarter based on numerous factors including the following:
* the introduction of new products;
* the level of market acceptance of our products;
* achievement of research and development milestones;
* timing of the receipt of orders from, and product shipment to major
customers;
* timing of expenditures;
* delays in educating and training our distributors' and representatives'
sales forces;
* manufacturing or supply delays;
* product returns; and
* receipt of necessary regulation approval.
Changing Industry Trends May Affect Operating Results
Various changes within the industries we serve may limit future demand for
our products and may include the following:
* increasing usage of single use dialyzers;
* changes in dialysis reimbursements; and
* increased availability of donated organs.
ITEM 7. FINANCIAL STATEMENTS.
TABLE OF CONTENTS
Independent Auditors' Report
Financial Statements:
Balance Sheets
Statements of Income
Statements of Stockholders' Equity
Statements of Cash Flows
Notes to Financial Statements
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Mesa Laboratories, Inc.
Lakewood, Colorado
We have audited the accompanying balance sheets of Mesa Laboratories, Inc. as of
March 31, 2002 and 2001, and the related statements of income, stockholders'
equity, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mesa Laboratories, Inc. as of
March 31, 2002 and 2001, and the results of its operations and its cash flows
for the years then ended, in conformity with auditing standards generally
accepted in the United States of America.
/s/ Ehrhardt Keefe Steiner & Hottman PC
Ehrhardt Keefe Steiner & Hottman PC
April 30, 2002
Denver, Colorado
MESA LABORATORIES, INC.
BALANCE SHEETS
ASSETS March 31,
2002 2001
------------- -------------
CURRENT ASSETS:
Cash and cash equivalents $ 3,461,978 $ 2,316,769
Accounts receivable -
Trade, net of allowance for doubtful
accounts of $50,000 (2002) and (2001) 2,288,719 3,232,706
Other 7,305 53,631
Inventories 2,443,091 2,402,847
Prepaid expenses 296,512 27,508
Deferred income taxes 101,778 105,900
------------- -------------
TOTAL CURRENT ASSETS 8,599,383 8,139,361
PROPERTY, PLANT AND EQUIPMENT, net 1,398,398 1,471,662
OTHER ASSETS:
Other long-term assets 231,000 -
Goodwill 4,207,942 4,207,942
------------- -------------
$ 14,436,723 $ 13,818,965
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade $ 88,894 $ 353,519
Accrued salaries and payroll taxes 310,272 267,964
Accrued warranty expense 30,000 12,000
Other accrued liabilities 36,878 96,771
Taxes payable 34,661 130,461
------------- -------------
TOTAL CURRENT LIABILITIES 500,705 860,715
LONG TERM LIABILITIES:
Deferred income taxes 41,744 25,292
COMMITMENTS
STOCKHOLDERS' EQUITY:
Preferred stock, no par value;
authorized 1,000,000 shares; none issued - -
Common stock, no par value; authorized
8,000,000 shares; issued and outstanding,
3,342,376 (2002) and 3,542,160 (2001) 1,791,758 2,165,549
Retained earnings 12,102,516 10,767,409
------------- -------------
13,894,274 12,932,958
------------- -------------
$ 14,436,723 $ 13,818,965
============== =============
See notes to financial statements.
STATEMENTS OF INCOME
Year Ended March 31,
----------------------------------
2002 2001
------------- -------------
Sales $ 9,043,844 $ 9,099,963
Cost of sales 3,652,435 3,588,266
------------- -------------
Gross profit 5,391,409 5,511,697
------------- -------------
Operating expenses:
Selling 1,224,835 1,144,390
General and administrative 934,536 1,252,812
Research and development 289,939 308,166
------------- -------------
Total operating expenses 2,449,310 2,705,368
------------- -------------
Operating income 2,942,099 2,806,329
Interest income 78,511 146,474
Other expense - (75,511)
------------- -------------
Earnings before income taxes 3,020,610 2,877,292
Income taxes 989,663 1,045,024
------------- -------------
Net income $ 2,030,947 $ 1,832,268
============= =============
Reported net income $ 2,030,947 $ 1,832,268
Add back: Goodwill amortization - 359,568
------------- -------------
Adjusted net income $ 2,030,947 $ 2,191,836
============= =============
Basic earnings per share:
Reported net income $ .60 $ .50
Goodwill amortization - .09
------------- -------------
Adjusted net income per share (basic) $ .60 $ .59
============= =============
Diluted earnings per share:
Reported net income $ .59 $ .49
Goodwill amortization - .10
------------- -------------
Adjusted net income per share (diluted) $ .59 $ .59
============= =============
Average common shares outstanding - basic 3,407,649 3,694,356
============= =============
Average common shares outstanding - diluted 3,452,159 3,722,317
============= =============
See notes to financial statements.
STATEMENT OF STOCKHOLDERS' EQUITY
Common Stock
--------------- Total
Number of Retained Stockholders'
Shares Amount Earnings Equity
--------------- ------------ ------------- ------------
BALANCE, March 31, 2000 3,787,476 $ 2,687,087 $ 9,912,377 $ 12,599,464
Common stock issued for the
conversion of incentive
stock options net of
shares returned to Company
as payment 29,135 42,608 - 42,608
Purchase and retirement of
treasury stock (274,451) (564,146) (977,236) (1,541,382)
Net income for the year - - 1,832,268 1,832,268
--------------- ------------ ------------- ------------
BALANCE, March 31, 2001 3,542,160 2,165,549 10,767,409 12,932,958
Common stock issued for the
conversion of incentive
stock options net of
shares returned to Company
as payment 13,995 27,909 - 27,909
Purchase and retirement of
treasury stock (213,779) (401,700) (695,840) (1,097,540)
Net income for the year - - 2,030,947 2,030,947
--------------- ------------ ------------- ------------
BALANCE, March 31, 2002 3,342,376 $ 1,791,758 $ 12,102,516 $ 13,894,274
=============== ============ ============= ============
See notes to financial statements.
STATEMENTS OF CASH FLOWS
Year Ended March 31,
----------------------------
2002 2001
------------ ------------
Cash flows from operating activities:
Net income $ 2,030,947 $ 1,832,268
Depreciation and amortization 115,088 521,686
Loss on disposal of assets - 76,971
Provision for bad debts - (20,000)
Provision for warranty reserve 18,000 (13,000)
Provision for inventory reserve (40,000) 60,000
Deferred income taxes 20,574 (107,136)
Change in assets and liabilities-
(Increase) decrease in accounts receivable 759,313 (880,534)
(Increase) decrease in inventories (244) (501,792)
(Increase) decrease in prepaid expenses (269,004) 10,823
Increase (decrease) in accounts payable, trade (264,625) 181,545
Increase (decrease) in accrued liabilities
and taxes payable (113,385) (114,944)
------------ ------------
Net cash provided by operating activities 2,256,664 1,045,887
------------ ------------
Cash flows from investing activities:
(Capital expenditures) (41,824) (80,053)
------------ ------------
Net cash (used) provided by investing activities (41,824) (80,053)
------------ ------------
Cash flow from financing activities:
Net proceeds from issuance of stock 27,909 42,608
Common stock repurchases (1,097,540) (1,541,382)
------------ ------------
Net cash (used) provided by financing activities (1,069,631) (1,498,774)
------------ ------------
Net increase (decrease) in cash and cash
equivalents 1,145,209 (532,940)
Cash and cash equivalents at beginning of year 2,316,769 2,849,709
------------ ------------
Cash and cash equivalents at end of year $ 3,461,978 $ 2,316,769
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes $ 1,366,200 $ 1,142,500
============ ============
Interest $ - $ 1,459
============ ============
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
General - Mesa Laboratories, Inc. was incorporated under the laws of the State
of Colorado on March 26, 1982, for the purpose of designing, manufacturing and
marketing electronic instruments and supplies.
Concentration of Credit Risk - Financial instruments which potentially subject
the Company to concentrations of credit risk consist of money market funds and
accounts receivable. The Company invests primarily all of its excess cash in
money market funds administered by reputable financial institutions, debt
instruments of the U.S. government and its agencies and grants credit to its
customers who are located throughout the United States and several foreign
countries. To reduce credit risk, the Company periodically evaluates the money
market fund administrators and performs credit analysis of customers and
monitors their financial condition. Additionally, the Company maintains cash
balances in bank deposit accounts which, at times, may exceed federally insured
limits. The Company has not experienced any losses in such accounts.
During the fiscal year ended March 31, 2002 two customers represented
approximately 12% and 11% of the Company's revenues, respectively. At March 31,
2002, these customers represented approximately 28% and 8% of the Company's
account receivable balances. During the fiscal year ended March 31, 2001, one
customer represented approximately 13% of the Company's revenues. At March 31,
2001 this customer represented approximately 12% of the Company's account
receivable balance.
Cash Equivalents - Cash equivalents include all highly liquid investments with
an original maturity of three months or less.
Inventories - Inventories are stated at the lower of cost or market, using the
first-in, first-out method (FIFO) to determine cost.
Property, Plant and Equipment - Property, plant and equipment is stated at
acquisition cost. Depreciation and amortization is provided using the
straight-line method over the estimated useful lives of three to thirty-nine
years.
Goodwill and Business Combinations - Goodwill resulted from the acquisitions of
Nusonics, Datatrace and Automata. In July 2001, the FASB issued SFAS Nos. 141
and 142 " Business Combinations " and " Goodwill and other Intangible Assets ".
Statement 141 requires all business combinations initiated after June 30, 2001
to be accounted for using the purchase method. Under the guidance of Statement
142, goodwill is no longer subject to amortization over its estimated useful
life. Rather, goodwill will be subject to at least an annual assessment for
impairment by applying a fair value base test. The Company adopted these
statements as of April 1, 2001. Further the Company recorded no amortization
expense on goodwill for the year ended March 31, 2002. Goodwill was tested for
impairment at the time of adoption and in the fourth quarter. No impairment was
recorded as the fair value of the reporting unit exceeded its carrying value.
As a result of Statement 142, the Company will no longer be recognizing
approximately $360,000 in annual amortization expense related to goodwill. The
effect of adopting statement 142 on reported net income exclusive of
amortization expense (including any related tax effects) for the year ended
March 31, 2001, is shown in the Statement of Operations.
Revenue Recognition - The Company recognizes revenues at the time products are
shipped.
Research & Development Costs - Costs related to research and development efforts
on existing or potential products are expensed as incurred.
Accrued Warranty Expense - The Company provides limited product warranty on its
products and, accordingly, accrues an estimate of the related warranty expense
at the time of sale.
Earnings Per Share - Basic earnings per share is calculated using the average
number of common shares outstanding. Diluted earnings per share is computed on
the basis of the average number of common shares outstanding plus the effect of
outstanding stock options using the treasury stock method, which totaled 102,741
and 27,961 additional shares in 2002 and 2001, respectively.
Valuation of Long-Lived Assets - The Company assesses valuation of long-lived
assets in accordance with Statement of Financial Accounting Standards (SFAS) No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of. The Company periodically evaluates the carrying value
of long-lived assets to be held and used when events and circumstances warrant
such a review. The carrying value of a long-lived asset is considered impaired
when the anticipated undiscounted cash flow from such asset is separately
identifiable and is less than its carrying value. In that event, a loss is
recognized based on the amount by which the carrying value exceeds the fair
market value of the long-lived asset. Fair market value is determined primarily
using the anticipated cash flows discounted at a rate commensurate with the risk
involved.
Use of Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Advertising Costs - Advertising costs are expensed as incurred. Advertising
costs for the years ended March 31, 2002 and 2001 were $121,539 and $103,824,
respectively.
Fair Value of Financial Instruments - The carrying amount of financial
instruments including cash and cash equivalents, accounts receivable, accounts
payable and accrued expenses approximated fair value as of March 31, 2002
because of the relatively short maturity of these instruments.
Recently Issued Accounting Pronouncements - In August 2001, the FASB issued SFAS
No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 requires
the fair value of a liability for an asset retirement obligation to be
recognized in the period in which it is incurred if a reasonable estimate of
fair value can be made. The associated asset retirement costs are capitalized as
part of the carrying amount of the long-lived asset. SFAS No. 143 is effective
for the Company for fiscal years beginning after June 15, 2002. The Company
believes the adoption of this statement will have no material impact on its
consolidated financial statements.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 requires that those long-lived
assets be measured at the lower of carrying amount or fair value, less cost to
sell, whether reported in continuing operations or discontinued operations.
Therefore, discontinued operations will no longer be measured at net realizable
value or include amounts for operating losses that have not yet occurred. SFAS
No. 144 is effective for financial statements issued for fiscal years beginning
after December 15, 2001 and, generally, is to be applied prospectively.
2. Inventories:
Inventories consist of the following:
March 31,
---------------------------
2002 2001
----------- -----------
Raw materials $ 1,909,568 $ 1,962,241
Work-in-process 291,607 298,470
Finished goods 291,916 232,136
Less reserve (50,000) (90,000)
----------- -----------
$ 2,443,091 $ 2,402,847
=========== ===========
Work-in-process and finished goods include raw materials, direct labor and
manufacturing overhead at March 31, 2002 and 2001.
3. Property, Plant and Equipment:
Property, plant and equipment consist of the following:
March 31,
---------------------------
2002 2001
----------- -----------
Land $ 148,104 $ 148,104
Building 1,247,010 1,247,010
Manufacturing equipment 1,179,073 1,166,885
Computer equipment 262,908 234,386
Furniture and fixtures 74,382 73,268
----------- -----------
2,911,477 2,869,653
Less accumulated depreciation (1,513,079) (1,397,991)
----------- -----------
$ 1,398,398 $ 1,471,662
=========== ===========
4. Income Taxes:
The components of the provision for income taxes for the years ended March 31,
2002 and 2001 are as follows:
March 31,
---------------------------
2002 2001
----------- -----------
Current tax provision:
Federal $ 853,498 $ 1,019,683
State 116,386 132,477
----------- -----------
969,884 1,152,160
----------- -----------
Deferred tax provision:
Federal 17,405 (12,318)
State 2,374 (94,818)
----------- -----------
19,779 (107,136)
----------- -----------
$ 989,663 $ 1,045,024
=========== ===========
Deferred taxes result from temporary differences in the recognition of income
and expenses for financial and income tax reporting purposes and differences
between the fair value of assets acquired in business combinations accounted for
as a purchase and their tax bases. The components of net deferred tax assets and
liabilities as of March 31, 2002 and 2001 are as follows:
March 31,
---------------------------
2002 2001
----------- -----------
Depreciation and amortization $ (41,744) $ (25,292)
Accrued vacation 50,306 44,158
Bad debt expense 17,000 17,000
Obsolete inventory 17,000 30,600
Warranty reserve 10,200 4,080
Other 7,272 7,272
Deferred service cost - 2,790
----------- -----------
Net deferred (liability)/asset $ 60,034 $ 80,608
=========== ===========
A reconciliation of the Company's income tax provision for the years ended March
31, 2002 and 2001, and the amounts computed by applying statutory rates to
income before income taxes is as follows:
March 31,
---------------------------
2002 2001
----------- -----------
Income taxes at statutory rates $ 935,358 $ 1,012,400
State income taxes,
net of federal benefit 118,760 148,224
Foreign sales corporation exemption (64,455) (115,600)
----------- -----------
$ 989,663 $ 1,045,024
=========== ===========
5. Stock Repurchase:
The Company has instituted a program to repurchase up to 500,000 shares of its
outstanding common stock. Under the program, shares may be purchased from time
to time in the open market at prevailing prices or in negotiated transactions
off the market. Shares purchased will be cancelled and repurchase of shares will
be funded through existing cash reserves.
6. Employee Benefit Plan:
The Company adopted a 401(k) plan effective January 1, 2000. Participation is
voluntary and employees are eligible to participate at age 21 and after six
months of employment with the Company. The Company matches 50% of the employee's
contribution up to 6% of the employee's salary.
A participant vests in the Company's contributions at a rate of 25% per year,
fully vesting at the end of the participant's fourth year of service. The
Company contributed $44,906 to the plan for fiscal 2002, and $44,583 for fiscal
2001.
7. Stockholders' Equity:
The State of Colorado has eliminated the ability of Colorado corporations to
retain treasury stock. As a result, the Company reduced common stock to its
average share value and further reduced retained earnings for the remainder of
the cost of treasury stock acquired in each fiscal year.
The Company has adopted incentive stock option plans for the benefit of the
Company's key employees, excluding its outside directors. Under the terms of the
plans, options are granted at an amount not less than 100% of the bid price of
the underlying shares at the date of grant. The options are exercisable for a
term of five years and, during such term, may be exercised as follows: 25% after
each year, and 100% anytime after the fourth year until the end of the fifth
year.
On October 3, 1996, the Company adopted a nonqualified performance stock option
plan for the benefit of the Company's outside Directors. The plan provides that
the outside Directors will receive grants to be determined and approved by the
Company's inside Directors and not to exceed 20,000 options per year per
director. Under the terms of the plan, the options are exercisable for a term of
ten years and, during such term are exercisable as follows: 25% after each year,
and 100% anytime after the fourth year until the end of the tenth year. The
purchase price of the common stock will be equal to 100% of the closing price of
the common stock on the over-the-counter market on the date of grant.
On October 21, 1999, the Company adopted a new stock compensation plan. The
purpose of the plan is to encourage ownership of the Common Stock of the Company
by certain officers, directors, employees and certain advisors of the Company in
order to provide incentive to promote the success and business of the Company. A
total of 300,000 shares of Common Stock have been reserved for issuance under
the plan and are subject to terms as set by the Compensation Committee of the
Board of Directors at the time of grant.
All option plans have been approved by the shareholders of the Company.
The following is a summary of options granted under the plans:
FY 2002 FY 2001
----------------------- ---------------------
WEIGHTED - WEIGHTED -
AVG EXERCISE AVG EXERCISE
----------------------- ---------------------
SHARES PRICE SHARES PRICE
----------- ------- -------- -------
Options outstanding at
beginning of year 308,000 $4.97 336,852 $5.05
Options granted 94,300 $4.56 91,400 $5.29
Options cancelled (25,809) $5.25 (103,952) $5.67
Options exercised (48,456) $4.85 (16,300) $3.94
--------- ------ -------- ------
Options outstanding at
end of year 328,035 $4.85 308,000 $4.97
========= ====== ======== ======
Options exercisable at
end of year 120,110 $5.00 105,600 $4.84
Shares available for
future option grant 271,395 343,834
The following is a summary of information about stock options outstanding as of
March 31, 2002:
Options Outstanding Options Exercisable
---------------------------------------------- -------------------------
Weighted -
Average Number Weighted -
Number Remaining Weighted - Exercisable Average
Range of Outstanding Contractual Average as of Exercise
Exercise Prices as of 3/31/02 Life in Years Exercise Price 03/31/02 Price
--------------- ------------- ------------- -------------- ------------ -----------
$3.75 - $4.25 71,035 4.2 $3.85 37,485 $3.88
$4.55 90,200 5.1 $4.55 - -
$4.56 - $5.25 61,900 3.1 $5.01 29,875 $5.00
$5.50 57,650 4.5 $5.50 15,975 $5.50
$5.75 - $7.00 47,250 1.7 $5.91 36,775 $5.93
------------- -------- ---- ------ ------- ------
$3.75 - $7.00 328,035 4.0 $4.85 120,110 $5.00
============= ======== ==== ====== ======= ======
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation."
Accordingly, no compensation cost has been recognized for the stock option
plans. Had compensation cost for the Company's stock option plans been
determined based on the fair value at the grant date for awards in 2002 and 2001
consistent with the provisions of SFAS No. 123, the Company's net earnings and
earnings per share would have been reduced to the pro forma amount indicated
below:
March 31,
---------------------------
2002 2001
----------- -----------
Net income - as reported $ 2,030,947 $ 1,832,268
Net income - pro forma $ 1,868,798 $ 1,641,487
Income per diluted share - as reported $ .59 $ .49
Income per diluted share - pro forma $ .54 $ .44
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants: dividend yield of 0%; expected volatility of
approximately 30%; discount rate of 4.9% (2002) and 6.3% (2001); and expected
lives of 5 years.
8. International Sales:
For the past two fiscal years, the Company had foreign sales as follows:
Year Ended March 31,
---------------------------
2002 2001
----------- -----------
Asia $ 866,995 $ 959,493
Europe 1,151,233 1,181,205
South America 1,302,549 443,763
Other 455,540 358,754
----------- -----------
$ 3,776,317 $ 2,943,215
=========== ===========
8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The names, addresses, ages and terms of office of the executive officers
and directors of the Company are:
Name and Address Age Office Term Expires(1)
---------------- --- ------ ------------
Luke R. Schmieder 59 President, Chief Executive 2002
12100 West Sixth Avenue Officer, Treasurer and
Lakewood, Colorado Director
Steven W. Peterson 45 Vice President-Finance, 2002
12100 West Sixth Avenue Chief Financial and Chief
Lakewood, Colorado Accounting Officer and
Secretary
Paul D. Duke 60 Director 2002
12100 West Sixth Avenue
Lakewood, Colorado
H. Stuart Campbell 72 Director 2002
12100 West Sixth Avenue
Lakewood, Colorado
Michael T. Brooks 53 Director 2002
12100 West Sixth Avenue
Lakewood, Colorado
(1) The term of office of each officer and of the Company is at the discretion
of the Board of Directors.
Luke R. Schmieder, President, Chief Executive Officer, Treasurer and Director
Mr. Schmieder attended Ohio State University and Ohio University taking
courses in mechanical engineering and business management. Mr. Schmieder was
employed from 1970 to 1977 by Cobe Laboratories, Inc. (manufacturer of dialysis
and cardiovascular equipment and supplies) as a designer and process controller
on various projects. From 1977 to 1982, Mr. Schmieder served as president and
principal of a consulting company for product and process development primarily
in the medical field. Mr. Schmieder has served as president and a director of
the Company since its inception in March 1982.
Steven W. Peterson, Vice President-Finance, Chief Financial and Chief Accounting
Officer and Secretary
Mr. Peterson received his Bachelor of Arts degree in accounting from Lewis
University in 1979. He was employed as an accountant and senior accountant by
Valleylab, Inc. (a manufacturer of electrosurgical and IV infusion equipment)
from 1980 to 1983. From 1983 to 1985, he was employed as assistant controller by
Marquest Medical Products, Inc. (a manufacturer of disposable medical products).
Mr. Peterson joined the Company in February 1985 as Controller and has served as
an executive officer of the Company since June 1990.
Paul D. Duke, Director
Mr. Duke received his initial medical training while on active duty with
the United States Navy and while attending the University of Alabama. Mr. Duke
was employed from 1965 to 1969 by the University of Alabama Medical Center as
chief hemodialysis technician and was employed by Cobe Laboratories, Inc. from
1969 to 1973 as field service and training technician. From 1973 to 1979, he
served in various capacities for Cordis Dow Corporation (manufacturer of
pacemakers and hemodialysis equipment and supplies), including sales, product
management, European training manager and national service manager. From 1980 to
1982, Mr. Duke served as proprietor and president of a consulting company
specializing in medical marketing, sales, service and training. Mr. Duke has
served as vice president and a director of the Company since its inception in
1982. At March 31, 2002, Mr. Duke retired from his position as Vice President
and now devotes such time as is necessary to the affairs of the Company.
H. Stuart Campbell, Director
Mr. Campbell received his Bachelor of Science degree from Cornell
University in 1951. From 1960 through September 1982, Mr. Campbell served in
various capacities for Johnson & Johnson and Ethicon, Inc., a domestic
subsidiary of Johnson & Johnson. From 1977 through September 1982, he was a
Company Group Chairman with Johnson & Johnson and served as Chief Executive
Officer and Chairman of the Board of Directors of eight major corporate
subsidiaries. Mr. Campbell currently owns and serves as an officer of Highland
Packaging Labs, Inc., Somerville, New Jersey (contract packaging business). He
also serves as a director of Atrix Laboratories, Inc. (pharmaceutical and
contract research and development company). Mr. Campbell has served as a
director of the Company since May 1983 and devotes such time as is necessary to
the affairs of the Company.
Michael T. Brooks, Director
Mr. Brooks received his Bachelor of Arts in History from Ohio Wesleyan
University in 1971. While pursuing a career in fluid power, he received a
Masters in Business from the University of Denver in 1983. Mr. Brooks was an
independent manufacturer's representative from 1982 - 1985 at which time he
purchased an interest in Fiero Fluid Power which he presently owns and operates.
Fiero Fluid Power is a Rep/Distributor selling pneumatic and instrumentation
equipment. He has been a director since October, 1998 and devotes such time as
is necessary to the affairs of the Company.
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company pursuant toss. 240.16a-3(e) during its most recent
fiscal year and Forms 5 and amendments thereto furnished to the Company with
respect to its most recent fiscal year, and any written representation from the
reporting person (as hereinafter defined) that no Form 5 is required, the
Company is not aware of any person who, at any time during the fiscal year, was
a director, officer, beneficial owner of more than ten percent of any class of
equity securities of the Company registered pursuant to Section 12 of the
Exchange Act ("reporting person"), that failed to file on a timely basis, as
disclosed in the above Forms, reports required by Section 16(a) of the Exchange
Act during the most recent fiscal year or prior fiscal years.
ITEM 10. EXECUTIVE COMPENSATION.
The following table, and its accompanying explanatory footnotes, includes
annual and long-term compensation information on the Company's Chief Executive
Officer for services rendered in all capacities during the fiscal years ended
March 31, 2002, March 31, 2001 and March 31, 2000. No other executive officer
received total annual salary and bonus for the fiscal year ended March 31, 2002
in excess of $100,000.
SUMMARY COMPENSATION TABLE
Name and Principal Position Fiscal Year Salary Bonus(1) Options Granted Other Comp
L. Schmieder, CEO 2002 $108,985 $11,928 4,000 $3,100
2001 $106,867 $10,400 4,000 $3,150
2000 $106,712 $20,064 8,000 $897 ____
(1) Reflects bonus earned in fiscal year, but paid in the following fiscal year.
The following summary table sets forth information concerning grants of stock options
made during the fiscal year ended March 31, 2002 to the Company's Chief Executive Officer.
Option Grants in Last Fiscal Year
---------------------------------
Percent of Total
Options Options Granted Exercise Expiration
Name Granted in Fiscal Year Price Date
---- ------- -------------- ----- ----
L. Schmieder 4,000 4% $4.55 July 1, 2011
Compensation of Directors
On October 3, 1996, the Company adopted a new nonqualified performance
stock option plan for the benefit of the Company's outside Directors. The plan
provides that the outside Directors will receive grants to be determined and
approved by the Company's inside directors and not to exceed 20,000 options per
year per director. Under the terms of the plan, the options are exercisable for
a term of ten years, and during such term are exercisable as follows: 25% after
each year, and 100% anytime after the fourth year until the end of the tenth
year. The purchase price of the common stock will be equal to 100% of the
closing bid price of the common stock on the over-the-counter market on the date
of grant.
On July 2, 2001, the Company's two outside directors were granted options
to purchase 4,000 shares of common stock at $4.55 per share. The Company's two
inside directors each were granted options to purchase 4,000 shares of common
stock at a price of $4.55 per share.
Currently, all outside directors receive cash compensation of $500 for each
Board of Directors meeting attended in person.
Incentive Stock Option Plans
The Company has adopted three incentive stock option plans, approved by the
shareholders of the Company in September 1984, October 1989 and November 1993,
respectively, for the benefit of the Company's employees. The plans are
administered by the non-participating members of the Board of Directors, who
select the optionees and determine the terms and conditions of the stock option
grant. The exercise price for options granted under the plans cannot be less
than the fair market value of the stock at the date of grant or 110% of such
fair market value with respect to options granted to any optionee who holds more
than 10% of the Company's common stock. Options are not exercisable until one
year after the date of grant and expire five years after the date of grant. All
outstanding options are subject to vesting provisions whereby they become
exercisable over a four-year period. The plans authorize options to purchase up
to 200,000, 300,000 and 300,000 shares of common stock, respectively.
On October 21, 1999, the Company adopted a new stock compensation plan. The
purpose of the plan is to encourage ownership of the Common Stock of the Company
by certain officers, directors, employees and certain advisors of the Company in
order to provide incentive to promote the success and business of the Company. A
total of 300,000 shares of Common Stock have been reserved for issuance under
the plan and are subject to terms as set by the Compensation Committee of the
Board of Directors at the time of grant.
As of March 31, 2002, options to purchase a total of 328,035 shares were
outstanding, at exercise prices ranging from $3.75 to $7.00 per share. Further,
as of March 31, 2002, options to purchase an aggregate of 271,395 shares
remained available for grant under the Company's stock option plans. The plan
adopted in September 1984 was terminated effective June 1, 1993. Options were
granted during the fiscal year ended March 31, 2002, pursuant to the Company's
incentive stock option plans, to each of the Company's executive officers.
Options to purchase 6,000 shares at $4.55 per share were granted to Mr. Steven
W. Peterson, Vice President-Finance. Mr. Luke R. Schmieder, President, and Mr.
Paul D. Duke, Vice President, were granted options to purchase 4,000 shares at
$4.55 per share.
Retirement Plan
The Company has adopted a 401(k) plan for the benefit of its officers and
employees. Subject to certain restrictions, a participant may defer up to 15% of
their gross compensation into the plan. The Company currently matches up to 6%
of the participant's contribution at a rate of 50% of the contribution. The plan
also allows for additional contributions by the Company at its discretion.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth the number of shares of the Company's common
stock owned beneficially as of March 31, 2002 (unless otherwise noted), by each
person known by the Company to have owned beneficially more than five percent of
such shares then outstanding, by each officer and director of the Company and by
all of the Company's officers and directors as a group. This information gives
effect to securities deemed outstanding pursuant to Rule 13d-3(d)(1) under the
Securities Exchange Act of 1934, as amended. As far as is known to management of
the Company, no person owns beneficially more than five percent of the
outstanding shares of common stock as of March 31, 2002 except as set forth
below.
Amount and Percentage of
Name of Beneficial Nature of Class Benefi-
Owner Beneficial Owner cially Owned
---------------------- ---------------- --------------
Luke R. Schmieder (1) 355,967 (2) 10.6
Steven W. Peterson (1) 67,050 (3) 2.0
Paul D. Duke (1) 131,019 (4) 3.9
H. Stuart Campbell (1) 74,000 (5) 2.2
Michael T. Brooks (1) 14,700 (6) 0.4
FMR Corp. (9) 312,100 (7) 9.3
All officers and 642,736 (8) 18.9
directors as a group (5 in number)
(1) The business address is 12100 West Sixth Avenue, Lakewood, Colorado 80228.
(2) Includes 10,000 shares which Mr. Schmieder has the right to acquire within
60 days by exercise of stock options.
(3) Includes 10,500 shares which Mr. Peterson has the right to acquire within
60 days by exercise of stock options.
(4) Includes 10,000 shares which Mr. Duke has the right to acquire within 60
days by exercise of stock options.
(5) Includes 18,000 shares which Mr. Campbell has the right to acquire within
60 days by exercise of stock options.
(6) Includes 13,500 shares which Mr. Brooks has the right to acquire within 60
days by exercise of stock options.
(7) Based upon information set forth in schedule 13G filed by FMR Corp. with
the Securities and Exchange Commission dated February 14, 2002. Fidelity
Management & Research Company ("Fidelity"), a wholly-owned subsidiary of
FMR Corp., is the beneficial owner of 312,100 shares as a result of acting
as investment advisor to several investment companies. The ownership by one
investment company, Fidelity Low-Priced Stock Fund, amounted to 312,100
shares. Mr. Edward C. Johnson 3d, FMR Corp., through its control of
Fidelity, and the aforementioned investment companies each has the power to
dispose of the 312,100 shares.
(8) Includes 62,000 shares which the officers and directors of the Company as a
group have the right to acquire within 60 days by exercise of stock
options.
(9) The business address is 82 Devonshire Street, Boston, MA 02109.
For information regarding securities authorized for issuance under our
equity compensation plans, please see Note 7 to the financial statements.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
(3)(i) Articles of Incorporation and Articles of Amendment and Bylaws of
Registrant - incorporated by reference to the Exhibits to the
Registration Statement on Form S-18, file number 2-88647-D, filed
December 21, 1983.
(3)(ii) Articles of Amendment of Registrant - incorporated by reference to the
Exhibit to the Report on Form 10-K for the fiscal year ended March 31,
1988.
(3)(iii) Articles of Amendment of Registrant dated October 4, 1990 -
incorporated by reference to the Exhibit to the Report on Form 10-K
for the fiscal year ended March 31, 1991.
(3)(iv) Articles of Amendment of Registrant dated October 20, 1992 -
incorporated by reference to the Exhibit to the Report on Form
10-KSB for the fiscal year ended March 31, 1993.
(10)(i) Stock Purchase Agreement between Linda V. Masano and Thomas Michael
Masano (as sellers) and Mesa Laboratories, Inc. (as Purchaser) dated
as of December 7, 1999 - Incorporated by reference to the exhibit to
the report on form 8-K dated December 7, 1999, file number 0-11740.
(23)(i) Consent of Ehrhardt Keefe Steiner & Hottman PC, independent public
accountants, to the incorporation by reference in the Registration
Statements on Form S-8 (file numbers 33-89808, 333-02074 and 333-18161)
of their report dated April 30, 2002, included in the Registrant's
Report on Form 10-KSB for the fiscal year ended March 31, 2002.
(b) Reports on Form 8-K. During the last quarter of the period covered by
this report, the Registrant did not file any Report on Form 8-K.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MESA LABORATORIES, INC.
-----------------------------
Registrant
Date: July 1, 2002 By: /s/Luke R. Schmieder
Luke R. Schmieder, President
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Name Title Date
---- ----- ----
/s/Luke R. Schmieder President, Chief Executive Officer, July 1, 2002
Luke R. Schmieder Treasurer and Director
/s/Steven W. Peterson Vice President, Finance, Chief Financial July 1, 2002
Steven W. Peterson and Chief Accounting Officer and Secretary
/s/Paul D. Duke Director July 1, 2002
Paul D. Duke
/s/H. Stuart Campbell Director July 1, 2002
H. Stuart Campbell
/s/Michael T. Brooks Director July 1, 2002
Michael T. Brooks