frm-10ksb_033104
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, 2004
Commission File Number 0-11740
MESA LABORATORIES, INC.
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(Name of small business issuer in its charter)
Colorado 84-0872291
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(State or other jurisdiction of (I.R.S. Employer Identifica-
incorporation or organization) tion Number)
12100 West Sixth Avenue Lakewood, Colorado 80228
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(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: $9,125,848.
State the aggregate market value of the voting and non-voting equity held by
non-affiliates of the Registrant: As of May 31, 2004: $21,218,916*.
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-- 3,068,241
shares as of May 31, 2004.
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 $9.77, the last
sales price of the Registrant's common stock as of May 31, 2004, 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 judgement 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 II
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 II 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. At the end of fiscal 2004, the Company
introduced the humidity and pressure versions of its Micropack III Tracers,
which will offer the product's users reduced size, optical data transfer and
increased data points. In early fiscal 2005, the Company began introduction of a
4-20 mA (milliamp) Tracer. This user scalable logging device is completely new
and will allow users to log the 4-20 mA output of various fixed monitors within
the user's process and correlate that data to the product data collected by our
loggers. In this way, the user may bring additional data parameters into their
analysis without compromising data integrity as required by various regulatory
bodies.
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 and data retrieval 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. 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 10% of total
revenues in fiscal 2004.
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 and
Model 87 (a laboratory model) 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.
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, 2004, approximately 72% of sales have been domestic and 28% 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, pressure 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, 2004, one customer represented
approximately 12% of the Company's revenues and approximately 11% of the
Company's accounts receivable balance. During the fiscal year ended March 31,
2003 one customer represented approximately 11% of the Company's revenues and
approximately 6% of the Company's account receivable balances.
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 Cantel Medical
Corporation. Companies with which Mesa's DATATRACE(R)and ELOGG(R)instrumentation
products compete include GE Kaye, Ellab and Orion. Companies with which Mesa's
NUSONICS(R)products compete include Controlotron, Badger Meter, Rosemount, and
GE 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, which may cause us to expend additional resources on
compliance.
Employees
At March 31, 2004, the Company had a total of 49 employees, of which 48
were full-time employees. Currently, nine persons are employed for marketing,
four for research and development, 29 for manufacturing and quality assurance
and seven for administration.
Additional Information
For the fiscal years ended March 31, 2004 and 2003, Mesa spent $331,740 and
$259,966, 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.
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders through the solicitation of
proxies or otherwise.
PART II
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER
PURCHASES OF EQUITY SECURITIES.
(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 Dividend
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June 30, 2002 $ 7.75 $ 5.50 -
September 30, 2002 $ 6.45 $ 5.46 -
December 31, 2002 $ 6.62 $ 5.90 -
March 31, 2003 $ 7.03 $ 6.06 -
June 30, 2003 $ 7.16 $ 6.06 -
September 30, 2003 $ 9.42 $ 7.09 -
December 31, 2003 $10.10 $ 7.74 $ .20*
March 31, 2004 $10.08 $ 8.53 $ .05
The Nasdaq National Market quotations set forth herein reflect inter-dealer
prices, without retail mark-up, mark-down, or commission and may not represent
actual transactions.
(b) As of March 31, 2004, there were approximately 900 record and beneficial
holders of Mesa's common stock.
(c) During the fiscal year ended March 31, 2004, the Company did not sell any
equity securities that were not registered under the Securities Act of
1933, as amended.
(d) We made the following repurchases of our common stock, by month, within the
fourth quarter of the fiscal year covered by this report:
Total Share Purchased Remaining Shares
Shares Avg. Price as Part of Publicly to Purchase
Purchased Paid Announced Plan Under Plan
--------- ---- -------------- ----------
January 1 - 31, 2004 0 $0.00 38,601 261,399
February 1 - 29, 2004 385 $9.61 38,986 261,014
March 1 - 31, 2004 14,688 $8.77 53,674 246,326
Total Fourth Quarter 15,073 $8.79
On June 19, 2003, the Board of Directors of Mesa Laboratories, Inc. adopted a
share repurchase plan which allows for the repurchase of up 300,000 of the
company's common shares. This plan will continue until the maximum is reached or
the plan is terminated by further action of the Board.
* On December 15, 2003, the Company paid an initial $.05 per common share
quarterly dividend and a $.15 per common share special dividend to holders
of record on December 1, 2003.
For information regarding securities authorized for issuance under our equity
compensation plans, please see Footnote 7 to the Financial Statements.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Overview
Mesa Laboratories, Inc. manufactures and distributes electronic measurement
systems for various niche applications, including renal treatment, food
processing, medical sterilization, pharmaceutical processing and other
industrial applications. Our Company follows a philosophy of manufacturing a
high quality product and providing a high level of on-going service for those
products. In order to optimize the performance of our Company and to build the
value of the Company for its shareholders, we continually follow the trend of
various key financial indicators. A sample of some of the most important of
these indicators is presented in the following table.
Key Financial Indicators
2004 2003 2002 2001
----------- ----------- ----------- -----------
Cash and Investments ....... $ 6,767,000 $ 4,761,000 $ 3,462,000 $ 2,317,000
Trade Receivables .......... $ 1,621,000 $ 2,299,000 $ 2,339,000 $ 3,283,000
Days Sales Outstanding ..... 55 70 80 126
Inventory .................. $ 2,099,000 $ 2,329,000 $ 2,443,000 $ 2,403,000
Inventory Turns ............ 1.6 1.5 1.5 1.5
Working Capital ............ $10,080,000 $ 9,017,000 $ 8,099,000 $ 7,279,000
Current Ratio .............. 16:1 16:1 17:1 9:1
Average Return On:
Stockholder Investment (1) 14.3% 15.0% 15.1% 14.4%
Assets ................... 13.6% 14.4% 14.4% 13.4%
Invested Capital (2) ..... 22.9% 21.0% 19.2% 17.9%
Net Sales .................. $ 9,126,000 $ 9,082,000 $ 9,044,000 $ 9,100,000
Gross Profit ............... $ 5,698,000 $ 5,685,000 $ 5,391,000 $ 5,512,000
Gross Margin ............... 62% 63% 60% 61%
Operating Income ........... $ 3,249,000 $ 3,186,000 $ 2,942,000 $ 2,806,000
Operating Margin ........... 36% 35% 33% 31%
Net Profit ................. $ 2,130,000 $ 2,127,000 $ 2,031,000 $ 1,832,000
Net Profit Margin .......... 23% 23% 22% 20%
Earnings Per Diluted Share $ .68 $ .64 $ .59 $ .49
Capital Expenditures (Net) $ 34,000 $ 65,000 $ 42,000 $ 80,000
Head Count ................. 48.5 46.5 51.0 51.5
Sales Per Employee ......... $ 188,000 $ 195,000 $ 177,000 $ 177,000
(1) Average return on stockholder investment is calculated by dividing total
net income by the average of end of year and beginning of year total
stockholder's equity.
(2) Average return on invested capital (invested capital = total assets -
current liabilities - cash and short - term investments) is calculated by
dividing total net income by the average of end of year and beginning of
year invested capital.
While we continually try to optimize the overall performance and trends,
the table above does highlight various exceptions. These exceptions are usually
influenced by a more important need. A review of the table above shows a very
high Trade Receivables balance and high Days Sales Outstanding in fiscal 2001.
At the time that these indicators were showing below average performance, we had
recently completed the acquisition of Automata Instruments, Inc., and a large
amount of our administrative resources were being focused on improvements to
systems, work flows and new customer satisfaction. Similarly, the Current Ratio
in fiscal 2001 was nearly one half of historical levels, and reflected the lower
liquidity of the Company following the acquisition of Automata Instruments, Inc.
Results of Operations
Net Sales
Net sales for fiscal 2004 increased less than one percent from fiscal 2003,
and net sales for fiscal 2003 increased less than one percent from fiscal 2002.
In real dollars, net sales of $9,126,000 in fiscal 2004 increased $44,000 from
$9,082,000 in 2003, and net sales of $9,082,000 in fiscal 2003 increased $38,000
from $9,044,000 in 2002.
Our revenues come from two main sources, which include product revenues and
parts and service revenues. Parts and service revenues are derived from on-going
repair and recalibration or certification of our products. The certification or
recalibration of product is usually a key component of the customer's own
quality system and many of our customers operate in regulated industries, such
as food processing or medical and pharmaceutical processing. For this reason,
these revenues tend to be fairly stable and grow slowly over time. During fiscal
years 2004, 2003 and 2002 our Company had parts and service revenue of
$2,644,000, $2,511,000 and $2,238,000. As a percentage of total revenue, parts
and service revenues were 29% in 2004, 28% in 2003 and 25% in 2002.
The performance of new product sales is dependent on several factors,
including general economic conditions in the United States and abroad, capital
spending trends and the introduction of new products. Over the past two fiscal
years, general economic conditions have been starting to improve, and more
recently, capital spending has also begun to improve. New products released to
the market over the past two fiscal years include the Datatrace Micropack III
temperature loggers during the middle of fiscal 2003 and the Datatrace Micropack
III humidity and pressure loggers at the end of fiscal 2004. Introduction of the
humidity and pressure loggers came too late in fiscal 2004 to have much of an
influence on revenues. All three loggers, temperature, humidity and pressure,
utilize a common PC Interface system and operating software. For this reason, we
believe that some customer purchasing decisions were probably delayed into
fiscal 2005, as those customers awaited introduction of the humidity and
pressure loggers. For fiscal years 2004, 2003 and 2002 product sales for our
company were $6,482,000, $6,571,000 and $6,806,000.
Over fiscal 2004, our medical products increased four percent for the year
compared to the prior period. The major share of this increase was due to higher
sales of our meter products and accessories, and an increase in service
revenues. Sales of the company's dialyzer reprocessing products declined during
the year as the trend toward usage of single use dialyzers continued in the
domestic market place. A high percentage of our reprocessor revenues are
generated from foreign markets and it is not expected that this trend will
continue to have an appreciable negative effect on future sales. Currently,
research and development efforts are in process to further enhance our line of
hand-held dialysate meters.
During fiscal 2004, sales of the Datatrace brand of products declined after
the increases reported in the prior year. For the year, sales decreased seven
percent compared to the prior year. At the end of the quarter, we released our
latest version of user software and shipped initial units of the Micropack III
humidity and pressure loggers to customers. These new products will allow
customers who measure more than one parameter in their process to program and
retrieve data from the same PC Interface device. During April the company has
begun introduction of its new 4-20 milliamp logger. This user scalable logging
device is completely new and will allow users to log the 4-20 milliamp output of
various fixed monitors within their process and correlate that data to the
product data collected by our loggers. In this way the user may bring additional
data parameters into their analysis without compromising data integrity as
required by various regulatory bodies.
During fiscal 2004, sales of the Nusonics line of ultrasonic fluid
measurement systems increased by 27 percent. This is the first annual increase
for these products in several years. Nusonics products contribute less than 10
percent of our total sales.
In fiscal 2003, revenues for the Datatrace brand of products performed
exceptionally well increasing 28 percent. The new Micropack III temperature
loggers were extremely successful during their first year in the marketplace,
and propelled the temperature logging products to an increase of 40 percent for
the fiscal year. Humidity logging instruments also produced a sharp increase for
the fiscal year improving more than 140 percent. Datatrace products were further
helped during the year by a decline in the value of the US dollar compared to
the EURO which was helping these products realize sales gains in the European
market.
During fiscal 2003 the company's medical products declined 16 percent for
the fiscal year. The major share of this decrease was due to a decline in Echo
Dialyzer Reprocessor sales, which had increased dramatically in the prior year
due to a large order from a single customer that was not repeated in the next
fiscal year. Also, the expanded use of single use dialyzers in the U.S. market
had reduced Reprocessor demand. Sales of the hand-held dialysate meters
decreased by 11 percent during the fiscal year, after several years of strong
growth. Currently, research and development efforts are beginning to further
enhance our line of hand-held dialysate meters.
Cost of Sales
Cost of sales as a percent of net sales in fiscal 2004 increased two tenths
of one percent from fiscal 2003 to 37.6%, and in fiscal 2003 decreased 3.0% from
fiscal 2002 to 37.4% from 40.4% in fiscal 2002. Most of our products enjoy gross
margins in excess of 55%. Due to the fact that the dialysis products have sales
concentrations to several companies that maintain large chains of treatment
centers, the products that are sold to the renal market tend to be slightly more
price sensitive than the data logging products. Therefore, shifts in product mix
toward higher sales of Datatrace logging products will tend to produce lower
cost of good sold expense and higher gross margins while shifts toward higher
sales of medical products will normally produce the opposite effect on cost of
goods sold expense and gross margins.
Over fiscal year 2004, our Company saw a shift in its mix to higher medical
sales, which led to a slight increase in cost of goods sold expense as a percent
of sales compared to fiscal 2003. During fiscal 2003, Datatrace logging devices
increased in sales as a percent of total sales. Our logging instruments have a
higher gross margin over the other instruments which we produce and sell. This
improvement in sales mix was partially off-set by an increase in Datatrace
export sales, which are sold at a discount to the company's international
distributors and produce a lower gross margin.
Selling, General and Administrative
General and administrative expenses tend to be fairly fixed and stable from
year-to-year. To the greatest extent possible, we work at containing and
minimizing these costs. Total administrative costs were $906,000 in fiscal 2004,
$904,000 in fiscal 2003 and $935,000 in fiscal 2002, which represents a $2,000
or less than one percent increase from fiscal 2003 to fiscal 2004 and a $31,000
or three percent decrease from fiscal 2002 to fiscal 2003. Higher compensation
costs during fiscal 2004 were off-set by lower consulting fees, while lower
costs for business development activities were partially off-set by higher
compensation costs during fiscal 2003.
Our selling and marketing costs tend to be far more variable in relation to
sales, although there are various exceptions. Some of these exceptions include
the introduction of new products and the mix of international sales to domestic
sales. For a product line experiencing introduction of a new product, costs will
tend to be higher as a percent of sales due to higher advertising development
and sales training programs. Our Company's international sales are usually
discounted and recorded at the net discounted price, so that a change in mix
between international and domestic sales may influence sales and marketing
costs. One other major influence on sales and marketing costs is the mix of
domestic medical sales to all other domestic sales. Domestic medical sales are
made by direct telemarketing representatives, which gives us a lower cost
structure, when compared to the independent representative sales channels
utilized by our other products.
In dollars, selling costs were $1,211,000 in fiscal 2004, $1,334,000 in
fiscal 2003 and $1,225,000 in fiscal 2002. As a percent of sales, selling cost
were 13.3% in fiscal 2004, 14.7% in fiscal 2003 and 13.5% in fiscal 2002. During
fiscal 2004, most of the decrease in selling expense was due to a decrease in
costs associated with the Datatrace logging products. Part was due to decreased
commissions due to lower sales and the remainder was due to lower bad debt
expense. The decrease in bad debt expense was due to higher receivables
collection in Europe, which was brought about by the increase in the value of
the Euro compared to the U.S. Dollar. The increase in selling expense during
fiscal 2003 was due chiefly to increased selling and marketing cost for
Datatrace products. In addition to increases in variable costs, such as
commissions, bonuses and travel, discretionary expenses, such as advertising and
demonstration equipment costs, were increased during the year to support the
introduction of the Company's new Micropack III products. Selling costs for
medical products decreased due chiefly to lower compensation costs, which were
partially off-set by higher training costs.
Research and Development
Company sponsored research and development cost was $332,000 in fiscal
2004, $260,000 in fiscal 2003 and $290,000 in fiscal 2002. We are currently
trying to execute a strategy of increasing the flow of internally developed
products. This strategy has led to the introduction of two new Datatrace logging
products in fiscal 2004 and a third Datatrace logging product early in fiscal
2005. Work has also begun on a new generation of our dialysate meter line of
products. This has led to the increased research and development spending during
fiscal 2004. During fiscal 2003, consulting expenses dropped significantly and
were partially off-set by substantially higher material and supply expenses as
work during the year focused more on hardware development and software
development projects were completed. Besides completing the Micropack III
product for temperature, work continued for humidity, pressure and 4-20 milliamp
versions of the Micropack III logger design.
Net Income
Net income increased to a record $2,130,000 or $.68 per share on a diluted
basis in fiscal 2004 from $2,127,000 or $.64 per share on a diluted basis in
fiscal 2003. Actual net income grew less than one percent during fiscal 2004,
but diluted per share profits grew six percent from year to year due to the
higher net income and lower average shares outstanding. The lower shares
outstanding were due to our continuing share buy back program. This program has
continued into the new fiscal year, and depending on market conditions, is
expected to continue throughout fiscal 2005. The stock repurchase program
reduced outstanding common stock by 100,474 shares, and allowed diluted earnings
per share to grow at a faster rate than net income.
Net income increased to $2,127,000 or $.64 per share on a diluted basis in
fiscal 2003 from $2,031,000 or $.59 per share on a diluted basis in fiscal 2002.
The increase in net income during fiscal 2003 was partially due to the changes
in product mix highlighted in the Cost of Sales section of this report.
Additionally, higher sales and lower administration and research and development
expenses helped to increase income. During the fiscal year, we repurchased
266,169 shares of our common stock. While net income grew at a faster rate than
net sales for the fiscal year, this growth was restrained by an increase in the
net income tax rate compared to last year. This increase in the income tax rate
in 2003 compared to 2002 was due chiefly to a change in the tax code which
reduced the benefit of export sales.
Liquidity and Capital Resources
On March 31, 2004, we had cash and short term investments of $6,767,000. In
addition, we had other current assets totaling $3,970,000 and total current
assets of $10,737,000. Current liabilities of our Company were $658,000 which
resulted in a current ratio of 16:1. For comparison purposes at March 31, 2003,
we had cash and short term investments of $4,761,000, other current assets of
$4,843,000, total current assets of $9,604,000, current liabilities of $587,000
and a current ratio of 16:1.
Our Company has made capital acquisitions of $34,000 during fiscal 2004 and
$65,000 during fiscal 2003. We have instituted a program to repurchase up to
300,000 shares of our 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. We do not maintain a set
policy or schedule for our buyback program. Most of our stock buybacks have
occurred during periods when the price to earnings multiple has been near
historical low points, or during times when selling activity in the stock is out
of balance with buying demand.
On November 12, 2003 our Board of Directors declared for the first time a
regular quarterly dividend of $.05 per share of common stock. In addition the
Board of Directors declared a special one time dividend of $.15 per share of
common stock. Both dividends were paid on December 15, 2003, to shareholders of
record on December 1, 2003. For fiscal year 2004, dividends totaled $.25 per
common share of stock.
Our Company invests its surplus capital in various interest bearing
instruments, including money market funds, short-term treasuries and municipal
bonds. All investments are fixed dollar investments with variable rates in order
to minimize the risk of principal loss. In some cases, additional guarantees of
the investment principal are provided in the form of bank letters of credit.
The Company does not currently maintain a line of credit or any other form
of debt. Nor does the Company guarantee the debt of any other entity. The
Company has maintained a long history of surplus cash flow from operations. This
surplus cash flow has been used in the past to fund acquisitions and stock
buybacks and is currently being partially utilized to fund our on-going
dividend. If interesting candidates come to our attention, we may chose to
pursue new acquisitions, but currently no acquisitions are under active
consideration.
Contractual Obligations
At March 31, 2004 our only contractual obligations were open purchase
orders for routine purchases of supplies and inventory, which would be payable
in less than one year.
Forward Looking Statements
All statements other than statements of historical fact included in this
annual report regarding our 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.
Critical Accounting Policies and Estimates
The preparation of our 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 amounts reported in
our financial statements and accompanying notes. Actual results could differ
materially from those estimates.
We believe that there are several accounting policies that are critical to
understanding the Company's historical and future performance, as these policies
affect the reported amounts of revenue and the more significant areas involving
management's judgments and estimates. These significant accounting policies
relate to revenue recognition, research and development costs, valuation of
inventory, and valuation of long-lived assets. These policies, and the Company's
procedures related to these policies, are described in detail below.
Revenue Recognition
We sell our products directly through our sales force and through
distributors. Revenue from direct sales of our product is recognized upon
shipment to the customer. Revenue from ongoing product service and repair is
fully recognized upon completion and shipment of serviced product.
Research & Development Costs
Research and development activities consist primarily of new product
development and continuing engineering on existing products. Costs related to
research and development efforts on existing or potential products are expensed
as incurred.
Valuation of Inventories
Inventories are stated at the lower of cost or market, using the first-in,
first-out method (FIFO) to determine cost. The Company's policy is to
periodically evaluate the market value of the inventory and the stage of product
life cycle, and record a reserve for any inventory considered slow moving or
obsolete. As of March 31, 2004 and 2003 the Company had recorded a reserve of
$55,000 and $110,000, respectively, against slow moving inventory.
Valuation of Long-Lived Assets and Goodwill
The Company assesses the realizable value of long-lived assets and goodwill
for potential impairment at least annually or when events and circumstances
warrant such a review. The carrying value of a long-lived asset is considered
impaired when the anticipated fair value is less than its carrying value. In
assessing the recoverability of our long-lived assets and goodwill, we must make
assumptions regarding estimated future cash flows and other factors to determine
the fair value of the respective assets. In addition, we must make assumptions
regarding the useful lives of these assets. As of March 31, 2004, we evaluated
our long-lived assets for potential impairment. Based on our evaluation, no
impairment charge was recognized.
The above listing is not intended to be a comprehensive list of all of our
accounting policies. In many cases, the accounting treatment of a particular
transaction is specifically dictated by accounting principles, generally
accepted in the United States of America, with no need for management's judgment
in their application. There are also areas in which management's judgment in
selecting any viable alternative would not produce a materially different
result. See our audited financial statements and notes thereto which begin at
"Item 7. Financial Statements" of this Annual Report on Form 10-KSB which
contain accounting policies and other disclosures required by accounting
principles, generally accepted in the United States of America.
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 competitors 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, suspension 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.
Changing Accounting Regulation May Affect Operating Results
Our Operating results may be adversely affected by new laws and accounting
regulations that have either been recently enacted or which are under
consideration and may include the following:
* various regulations of the Sarbanes-Oxley Act, and
* the mandatory expensing of employee stock options as proposed by the FASB.
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
Statement of Stockholders' Equity
Statements of Cash Flows
Notes to Financial Statements
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Mesa Laboratories, Inc.
Lakewood, Colorado
We have audited the accompanying balance sheets of Mesa Laboratories, Inc. as of
March 31, 2004 and 2003, 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, 2004 and 2003, and the results of its operations and its cash flows
for the years then ended, in conformity with accounting principles generally
accepted in the United States of America.
/s/ Ehrhardt Keefe Steiner & Hottman PC
Ehrhardt Keefe Steiner & Hottman PC
April 28, 2004
Denver, Colorado
MESA LABORATORIES, INC.
BALANCE SHEETS
ASSETS
March 31,
-------------------------
2004 2003
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents ..................... $ 4,669,741 $ 4,761,102
Short-term investments ........................ 2,097,725 --
Accounts receivable -
Trade, net of allowance for doubtful
accounts of $40,000 (2004) and
$50,000 (2003) ............................ 1,581,050 2,248,578
Other ....................................... 22,500 33,213
Inventories, net .............................. 2,099,444 2,328,999
Prepaid expenses and other .................... 157,757 116,825
Deferred income taxes ......................... 109,253 114,941
----------- -----------
TOTAL CURRENT ASSETS ............................ 10,737,470 9,603,658
PROPERTY, PLANT AND EQUIPMENT, net .............. 1,285,054 1,347,980
OTHER ASSETS:
Goodwill .................................... 4,207,942 4,207,942
----------- -----------
$16,230,466 $15,159,580
=========== ===========
See notes to financial statements.
MESA LABORATORIES, INC.
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31,
-------------------------
2004 2003
----------- -----------
CURRENT LIABILITIES:
Accounts payable, trade ....................... $ 110,157 $ 117,979
Accrued salaries and payroll taxes ............ 409,671 332,537
Accrued warranty expense ...................... 15,000 15,000
Other accrued liabilities ..................... 52,812 85,698
Taxes payable ................................. 69,991 35,492
----------- -----------
TOTAL CURRENT LIABILITIES ....................... 657,631 586,706
LONG TERM LIABILITIES:
Deferred income taxes ......................... 188,909 86,351
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, 3,072,815 (2004) and
3,078,168 (2003) 1,329,684 1,284,887
Retained earnings ............................ 14,054,242 13,201,636
----------- -----------
15,383,926 14,486,523
----------- -----------
$16,230,466 $15,159,580
=========== ===========
See notes to financial statements.
MESA LABORATORIES, INC.
STATEMENTS OF INCOME
Years Ended March 31,
-----------------------
2004 2003
---------- ----------
Sales ..................................... $9,125,848 $9,081,776
Cost of sales ............................. 3,428,071 3,397,239
---------- ----------
Gross profit .............................. 5,697,777 5,684,537
---------- ----------
Operating expenses:
Selling ................................. 1,211,237 1,334,385
General and administrative .............. 906,063 903,710
Research and development ................ 331,740 259,966
---------- ----------
Total operating expenses .................. 2,449,040 2,498,061
---------- ----------
Operating income .......................... 3,248,737 3,186,476
Interest income ........................... 49,794 55,160
---------- ----------
Earnings before income taxes .............. 3,298,531 3,241,636
Income taxes .............................. 1,168,850 1,114,757
---------- ----------
Net income ................................ $2,129,681 $2,126,879
Net income per share (basic) ............ $ .70 $ .66
Net income per share (diluted) .......... $ .68 $ .64
Average common shares outstanding - basic . 3,054,732 3,226,848
========== ==========
Average common shares outstanding - diluted 3,137,970 3,299,435
========== ==========
See notes to financial statements.
MESA LABORATORIES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
Common Stock
---------------------------- Total
Number of Retained Stockholders'
Shares Amount Earnings Equity
------------ ----------- ------------ -----------
BALANCE, March 31, 2002 ....... 3,321,637 $ 1,791,758 $ 12,102,516 $ 13,894,274
Common stock issued for the
conversion of incentive
stock options net of 29,704
shares returned to Company
as payment .................. 22,700 86,441 -- 86,441
Purchase and retirement of
treasury stock .............. (266,169) (593,312) (1,027,759) (1,621,071)
Net income for the year ....... -- -- 2,126,879 2,126,879
------------ ----------- ------------ -----------
BALANCE, March 31, 2003 ....... 3,078,168 1,284,887 13,201,636 14,486,523
Common stock issued for the
conversion of incentive
stock options net of 38,582
shares returned to Company
as payment .................. 95,121 297,547 -- 297,547
Purchase and retirement of
treasury stock .............. (100,474) (292,750) (507,113) (799,863)
Dividends paid ($.25 per share) -- -- (769,962) (769,962)
Tax benefit on exercise of
Nonqualified stock options .. -- 40,000 -- 40,000
Net income for the year ....... -- -- 2,129,681 2,129,681
------------ ----------- ------------ -----------
BALANCE, March 31, 2004 ....... 3,072,815 $ 1,329,684 $ 14,054,242 $ 15,383,926
============ =========== ============ ===========
See notes to financial statements.
MESA LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
Years Ended March 31,
--------------------------
2004 2003
----------- -----------
Cash flows from operating activities:
Net income .................................................... 2,129,681 $ 2,126,879
Depreciation and amortization ................................. 97,151 115,351
Allowance for bad debt ........................................ (10,000) --
Provision for warranty reserve ................................ -- (15,000)
Provision for inventory reserve ............................... (55,000) 60,000
Deferred income taxes ......................................... 108,246 31,444
Change in assets and liabilities-
(Increase) decrease in accounts receivable ................. 688,241 245,233
(Increase) decrease in inventories ......................... 284,555 54,092
(Increase) decrease in prepaid expenses .................... (40,932) 179,687
Increase (decrease) in accounts payable, trade ............. (7,822) 29,085
Increase (decrease) in accrued liabilities and taxes payable 78,747 71,916
----------- -----------
Net cash provided by operating activities ............... 3,272,867 2,898,687
----------- -----------
Cash flows from investing activities:
(Increase) decrease in short-term investments ................. (2,097,725) --
Capital expenditures .......................................... (34,225) (64,933)
----------- -----------
Net cash (used) provided by investing activities ........ (2,131,950) (64,933)
----------- -----------
Cash flow from financing activities:
Tax benefit on nonqualified stock options ..................... 40,000 --
Dividends paid ................................................ (769,962) --
Net proceeds from issuance of stock ........................... 297,547 86,441
Common stock repurchases ...................................... (799,863) (1,621,071)
----------- -----------
Net cash (used) provided by financing activities ........ (1,232,278) (1,534,630)
----------- -----------
Net increase (decrease) in cash and cash equivalents ............ (91,361) 1,299,124
Cash and cash equivalents at
beginning of year ............................................. 4,761,102 3,461,978
----------- -----------
Cash and cash equivalents at
end of year ................................................... $ 4,669,741 $ 4,761,102
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes $ 1,072,900 $ 895,821
=========== ===========
See notes to financial statements.
MESA LABORATORIES, INC.
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,
short-term investments 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,
adjustable rate, fixed dollar municipal debt 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, 2004, one customer represented
approximately 12% of the Company's revenues and approximately 11% of the
Company's accounts receivable balance. During the fiscal year ended March 31,
2003 one customer represented approximately 11% of the Company's revenues and
approximately 6% of the Company's account receivable balances.
Cash Equivalents - Cash equivalents include all highly liquid investments with
an original maturity of three months or less.
Short-term investments - Short-term investments consists of U.S Treasury bills
and municipal bonds and are classified as "available for sale." Short-term
investments are carried in the financial statements at cost, which approximates
fair value.
Accounts Receivable - At the time the accounts are originated, the Company
considers a reserve for doubtful accounts based on the creditworthiness of the
customer. The provision for uncollectible amounts is continually reviewed and
adjusted to maintain the allowance at a level considered adequate to cover
future losses. The allowance is management's best estimate of uncollectible
amounts and is determined based on historical performance that is tracked by the
Company on an ongoing basis. The losses ultimately incurred could differ
materially in the near term from the amounts estimated in determining the
allowance.
Inventories - Inventories are stated at the lower of cost or market, using the
first-in, first-out method (FIFO) to determine cost. The Company's policy is to
periodically evaluate the market value of the inventory and the stage of product
life cycle, and record a reserve for any inventory considered slow moving or
obsolete. As of March 31, 2004 and 2003 the Company had recorded a reserve of
$55,000 and $110,000, respectively, against slow moving inventory.
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 - Goodwill, which resulted from the acquisitions of Nusonics, Datatrace
and Automata, is no longer subject to amortization, and is tested annually for
impairment in accordance with Statement of Financial Accounting Standards
("SFAS") No. 142 "Goodwill and Intangible Assets."
Valuation of Long-Lived Assets - The Company assesses the realizable value of
long-lived assets and goodwill for potential impairment at least annually or
when events and circumstances warrant such a review. The carrying value of a
long-lived asset is considered impaired when the anticipated fair value is less
than its carrying value. In assessing the recoverability of our long-lived
assets and goodwill, we must make assumptions regarding estimated future cash
flows and other factors to determine the fair value of the respective assets. In
addition, we must make assumptions regarding the useful lives of these assets.
As of March 31, 2004, we evaluated our long-lived assets for potential
impairment. Based on our evaluation, no impairment charge was recognized.
Revenue Recognition - The Company recognizes revenues at the time products are
shipped. Revenue from ongoing product service and repair is fully recognized
upon completion and shipment of serviced product.
Research & Development Costs - Costs related to research and development efforts
on existing or potential products are expensed as incurred. Research and
development costs for the fiscal years ended March 31, 2004 and 2003 were
$331,740 and $259,966, respectively.
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.
Advertising Costs - Advertising costs are expensed as incurred. Advertising
costs for the years ended March 31, 2004 and 2003 were $138,135 and $140,728,
respectively.
Income Taxes - The Company accounts for income taxes under the liability method,
which requires an entity to recognize deferred tax assets and liabilities.
Temporary differences are differences between the tax basis of assets and
liabilities and their reported amounts in the financial statements that will
result in taxable or deductible amounts in future years.
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 83,238
and 72,587 additional shares in 2004 and 2003, respectively.
Stock based compensation - At March 31, 2004, the Company has stock based
compensation plans, which are described more fully in Note 7. 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 2004 and
2003 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,
-----------------------
2004 2003
---------- ----------
Net income - as reported ....................... $2,129,681 $2,126,879
Less: Total stock based compensation expense
determined under fair value based method for
all awards net of related tax effects ..... 89,768 106,444
---------- ----------
Net income - pro forma ......................... $2,039,913 $2,020,435
========== ==========
Income per diluted share - as reported ......... $ .68 $ .64
Income per diluted share - pro forma ........... $ .65 $ .61
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 2.1% (2004) and 0% (2003);
expected volatility of approximately 29% (2004) and 20% (2003); discount rate of
3.0% (2004) and 3.0% (2003); and expected lives of 5 years.
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.
Fair Value of Financial Instruments - The carrying amount of financial
instruments including cash and cash equivalents, accounts receivable, short-term
investments, accounts payable and accrued expenses approximated fair value as of
March 31, 2004 because of the relatively short maturity of these instruments.
Recently Issued Accounting Pronouncements - In April 2003, FASB issued SFAS No.
149, "Accounting for Derivative Instruments and Hedging Activities," which is
effective for contracts entered into or modified after June 30, 2003 and for
hedging relationships designated after June 30, 2003. This statement amends and
clarifies financial accounting and reporting for derivative instruments
including certain instruments embedded in other contracts and for hedging
activities under SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." The adoption of this standard is not expected to have a
material impact on the Company's financial statements.
In May 2003, FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity," which is
effective for financial instruments entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. SFAS No. 150 establishes standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. The adoption of this standard is
not expected to have a material impact on the Company's financial statements.
2. Inventories:
Inventories consist of the following:
March 31,
--------------------------
2004 2003
----------- -----------
Raw materials . $ 1,648,416 $ 1,898,599
Work-in-process 335,242 294,822
Finished goods 170,786 245,578
Less reserve .. (55,000) (110,000)
----------- -----------
$ 2,099,444 $ 2,328,999
=========== ===========
Work-in-process and finished goods include raw materials, direct labor and
manufacturing overhead at March 31, 2004 and 2003.
3. Property, Plant and Equipment:
Property, plant and equipment consist of the following:
March 31,
--------------------------
2004 2003
----------- -----------
Land ........................ $ 148,104 $ 148,104
Building .................... 1,259,392 1,247,010
Manufacturing equipment ..... 1,228,053 1,219,079
Computer equipment .......... 300,703 287,834
Furniture and fixtures ...... 74,383 74,383
----------- -----------
3,010,635 2,976,410
Less accumulated depreciation (1,725,581) (1,628,430)
----------- -----------
$ 1,285,054 $ 1,347,980
=========== ===========
4. Income Taxes:
The components of the provision for income taxes for the years ended March
31, 2004 and 2003 are as follows:
March 31,
-----------------------
2004 2003
---------- ----------
Current tax provision:
Federal ... $ 930,036 $ 949,488
State ..... 130,568 133,825
1,060,604 1,083,313
---------- ----------
Deferred tax provision:
Federal ... 94,920 27,671
State ..... 13,326 3,773
---------- ----------
108,246 31,444
---------- ----------
$1,168,850 $1,114,757
========== ==========
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, 2004 and 2003 are as follows:
March 31,
----------------------
2004 2003
--------- ---------
Depreciation and amortization $(188,909) $ (86,351)
Accrued vacation ............. 56,568 48,169
Bad debt expense ............. 13,600 17,000
Obsolete inventory ........... 18,700 37,400
Warranty reserve ............. 5,100 5,100
Other ........................ 15,285 7,272
--------- ---------
Net deferred (liability)/asset $ (79,656) $ 28,590
========= =========
A reconciliation of the Company's income tax provision for the years ended March
31, 2004 and 2003, and the amounts computed by applying statutory rates to
income before income taxes is as follows:
March 31,
--------------------------
2004 2003
----------- -----------
Income taxes at statutory rates ... $ 1,220,456 $ 1,199,405
State income taxes,
net of federal benefit ......... 98,956 97,249
Foreign sales corporation exemption (49,267) (53,830)
Other ............................. (101,295) (128,067)
----------- -----------
$ 1,168,850 $ 1,114,757
=========== ===========
5. Stock Repurchase:
In June, 2003, the Company's Board of Directors approved program to repurchase
up to 300,000 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 employees 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 $51,064 to the
plan for fiscal 2004 and $52,617 for fiscal 2003.
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.
During 2004 the Company discovered an inconsistency between the number of shares
of common stock reported in its financial statements and the Company's stock
transfer agent records. The Company has restated its common stock outstanding
numbers in its financial statements to correct this inconsistency. This change
had no effect on any previously reported earnings per share information.
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 stockholders of the Company.
The following is a summary of options granted under the plans:
FY 2004 FY 2003
-------------------- -------------------
WEIGHTED - WEIGHTED -
AVG EXERCISE AVG EXERCISE
SHARES PRICE SHARES PRICE
Options outstanding at
beginning of year ..................... 323,295 $ 4.98 328,035 $ 4.85
Options granted ......................... 77,600 $ 7.28 75,600 $ 5.89
Options cancelled ....................... (2,122) $ 5.33 (27,936) $ 5.42
Options exercised ....................... (133,703) $ 4.74 (52,404) $ 5.20
-------- --------
Options outstanding at
end of year ........................... 265,070 $ 5.77 323,295 $ 4.98
======== ========
Options exercisable at
end of year ........................... 77,595 $ 4.93 132,045 $ 4.75
Shares available for
future option grant 139,100 223,371
The following is a summary of information about stock options outstanding as of
March 31, 2004:
Options Outstanding Options Exercisable
------------------------------------------------------ -----------------------------
Weighted
Average Weighted
Range of Number Remaining Weighted Number Average
Exercise Outstanding as Contractual Average Exercisable as of Exercise
Prices of 03/31/04 Life in Years Exercise Price 03/31/04 Price
------------------- -------------- ---------------- ---------------- ----------------- ----------
$3.75 - $4.56 79,975 3.1 $4.39 35,625 $4.18
$5.00 - $6.75 107,895 3.9 $5.71 41,970 $5.57
$7.00 - $9.20 77,200 5.3 $7.29 -- --
------------- ------- ---- ------ -------- -----
$3.75 - $9.20 265,070 4.1 $5.77 77,595 $4.93
============= ======= ==== ====== ======== =====
8. International Sales:
For the past two fiscal years, the Company had foreign sales as follows:
Years Ended March 31,
-----------------------
2004 2003
---------- ----------
Asia ........ $ 701,242 $1,190,136
Europe ...... 1,182,330 1,254,597
South America 127,885 211,400
Other ....... 516,607 480,656
---------- ----------
$2,528,064 $3,136,789
========== ==========
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 8A. CONTROLS AND PROCEDURES.
As of the end of the period covered by this Annual Report on Form10-KSB, we
carried out an evaluation, under the supervision and with the participation of
our management, including the Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures pursuant to Exchange Act Rule 13a-14 and 15d-14. Based
upon that evaluation, the Chief Executive Officer and the Chief Financial
Officer concluded that our disclosure controls and procedures are effective in
timely alerting them to material information relating to the Company required to
be included in our periodic SEC filings.
Subsequent to the date of that evaluation, there have been no significant
changes in our internal controls or in other factors that could significantly
affect internal controls, nor were any corrective actions required with regard
to significant deficiencies and material weaknesses.
The requirements to provide (i) a report of management on our internal
controls over financial reporting and (ii) our registered public accounting
firm's attestation report on management's assessment of our internal control
over financial reporting are not yet applicable to us.
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 61 President, Chief Executive 2004
12100 West Sixth Avenue Officer, Treasurer and
Lakewood, Colorado Director
Steven W. Peterson 47 Vice President-Finance, 2004
12100 West Sixth Avenue Chief Financial and Chief
Lakewood, Colorado Accounting Officer and
Secretary
Paul D. Duke 62 Director 2004
12100 West Sixth Avenue
Lakewood, Colorado
H. Stuart Campbell 74 Director (2)(3) 2004
12100 West Sixth Avenue
Lakewood, Colorado
Michael T. Brooks 55 Director (2)(3) 2004
12100 West Sixth Avenue
Lakewood, Colorado
(1) The term of office of each officer of the Company is at the discretion of
the Board of Directors.
(2) Audit Committee member.
(3) Compensation Committee member.
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 owned and served as an officer of Highland Packaging
Labs, Inc., Somerville, New Jersey (contract packaging business) until its sale
in 2002. 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.
The small business issuer has adopted a code of ethics, which applies to
all employees and directors of the Company including its Chief Executive Officer
and its Chief Financial Officer. The text of this code of ethics is included as
an exhibit to this annual report. The Board of Directors has determined that Mr.
H. Stuart Campbell, who is Chairman of the Audit Committee, is a financial
expert. Over his career, Mr. Campbell has served in positions of top level
corporate leadership for both large public companies and private companies of
similar size and structure to our own company. Mr. Campbell has also served as
Audit Committee Chairman of at least one other publicly held company.
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company pursuant to ss.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 and Chief Financial Officer for services rendered in all capacities
during the fiscal years ended March 31, 2004, March 31, 2003 and March 31, 2002.
No other executive officer received total annual salary and bonus for the fiscal
year ended March 31, 2004 in excess of $100,000.
SUMMARY COMPENSATION TABLE
Name and Principal Position Fiscal Year Salary Bonus(1) Options Granted Other Comp
L. Schmieder, CEO 2004 $118,514 $23,744 4,000 $3,540
2003 $113,885 $19,066 4,000 $3,742
2002 $108,985 $11,928 4,000 $3,100
S. Peterson, CFO 2004 $ 87,928 $19,021 4,000 $3,125
2003 $ 84,528 $16,228 4,000 $2,824
2002 $ 80,190 $ 9,619 6,000 $2,628
(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, 2004 to the Company's
Chief Executive Officer and Chief Financial 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 5% $7.00 June 18, 2013
S. Peterson 4,000 5% $7.00 June 18, 2008
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 June 19, 2003, Mr. Brooks and Mr. Campbell, outside directors, were
granted options to purchase 4,000 shares of common stock at $7.00 per share. Mr.
Duke, a director who retired from his position as an executive officer in March
2002, was granted 4,000 shares of common stock at $7.00 per share. Mr.
Schmieder, the Company's inside director was granted options to purchase 4,000
shares of common stock at a price of $7.00 per share.
Currently, all outside directors receive cash compensation of $1,000 for
each Board of Directors or committee meeting attended in person, and $300 for
each Board of Directors or committee meeting attended by teleconference.
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, 2004, options to purchase a total of 265,070 shares were
outstanding, at exercise prices ranging from $3.75 to $9.20 per share. Further,
as of March 31, 2004, options to purchase an aggregate of 139,100 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, 2004, pursuant to the Company's
incentive stock option plans, to each of the Company's executive officers.
Options to purchase 4,000 shares at $7.00 per share were granted to Mr. Steven
W. Peterson, Vice President-Finance. Mr. Luke R. Schmieder, President, was
granted options to purchase 4,000 shares at $7.00 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, 2004 (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, 2004 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) 344,067 11.2
Steven W. Peterson (1) 60,064 2.0
Paul D. Duke (1) 111,966 (2) 3.6
H. Stuart Campbell (1) 82,000 2.7
Michael T. Brooks (1) 25,200 (3) 0.8
FMR Corp. (6) 297,600 (4) 9.7
All officers and 623,297 (5) 20.1
directors as a group (5 in number)
(1) The business address is 12100 West Sixth Avenue, Lakewood, Colorado 80228.
(2) Includes 10,500 shares which Mr. Duke has the right to acquire within 60
days by exercise of stock options.
(3) Includes 14,000 shares which Mr. Brooks has the right to acquire within 60
days by exercise of stock options.
(4) Based upon information set forth in schedule 13G filed by FMR Corp. with
the Securities and Exchange Commission dated February 17, 2004. Fidelity
Management & Research Company ("Fidelity"), a wholly-owned subsidiary of
FMR Corp., is the beneficial owner of 268,000 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 268,000
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 268,000 shares.
(5) Includes 24,500 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.
(6) The business address is 82 Devonshire Street, Boston, MA 02109.
For information regarding securities authorized for issuance under our
equity compensation plans, please see Footnote 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.
(14.1) Code of Ethics.
(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, 333-18161 and 333-48556) of their report dated April 28, 2004, included in the
Registrant's Report on Form 10-KSB for the fiscal year ended March 31, 2004.
(31.1) Certification of Chief Executive Officer Pursuant to Rule 13a-14(a).
(31.2) Certification of Chief Financial Officer Pursuant to Rule 13a-14(a).
(32.1) Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) and 18 U.S.C. Section 1350.
(32.2) Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) and 18 U.S.C. Section 1350.
(b) Reports on Form 8-K. On February 5, 2004, the Registrant filed a Report on Form 8-K, under Item 7,
reporting the issuance of a press release reporting revenues and earnings for the quarter and nine
months ended December 31, 2003.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
1. AUDIT FEES
Ehrhardt Keefe Steiner & Hottman PC's fees for the Company's 2003 and 2004
annual audits and reviews of the Company's quarterly financial statements or
services that are normally provided by the accountant in connection with
statutory or regulatory filings or engagements were approximately $39,700 and
$57,750, respectively.
2. AUDIT RELATED FEES
Ehrhardt Keefe Steiner & Hottman PC did not render any audit related services to
the Company in 2003 and 2004.
3. TAX FEES
Ehrhardt Keefe Steiner & Hottman PC's fees for tax preparation services to the
Company for 2003 and 2004 were approximately $8,800 and $7,500, respectively.
4. ALL OTHER FEES
Ehrhardt Keefe Steiner & Hottman PC's fees for all other services to the Company
for 2003 and 2004 were approximately $3,200 and $14,000, respectively. The 2003
fees were for work performed on responses to Internal Revenue Service inquiries
($1,500), and advice on business development related issues ($1,700). The 2004
fees were paid for a review of prior year tax preparation work.
5. The Audit Committee approved all services performed by Ehrhardt, Keefe,
Steiner & Hottman PC.
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: June 29, 2004 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, June 29, 2004
---------------------------- Treasurer and Director --------------
Luke R. Schmieder
/s/Steven W. Peterson Vice President, Finance, Chief Financial June 29, 2004
----------------------------- and Chief Accounting Officer and Secretary -------------
Steven W. Peterson
/s/Paul D. Duke Director June 29, 2004
------------------------------- -------------
Paul D. Duke
/s/H. Stuart Campbell Director June 29, 2004
----------------------------- --------------
H. Stuart Campbell
/s/Michael T. Brooks Director June 29, 2004
----------------------------- -------------
Michael T. Brooks
EXHIBITS INDEX
--------------
(14.1) Code of Ethics.
(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, 333-18161 and 333-48556) of their report dated April 28, 2004, included in the
Registrant's Report on Form 10-KSB for the fiscal year ended March 31, 2004.
(31.1) Certification of Chief Executive Officer Pursuant to Rule 13a-14(a).
(31.2) Certification of Chief Financial Officer Pursuant to Rule 13a-14(a).
(32.1) Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) and 18 U.S.C. Section 1350.
(32.2) Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) and 18 U.S.C. Section 1350.