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, 1998
Commission File Number 0-11740
MESA LABORATORIES, INC.
(Name of small business issuer in its charter)
Colorado 84-0872291
(State or other jurisdiction of (I.R.S. Employer Identifica-
incorporation or organization) tion Number)
12100 West Sixth Avenue
Lakewood, Colorado 80228
(Address of principal executive (Zip Code)
offices)
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
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: $7,921,949.
State the aggregate market value of the voting and non-voting equity held by
non-affiliates of the Registrant: As of May 29, 1998: $18,962,049*.
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--
4,284,587 shares as of March 31, 1998.
Documents incorporated by reference: none.
Transitional Small Business Disclosure Format: Yes ; No X .
* 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 $5.625, the
last sales price of the Registrant's common stock as of May 29, 1998,
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? product line of Ball Corporation. In February 1993, the Company
acquired the assets of NUSONICS, Inc., a manufacturer of ultrasonic flow
meters and analyzers.
The Company presently markets the DATATRACE? and ELOGG? recording
systems which are used in various industrial applications; NUSONICS?
Concentration Analyzers, Pipeline Interface Detectors and Flow Meter products
which are used in various industrial applications; and two product lines used
in kidney dialysis [Western Meters and the ECHO Reprocessor]. 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 kidney dialysis market; competition in the data
logging market; competition in the fluid measurement market; 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? products belong currently exceeds $100
million and is expected to expand at a rate of between 9% and 11%.
The temperature and humidity recording markets are highly segmented.
DATATRACE? 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? 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? 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 up to 1,000 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?F to 680?F and provide both high accuracy and reliability.
Currently, the Micropack Tracers for temperature are sold with various probe
configurations in three temperature ranges: LoTemp?, which records
temperatures from -40?F to 185?F; Standard Temp?, which records temperatures
from 50?F to 302?F; and HiTemp?, which records temperatures from 212?F to
680?F. The Flatpack Tracer provides the customer with a flat profile
instrument in addition to the round Micropack Tracer. The Flatpack Tracer is
offered in the same temperature ranges and probe configurations as the
Micropack Tracer. Offering the same features but slightly larger than the
Micropack Tracer, the FRB Tracer provides users with the ability to replace
batteries at their facility, lowering operating cost and down time for factory
replacement of the battery. Utilizing the same electronics and FRB Tracer
packaging, the Company introduced a humidity and temperature version of its
FRB Tracer product in late March, 1997, and a pressure and temperature version
of its FRB Tracer product in July 1997.
The DATATRACE? 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? PC Interface
The DATATRACE? product line also includes a PC Interface Module and
system software for user programming of the Tracer instruments for graphics
software and displaying and analyzing results. Programming and retrieval of
data from the Tracer is achieved by placing the instrument in the PC Interface
Module which is linked to a personal computer. The system's software is menu
driven, allowing the operator to quickly and easily program start time and
date, sample intervals and run ID. Programming can be accomplished within
fifteen seconds by the operator. After a process run, data is retrieved by
returning the Tracer to the PC Interface Module and following the menu
instructions.
ELOGG? Dataloggers
The Company distributes the ELOGG? Datalogger product line in North
America. The ELOGG? line is similar in concept to the DATATRACE? line,
featuring different benefits to the end-user such as longer battery life,
extended memory and humidity logging in certain models. Unlike the DATATRACE?
products, the ELOGG? 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? 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
segments: Sonic Flow Meters and Concentration Monitors. While the total
market for flow meters is very large, the NUSONICS? Sonic Flow Meters best
serve applications where cleanliness, resistance to corrosives or portability
are required. Specific applications where the NUSONICS? products are
particularly well suited include water treatment, chemical processing and
heating, ventilation and air conditioning (HVAC) applications.
The Concentration Monitor segment 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 and
food processing, pharmaceutical processing and polymerization processes.
NUSONICS? Sonic Flow Meters
The Sonic Flow Meter line is a range of products which are suited to
various measurement applications. Introduced during fiscal 1995, the Model
CM800 Sonic Flow Meter is the Company's main wetted transducer meter. With
transducers that are mounted through the pipe wall and in contact with the
material flowing through the pipe, it is the most accurate type of ultrasonic
flow meter. The Model 90 Sonic Flow Meter features strap-on transducers and
is sold in portable and fixed process versions. This product offers
flexibility and portability for measuring flow and is totally noninvasive,
measuring flow rates through the pipe wall. The Company offers flow
measurement products directed toward the heating, ventilation and air
conditioning (HVAC) market. The Balance Master Meter is a hand-held portable
meter which quickly plugs into specialized flow stations with window seal
ports. This meter allows the plant engineer to quickly read and adjust flow
within a building. The CM800 Flow Meter utilizes the same window seal flow
stations as the Balance Master to provide continuous flow monitoring for use
in energy management systems. In addition, the Company markets doppler flow
meters in both permanent and strap-on transducer models. Unlike the transit-
time technology that the Company's other flow products utilize to measure
clean fluids with dissolved solids, the doppler technology is utilized when
the fluids to be measured contain either suspended solids or entrained gases.
NUSONICS? 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. This product line is currently led by the Model 86 Composition
Monitor. In addition, the Company also offers Model 87 (a laboratory model)
and the Model 88 (which provides new signal processing technology).
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 needs to be 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 3,000 clinics and hospital centers. Currently, there are
over 250,000 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.
Western Meters
Mesa's Western Meters are instruments that are used to test various
parameters of the dialysis fluid (dialysate). The meter line consists of five
different meters. 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 line consists of two different
meters. Model 90BC is used by dialysis centers and measures conductivity,
temperature and pressure. Model 90DX, the most advanced Western Meter,
measures conductivity, temperature, pressure and pH. Model 90DX is
microprocessor-based and features improved accuracy and user convenience and
field calibration capabilities.
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 $15-$55, and each patient requires
approximately 156 dialyzers annually if no reuse is employed. Although the
Company has not conducted a scientific market survey, it estimates that more
than 80% of the hemodialysis patients being treated in centers are involved
with reuse programs.
The ECHO MM-1000 Dialyzer Reprocessor is a fully automated dialyzer
reuse machine for which the Company received permission to market from the FDA
in June 1982. It automatically cleans, rinses, tests and delivers
disinfectants to dialyzers after dialysis therapy, thereby allowing the
dialyzer cartridges to be reused rather than disposed of after each use. It
is designed to accommodate virtually all manual reprocessing procedures in use
today and can be programmed to automate them without extensive modification or
rework. Manual procedures have been used to reprocess dialyzers effectively
for over 30 years and are the basis of most automated systems in use today.
Additionally, the system can be programmed to use prescribed chemicals. The
ECHO System is totally self-contained, aside from water and chemicals, and
requires no user adjustments.
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? and
ELOGG? product lines. For its NUSONICS? product lines, a separate
organization of manufacturers' representatives is maintained while a
distributor network is being used for the Company's HVAC product line.
International sales are conducted through over 50 distributors. During the
fiscal year ended March 31, 1998, approximately 58% of sales have been
domestic and 42% have been international to countries throughout Europe,
Africa, Australia, Asia and South America, as well as Canada and Mexico.
Sales promotions include attendance by Mesa representatives at
conventions, the continuation of direct mail campaigns and trade journal
advertising in industry related publications.
Customers of Mesa's dialysis products primarily include dialysis centers
and dialysis equipment manufacturers. The primary emphasis of the Company's
marketing effort is to offer quality products to the healthcare market which
will aid in cost containment and improved patient well-being.
DATATRACE? and ELOGG? customers include numerous industrial users who
utilize the products within a variety of manufacturing, transportation and
storage applications. The emphasis of the Company's marketing effort is to
offer a quality product that provides a unique and flexible solution to
monitoring temperature or humidity without interfering with the processing,
transportation or storage of the product.
NUSONICS? 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, 1998, no single customer
accounted for 10% or more of the Company's revenues. The Company does not
believe that it is dependent upon a single customer or a few customers, whose
loss would have a long term adverse effect upon the Company's business.
Competition
Mesa competes with major medical and instrumentation companies as well
as a number of smaller companies, many of which are well established, with
substantially greater capital resources and larger research and development
facilities. Furthermore, many of these companies have an established product
line and a significant operating history. Accordingly, the Company may be at
a competitive disadvantage due to such factors as its limited resources and
limited marketing and distribution network.
Companies with which Mesa's medical products compete include Minntech
Corp. and Automata, Inc. Companies with which Mesa's DATATRACE? and ELOGG?
instrumentation products compete include Testoterm, Inc. and Rustrak
Instruments. Companies with which Mesa's NUSONICS? products compete include
Controlotron, Badger Meter and Panametrics.
In the area of dialyzer reuse, management believes that the availability
of an automated reprocessing system which consistently cleans, rinses and
disinfects dialyzers, as well as tests them for physical performance and
leaks, can dramatically alter the reuse patterns. Mesa believes that it is
the largest supplier of meters used to calibrate hemodialysis equipment,
although it has not conducted independent market surveys. The DATATRACE? and
ELOGG? 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? products offer a miniaturized, self-contained, environmentally
resistant, wireless solution. NUSONICS? 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? products also offer a unique solution to monitoring variations in a
fluid's concentration as the fluid passes through a pipeline into or out of a
process.
Government Regulation
Medical devices marketed by Mesa are subject to the provisions of the
Federal Food, Drug and Cosmetic Act, as amended by the Medical Device
Amendments of 1976 (hereinafter referred to as the "Act"). A medical device
which was not marketed prior to May 28, 1976, or is not substantially
equivalent to a device marketed prior to that date, may not be marketed until
certain data is filed with the FDA and the FDA has affirmatively determined
that such data justifies marketing under conditions specified by the FDA. A
medical device is defined by the Act as an instrument which (1) is intended
for use in the diagnosis or the treatment of disease, or is intended to affect
the structure of any function of the human body; (2) does not achieve its
intended purpose through chemical action; and (3) is not dependent upon being
metabolized for the achievement of its principal intended purpose. The Act
requires any company proposing to market a medical device to notify the FDA of
its intention at least ninety days before doing so, and in such notification
must advise the FDA as to whether the device is substantially equivalent to a
device marketed prior to May 28, 1976. As of the date hereof, the Company has
received permission from the FDA to market all of its medical products.
Mesa's medical products are subject to FDA regulations and inspections,
which may be time-consuming and costly. This includes on-going compliance
with the FDA's current Good Manufacturing Practices regulations which require,
among other things, the systematic control of manufacture, packaging and
storage of products intended for human use. Failure to comply with these
practices renders the product adulterated and could subject the Company to an
interruption of manufacture and sale of its medical products and possible
regulatory action by the FDA.
The manufacture and sale of medical devices is also regulated by some
states. Although there is substantial overlap between state regulations and
the regulations of the FDA, some state laws may apply. Mesa, however, does
not anticipate that complying with state regulations will create any
significant problems. Foreign countries also have laws regulating medical
devices sold in those countries.
Employees
At March 31, 1998, the Company had a total of 42 employees, of which 40
were full-time employees. Currently, eight persons are employed for
marketing, three for research and development, 25 for manufacturing and
quality assurance and six for administration.
Additional Information
For the fiscal years ended March 31, 1998 and 1997, Mesa spent
approximately $264,151 and $253,661, 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 capital funds in the near future for
environmental protection in connection with its operations.
The Company has been issued patents for its DATATRACE? temperature
recording devices and its NUSONICS? sonic flow measurement and sonic
concentration monitoring products. 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 60% utilized and should provide adequate capacity for continued
expansion.
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 AND RELATED STOCKHOLDER MATTERS.
(a) Mesa's Common Stock is traded on the Nasdaq National Market under
the symbol "MLAB". For the last two fiscal years, the high and low last sales
prices of the Company's Common Stock as reported to the Company by the
National Association of Securities Dealers, Inc. were as follows:
<TABLE>
<CAPTION>
Quarter Ended High Low
<S> <C> <C>
June 30, 1996 10 5/8 6 3/8
September 30, 1996 8 7/8 6 1/4
December 31, 1996 7 1/8 5 3/8
March 31, 1997 6 5/8 5
Quarter Ended High Low
June 30, 1997 6 1/4 4 7/8
September 30, 1997 7 1/8 5 3/8
December 31, 1997 8 6 1/4
March 31, 1998 7 5 3/8
</TABLE>
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, 1998, there were approximately 2,500 record and
beneficial holders of Mesa's Common Stock.
(c) The Company has not declared or paid any dividends to date.
(d) During the fiscal year ended March 31, 1998, the Company did not
sell any equity securities that were not registered under the
Securities Act of 1933, as amended.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Results of Operations
Net Sales
Net sales for fiscal 1998 increased 2% from fiscal 1997. In real
dollars, net sales of $7,921,949 in fiscal 1998 increased $147,899 from
$7,774,050 in 1997. Net sales increase in fiscal 1998 was due to strong
increases in sales of Medical and Datatrace products which were mostly off-set
by a decrease in Nusonics product sales. Net sales declined in fiscal 1997
due largely to a decrease in international sales resulting from declines in
European and South American sales. During fiscal 1997, Medical and Datatrace
sales both increased while Nusonics product sales declined from the prior
fiscal year.
During fiscal 1998, sales of Nusonics products declined by 28%. In
order to correct this decline, the Company reorganized its sales organization
in order to improve its ability to meet the technical demands of its
concentration monitor products. In addition, the Company is having an in-
depth study of its position within the ultrasonic segment of the flow meter
market conducted. For the past year, the Company has focused its research and
development efforts on a new electronic design to be used as the technical
foundation of its next generation of flow meters and concentration analyzers.
Within the flow meter segment of the product line, Mesa must focus on
developing those sets of features and price performance attributes that will
best meet the market's evolving needs.
Cost of Sales
Cost of sales as a percent of net sales in fiscal 1998 declined 4.2%
from fiscal 1997 to 33.5%. During fiscal 1998, Medical costs decreased 2.7%,
Datatrace costs decreased 4.4% and Nusonics costs decreased 1.5% as a percent
of sales. For fiscal 1997, the cost of Nusonics products increased 6.5% and
Medical products increased 2.5%, respectively, while Datatrace products
decreased 6.4% as a percent of sales. The decrease in Datatrace cost of sales
in fiscal 1998 was due to utilization of a new electronic circuit, which
greatly reduced the materials cost of the product. The decrease in Nusonics
cost of sales in fiscal 1998 was due to reductions in material and labor
costs, while the decrease in Medical was attributable chiefly to a decline in
material costs. In fiscal 1997, the decrease in Datatrace was due to the new
electronic circuit that reduced the materials cost of the product. The
increase in Nusonics cost of sales was due to an increase in the ratio of
domestic sales, while the increase in Medical was due to a higher ratio of
distributor sales.
Selling, General and Administrative
Selling expenses decreased 5% from fiscal 1997 to fiscal 1998. In real
dollars, selling expenses decreased $67,535 to $1,301,762 in fiscal 1998 from
$1,369,297 in fiscal 1997. The decrease in selling expenses in fiscal 1998
was due to a sharp decline in Nusonics selling expense which was partially
off-set by increases in Medical and Datatrace selling expenses. Selling
expenses also decreased from fiscal 1996 to fiscal 1997. This decrease was
due to reductions in outside sales commissions for Nusonics international
sales.
General and administrative expenses were $801,603 in fiscal 1998 and
$715,215 in fiscal 1997, which represents a $86,388 or 12% increase from
fiscal 1997 to fiscal 1998. The increase in general and administrative costs
during fiscal 1998 was due to increased compensation and business development
costs.
Research and Development
Company sponsored research and development costs were $264,151 in fiscal
1998 and $253,661 in fiscal 1997, which represents a 4% increase from year to
year. Research and development costs increased in fiscal 1998 due chiefly to
increased compensation costs. Costs during fiscal 1997 declined due to
reductions in compensation costs during the second half of the fiscal year
following the retirement of the Company's Director of Research and
Development.
Net Income
Net income increased 19% to $2,052,314 or $.47 per share on a diluted
basis in fiscal 1998 from $1,719,805 or $.39 per share on a diluted basis in
fiscal 1997. During fiscal 1998, net income increased due to increased sales
of Medical and Datatrace products and reductions of cost of goods sold for all
of the Company's product lines. Net income increased during fiscal 1997 due
to a decrease in cost of goods sold as a percent of sales combined with
decreases throughout the operating expense categories.
Liquidity and Capital Resources
On March 31, 1998, the Company had cash and short term investments of
$5,407,167. In addition, the Company had other current assets totaling
$3,811,207 and total current assets of $9,218,374. Current liabilities of
Mesa Laboratories, Inc. were $544,221 which resulted in a current ratio of
17:1. For comparison purposes at March 31, 1997, Mesa Laboratories, Inc. had
cash and short term investments of $3,867,549, other current assets of
$3,746,772, total current assets of $7,614,321, current liabilities of
$575,473 and a current ratio of 13:1.
Mesa Laboratories, Inc. has made net capital purchases of $193,980
during the past fiscal year.
The Company has instituted a program to repurchase up to 10% of its
outstanding common stock. Under the plan, the shares may be purchased from
time to time in the open market at prevailing prices or in negotiated
transactions off the market. Shares purchased will be canceled and
repurchases will be made with existing cash reserves.
The Company is currently working to resolve the potential impact of the
year 2000 on the processing of date-sensitive information by the Company's
computerized information systems. The year 2000 problem is the result of the
computer programs being written using two digits (rather than four) to define
the applicable year. Any of the Company's programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000, which could result in miscalculations or system failures. Based on
preliminary information, costs of addressing potential problems are not
currently expected to have a material adverse impact on the Company's
financial position, results of operations or cash flows in future periods.
However, if the Company, its customers or vendors are unable to resolve such
processing issues in a timely manner, it could result in a material financial
risk. Accordingly, the Company plans to devote the necessary resources to
resolve all significant year 2000 issues in a timely manner.
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
Audit Committee
Mesa Laboratories, Inc.
Lakewood, Colorado
We have audited the accompanying balance sheets of Mesa Laboratories, Inc. as
of March 31, 1998 and 1997, 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 generally accepted auditing
standards. Those standards require that we plan and perform the audits 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, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
Ehrhardt Keefe Steiner & Hottman PC
Denver, Colorado
May 1, 1998
<TABLE>
MESA LABORATORIES, INC.
BALANCE SHEETS
<CAPTION>
March 31,
1998 1997
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 1) $ 3,358,968 $ 3,867,549
Marketable securities (Note 1) 2,048,199 -
Accounts receivable (Note 1)-
Trade, net of allowance for doubtful accounts
of $33,000 (1998) and $29,000 (1997) 1,740,327 1,632,210
Other 14,455 25,880
Inventories (Notes 1 and 2) 1,895,273 1,963,572
Prepaid expenses 76,152 31,710
Deferred income taxes (Note 4) 85,000 93,400
TOTAL CURRENT ASSETS 9,218,374 7,614,321
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation of $1,057,085 (1998) and
$950,233 (1997) (Notes 1 and 3) 1,677,023 1,589,895
OTHER ASSETS (Note 1):
Intangible Assets, net of accumulated
amortization of $815,156 (1998) and
$682,259 (1997) 884,695 1,002,214
$11,780,092 $10,206,430
</TABLE>
See notes to financial statements.
<TABLE>
MESA LABORATORIES, INC.
BALANCE SHEETS
<CAPTION>
March 31,
1998 1997
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade $ 65,015 $ 46,282
Accrued salaries and payroll taxes 306,547 237,361
Accrued warranty expense (Note 1) 15,000 40,000
Other accrued liabilities 121,059 188,030
Taxes payable 36,600 63,800
TOTAL CURRENT LIABILITIES 544,221 575,473
LONG TERM LIABILITIES:
Deferred income taxes (Note 4) 75,000 62,800
COMMITMENTS AND CONTINGENCY (Note 5)
STOCKHOLDERS' EQUITY (Note 5 and 6):
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,
4,284,587 shares (1998) and 4,316,236
shares (1997) 3,352,009 3,426,979
Retained earnings 7,808,862 6,141,178
11,160,871 9,568,157
$11,780,092 $10,206,430
</TABLE>
See notes to financial statements.
<TABLE>
MESA LABORATORIES, INC.
STATEMENTS OF INCOME
<CAPTION>
Year Ended March 31,
1998 1997
<S> <C> <C>
SALES (Notes 1 and 7) $7,921,949 $7,774,050
COST OF SALES 2,652,414 2,932,225
GROSS PROFIT 5,269,535 4,841,825
OPERATING EXPENSES:
Selling 1,301,762 1,369,297
General and administrative 801,603 715,215
Research and development (Note 1) 264,151 253,661
TOTAL OPERATING EXPENSES 2,367,516 2,338,173
OPERATING INCOME 2,902,019 2,503,652
INTEREST INCOME, NET AND OTHER 231,046 126,853
EARNINGS BEFORE INCOME TAXES 3,133,065 2,630,505
INCOME TAXES (Note 4) 1,080,751 910,700
NET INCOME $2,052,314 $1,719,805
NET INCOME PER SHARE - BASIC $ .48 $ .40
NET INCOME PER SHARE - DILUTED $ .47 $ .39
AVERAGE COMMON SHARES OUTSTANDING - BASIC 4,303,818 4,320,200
AVERAGE COMMON SHARES OUTSTANDING - DILUTED 4,399,373 4,466,128
</TABLE>
See notes to financial statements.
<TABLE>
MESA LABORATORIES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<CAPTION>
Common Stock Total
Number of Retained Stockholders'
Shares Amount Earnings Equity
<S> <C> <C> <C> <C>
BALANCE, March 31, 1996 4,314,157 $3,450,141 $4,587,837 $ 8,037,978
Common stock issued for the
conversion of incentive
stock options net of
shares returned to Company
as payment 46,779 72,596 - 72,596
Purchase and retirement of
treasury stock
(Notes 5 and 6) (44,700) (95,758) (166,464) (262,222)
Net income for the year - - 1,719,805 1,719,805
BALANCE, March 31, 1997 4,316,236 3,426,979 6,141,178 9,568,157
Common stock issued for the
conversion of incentive
stock options net of
shares returned to Company
as payment 70,865 147,071 - 147,071
Purchase and retirement of
treasury stock
(Notes 5 and 6) (102,514) (222,041) (384,630) (606,671)
Net income for the year - - 2,052,314 2,052,314
BALANCE, March 31, 1998 4,284,587 $3,352,009 $7,808,862 $11,160,871
</TABLE>
See notes to financial statements.
<TABLE>
MESA LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
<CAPTION>
Year Ended March 31,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income $2,052,314 $1,719,805
Depreciation and amortization 239,749 241,150
Provision for bad debts 4,000 (21,000)
Provision for warranty reserve (25,000) 7,000
Provision for inventory reserve 40,000 (12,000)
Deferred income taxes 20,600 1,100
Change in assets and liabilities-
(Increase) decrease in accounts receivable (100,692) 497,353
(Increase) decrease in inventories 28,299 55,201
(Increase) decrease in prepaid expenses (44,442) 58,755
Increase (decrease) in accounts payable 18,733 (54,451)
Increase (decrease) in accrued liabilities (24,985) (72,832)
Net cash provided by operating activities 2,208,576 2,420,081
Cash flows from investing activities:
(Increase) decrease in marketable securities (2,048,199) -
(Capital expenditures) proceeds from sale of
property (193,980) (120,635)
(Increase) decrease in intangibles (1,281) (4,000)
(Increase) decrease in deposits and other assets (14,097) (27,903)
Net cash (used) provided by investing activities (2,257,557) (152,538)
Cash flow from financing activities:
Net proceeds from the issuance of common stock 147,071 72,596
Common stock repurchases (606,671) (262,222)
Net Cash (used) provided by financing activities (459,600) (189,626)
Net increase (decrease) in cash and cash equivalents (508,581) 2,077,917
Cash and cash equivalents at beginning of year 3,867,549 1,789,632
Cash and cash equivalents at end of year $3,358,968 $3,867,549
Supplemental disclosures of cash flow information:
Cash paid during the year for income taxes $1,116,000 $ 822,700
</TABLE>
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 and accounts receivable. The Company invests primarily all of its
excess cash in money market funds administered by reputable financial
institutions, debt instruments of the U.S. government and its agencies and
grants credit to its customers who are located throughout the United States
and several
foreign countries. To reduce credit risk, the Company periodically evaluates
the money market fund administrators and performs credit analysis of
customers and monitors their financial condition. Additionally, the Company
maintains cash balances in bank deposit accounts which, at times, may exceed
federally insured limits. The Company has not experienced any losses in
such accounts.
Cash Equivalents - Cash equivalents include all highly liquid investments
with an original maturity of three months or less.
Marketable Securities - The Company has investments in debt securities
guaranteed by the U.S. Government which are carried at cost and approximate
fair market value. Management's intent is to hold these securities until
maturity which is less than one year.
Inventories - Inventories are stated at the lower of cost or market, using
the first-in, first-out method (FIFO) to determine cost (see Note 2).
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 (Note 3).
Intangible Assets - Intangible assets are comprised of patents, trademarks
and covenants not to compete, which were acquired in conjunction with the
NUSONICS, Inc. and DATATRACE asset purchases. These costs are being
amortized on the straight-line basis over contractual and estimated useful
lives ranging from three to forty years.
Revenue Recognition - The Company recognizes revenues at the time products
are shipped.
Research & Development Costs - Costs related to research and development
efforts on existing or potential products are expensed as incurred.
Accrued Warranty Expense - The Company provides limited product warranty on
its products and, accordingly, accrues an estimate of the related warranty
expense at the time of sale.
MESA LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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 totalled 95,555 and 145,928 additional shares in 1998 and
1997, respectively.
Valuation of Long-Lived Assets - The Company assesses valuation of
long-lived assets in accordance with Statement of Financial Accounting
Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be disposed of. The Company periodically
evaluates the carrying value of long-lived assets to be held and used,
including goodwill and other intangible assets, when events and
circumstances warrant such a review. The carrying value of a long-lived
asset is considered impaired when the anticipated undiscounted cash flow
from such asset is
separately identifiable and is lessthan its carrying value. In that event,
a loss is recognized based on the amount by which the carrying value exceeds
the fair market value of the long-lived asset. Fair market value is
determined primarily using the anticipated cash flows discounted at a rate
commensurate with the risk involved.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Advertising Costs - Advertising costs are expensed as incurred. Advertising
costs for the years ended March 31, 1998 and 1997 were $140,469 and
$128,978, respectively.
Income Taxes - The Company recognizes deferred tax liabilities and assets
for the expected future tax consequences of events that have been included
in the financial statements or tax returns. Under this method, deferred
tax liabilities and assets are determined based on the difference between
the financial statements and tax basis of assets and liabilities using the
enacted tax rates in effect for the year in which the differences are
expected to reverse. The measurement of deferred tax assets is reduce
amount of any tax benefits that, based on available evidence, are not
expected to be realized.
Fair Value of Financial Instruments - The carrying amount of financial
instruments including cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses approximated fair value as of
March 31, 1998 because of the relatively short maturity of these
instruments.
Recently Issued Accounting Pronouncements - In 1997, the FASB issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS 130), which establishes standards for reporting
and display of comprehensive income, its components and accumulated
balances. Comprehensive income is defined to include all changes in equity
except those resulting from investments by owners and distributions to
owners. Among other disclosures, SFAS 130 requires that all items that are
required to be recognized under current accounting standards as components
of comprehensive income, be
reported in a financial statement that is displayed with the same prominence
as other financial statements. Currently the Company's only component,
which would comprise comprehensive income, is its results of operations.
MESA LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Also, in 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (SFAS 131), which supersedes Statement of Financial Accounting
Standards No. 14, "Financial Reporting for Segments of a Business
Enterprise." SFAS 131 establishes standards for the way that public
companies report information about operating segments in annual financial
statements and
requires reporting of selected information about operating segments in
interim financial statements issued to the public. It also establishes
standards for disclosure regarding products and services, geographic areas
and major customers. SFAS 131 defines operating segments as components of
a company about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how
to allocate resources and in assessing performance. Management believes
that SFAS 131 will not have a significant impact on the Company's disclosure
of segment information in the future.
SFAS 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997, and requires comparative information for
earlier period to be restated.
2. Inventories:
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31,
1998 1997
<S> <C> <C>
Raw materials $1,517,191 $1,417,991
Work-in-process 191,427 318,129
Finished goods 261,655 262,452
Less reserve (75,000) (35,000)
$1,895,273 $1,963,572
</TABLE>
Work-in-process and finished goods include raw materials, direct labor and
manufacturing overhead at March 31, 1998 and 1997.
3. Property, Plant and Equipment:
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
March 31,
1998 1997
<S> <C> <C>
Land $ 148,104 $ 148,104
Building 1,224,904 1,117,317
Manufacturing equipment 1,124,186 1,063,600
Computer equipment 163,374 138,049
Furniture and fixtures 63,009 62,527
Truck 10,531 10,531
2,734,108 2,540,128
Less accumulated depreciation (1,057,085) (950,233)
$1,677,023 $1,589,895
</TABLE>
MESA LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
4. Income Taxes:
The components of the provision for income taxes for the years ended
March 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
March 31,
1998 1997
<S> <C> <C>
Current tax provision:
Federal $ 918,100 $ 787,700
State 142,051 121,900
1,060,151 909,600
Deferred tax provision:
Federal 18,000 950
State 2,600 150
20,600 1,100
$1,080,751 $ 910,700
</TABLE>
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,
1998 and 1997 are as follows:
<TABLE>
<CAPTION>
March 31,
1998 1997
<S> <C> <C>
Depreciation and amortization $ (75,000) $ (63,000)
Accrued vacation 26,500 26,500
Bad debt expense 13,000 19,500
Obsolete inventory 29,000 19,500
Warranty reserve 6,000 15,700
Other 8,500 9,100
Deferred service cost 2,000 3,300
Net deferred asset $ 10,000 $ 30,600
</TABLE>
A reconciliation of the Company's income tax provision for the years ended
March 31, 1998 and 1997, and the amounts computed by applying statutory
rates to income before income taxes is as follows:
<TABLE>
<CAPTION>
March 31,
1998 1997
<S> <C> <C>
Income taxes at statutory rates $ 992,100 $ 851,250
State income taxes,
net of federal benefit 144,651 122,050
Foreign sales corporation exemption (56,000) (62,800)
Other - 200
$1,080,751 $ 910,700
</TABLE>
MESA LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
5. Commitments:
The Company has announced a plan to repurchase up to 10% of its outstanding
common stock. Under the plan, 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 repurchase of shares will be
funded through existing cash reserves.
6. Stockholders' Equity:
The State of Colorado has eliminated the ability of Colorado corporations
to retain treasury stock. As a result, the Company reduced common stock to
its average share value and further reduced retained earnings for the
remainder of the cost of treasury stock acquired in each fiscal year.
The Company has adopted two incentive stock option plans for the benefit of
the Company's key employees, excluding its outside directors. Under the
terms of the plan, 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.
The Company has approved a nonqualified performance stock option plan for
the benefit of the directors of the Company. The Plan provides that each
director of the Company serving as a director as of the first day after the
end of the Company's fiscal year shall be granted the option to purchase
5,000 shares of Common Stock, provided that the Company has achieved a net
after-tax profit for the immediately prior fiscal year then ended. Under
the terms of
the plan the options are 100% exercisable anytime after the first year until
the end of the fifth 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 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.
MESA LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
The following is a summary of options granted under the plans:
<TABLE>
<CAPTION>
Number of Exercise
Options Price
<S> <C> <C>
BALANCE outstanding March 31, 1996 327,405
Options granted 80,400 $5.63 - $7.70 a share
Options canceled (12,700) $2.50 - $7.00 a share
Options exercised (67,460) $2.19 - $3.31 a share
BALANCE outstanding March 31, 1997 327,645
Options granted 77,600 $4.88 - $6.00 a share
Options canceled (35,806) $2.63 - $7.00 a share
Options exercised (84,118) $2.19 - $4.38 a share
BALANCE outstanding March 31, 1998 285,321
</TABLE>
The Corporation 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 Corporation's stock
option plans been determined based on the fair value at the grant date for
awards in 1998 and 1997 consistent with the provisions of SFAS No. 123, the
Corporation's net earnings and earnings per share would have been reduced
to the pro forma amount indicated below:
<TABLE>
<CAPTION>
March 31,
1998 1997
<S> <C> <C>
Net income - as reported $2,052,314 $1,719,805
Net income - pro forma $1,877,289 $1,481,769
Income per share - as reported $ .47 $ .39
Income per share - pro forma $ .43 $ .33
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants: dividend yield of 0%; expected volatility of
30%; discount rate of 8.5%; and expected lives of 5 years.
7. International Sales:
For the past two fiscal years, the Company had foreign sales as follows:
<TABLE>
<CAPTION>
Year Ended March 31,
1998 1997
<S> <C> <C>
Asia $ 870,122 $ 910,953
Europe 1,402,574 1,163,858
Other 1,049,452 1,166,721
$3,322,148 $3,241,532
</TABLE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The names, addresses, ages and terms of office of the executive officers
and directors of the Company are:
<TABLE>
<CAPTION>
Name and Address Age Office Term
Expires(1)
<S> <C> <C> <C>
Luke R. Schmieder 55 President, Chief Executive 1998
12100 West Sixth Avenue Officer, Treasurer and
Lakewood, Colorado Director
Steven W. Peterson 41 Vice President-Finance, 1998
12100 West Sixth Avenue Chief Financial and Chief
Lakewood, Colorado Accounting Officer and
Secretary
Paul D. Duke 56 Vice President 1998
12100 West Sixth Avenue and Director
Lakewood, Colorado
Philip D. Quedenfeld 67 Director 1998
12100 West Sixth Avenue
Lakewood, Colorado
G. Lee Southard, Ph.D. (2) 61 Director -
12100 West Sixth Avenue
Lakewood, Colorado
H. Stuart Campbell 68 Director 1998
12100 West Sixth Avenue
Lakewood, Colorado
</TABLE>
(1) The term of office of each officer of the Company is at the discretion
of the Board of Directors.
(2) Dr. Southard resigned as a director of the Company effective April 13,
1998.
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, Vice President and 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.
H. Stuart Campbell, Director
Mr. Campbell received his Bachelor of Science degree from Cornell
University in 1951. From 1960 through September 1982, Mr. Campbell served in
various capacities for Johnson & Johnson and Ethicon, Inc., a domestic
subsidiary of Johnson & Johnson. From 1977 through September 1982, he was a
Company Group Chairman with Johnson & Johnson and served as Chief Executive
Officer and Chairman of the Board of Directors of eight major corporate
subsidiaries. Mr. Campbell currently owns and serves as an officer of
Highland Packaging Labs, Inc., Somerville, New Jersey (contract packaging
business). He also serves as a director of Atrix Laboratories, Inc.
(pharmaceutical and contract research and development company) and as chairman
of Biomatrix, Inc., Ridgefield, New Jersey (biomaterials manufacturer). 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.
Philip D. Quedenfeld, Director
Mr. Quedenfeld received his Bachelor of Arts degree in English from Lake
Forest University in 1954. At the time of his retirement in 1993, he was
employed as manager of a Sears Department Store. He also served in numerous
marketing and advertising positions with Sears at both the headquarters and
field levels for more than 30 years. Mr. Quedenfeld has served as a director
of the Company since its inception in March 1982 and devotes such time as is
necessary to the affairs of the Company.
G. Lee Southard, Ph.D., Director
Dr. Southard received his Bachelor of Science degree in chemistry from
the Virginia Military Institute in 1959, his Master of Science degree in
chemistry from George Washington University in 1962 and his Ph.D. degree in
organic chemistry from the University of North Carolina in 1965. From 1967 to
1976, Dr. Southard was the head of cosmetic research for Eli Lilly and Company
(pharmaceutical manufacturer). Thereafter, until 1979, he served as the
director of exploratory research for Johnson & Johnson Products, Inc.
(manufacturer of medical and health care products). From 1979 to January
1982, Dr. Southard served as President of Southard Research Associates, a
research management consulting firm in North Brunswick, New Jersey. Dr.
Southard served as Vice-President of Research of Vipont Pharmaceutical, Inc.
from 1982 through August 1987. Dr. Southard currently serves as President and
a director of Atrix Laboratories, Inc. (pharmaceutical and contract research
and development company). Dr. Southard has served as a director of the
Company from May 1983 until his resignation effective April 13, 1998.
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company pursuant to ? 240.16a-3(e) during its most recent
fiscal year and Forms 5 and amendments thereto furnished to the Company with
respect to its most recent fiscal year, and any written representation from
the reporting person (as hereinafter defined) that no Form 5 is required, the
Company is not aware of any person who, at any time during the fiscal year,
was a director, officer, beneficial owner of more than ten percent of any
class of equity securities of the Company registered pursuant to Section 12 of
the Exchange Act ("reporting person"), that failed to file on a timely basis,
as disclosed in the above Forms, reports required by Section 16(a) of the
Exchange Act during the most recent fiscal year or prior fiscal years.
ITEM 10. EXECUTIVE COMPENSATION.
The following table, and its accompanying explanatory footnotes,
includes annual and long-term compensation information on the Company's Chief
Executive Officer for services rendered in all capacities during the fiscal
years ended March 31, 1998, March 31, 1997 and March 31, 1996. No other
executive officer received total annual salary and bonus for the fiscal year
ended March 31, 1998 in excess of $100,000.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Annual Compensation Long Term
Compensation
Name and Fiscal Salary Bonus(1) Options All
Principal Year Granted Other
Position Comp.
<S> <C> <C> <C> <C> <C>
Luke R. Schmieder, 1998 $92,019 $19,367 4,000 -
Chief Executive
Officer 1997 $88,775 $14,000 4,000 -
1996 $85,067 $30,000 5,000 -
</TABLE>
(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, 1998 to the
Company's Chief Executive Officer.
<TABLE>
Option Grants in Last Fiscal Year
<CAPTION>
Name Options Granted Percent of Total Exercise Price Expiration
Options Granted Date
in Fiscal Year
<S> <C> <C> <C> <C>
Luke R.
Schmieder 4,000 5% $5.36 March 31, 2002
</TABLE>
Compensation of Directors
The Company has adopted a nonqualified performance stock option plan,
approved by the shareholders of the Company in October 1991, for the benefit
of the directors of the Company. The plan provides that each director of the
Company serving as a director as of the first day after the end of the
Company's fiscal year shall be granted the option to purchase 5,000 shares of
Common Stock, provided that the Company has achieved a net after-tax profit
for the immediately prior fiscal year then ended. The purchase price of the
Common Stock will be equal to the fair market value of the Common Stock on the
date of grant. The date of grant is the first business day in the month
following the end of the Company's most recently completed fiscal year. The
fair market value is an amount equal to 100% of the closing bid price of the
Common Stock on the over-the-counter market on the date of grant.
The options are granted for a term of up to five years and may be
exercised at any time after one year from the date of grant until the end of
the fifth year from the date of grant. Any optionee may pay the exercise
price by delivering shares of Common Stock with a value equal to the exercise
price. The Company has reserved 150,000 shares of its authorized but unissued
Common Stock for possible issuance pursuant to the plan.
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 April 1, 1997, the Company's three outside directors were granted
options to purchase 4,000 shares of Common Stock at $4.88 per share. The
Company's two inside directors each were granted options to purchase 4,000
shares of Common Stock at a price of $4.88 per share for Mr. Duke and at a
price of $5.36 per share for Mr. Schmieder.
Currently, all outside directors received cash compensation of $500 for
each Board of Directors meeting attended in person.
Incentive Stock Option Plans
The Company has adopted three incentive stock option plans, approved by
the shareholders of the Company in September 1984, October 1989 and November
1993, respectively, for the benefit of the Company's employees. The plans are
administered by the non-participating members of the Board of Directors, who
select the optionees and determine the terms and conditions of the stock
option grant. The exercise price for options granted under the plans cannot
be less than the fair market value of the stock at the date of grant or 110%
of such fair market value with respect to options granted to any optionee who
holds more than 10% of the Company's Common Stock. Options are not
exercisable until one year after the date of grant and expire five years after
the date of grant. All outstanding options are subject to vesting provisions
whereby they become exercisable over a four-year period. The plans authorize
options to purchase up to 200,000, 300,000 and 300,000 shares of Common Stock,
respectively.
As of March 31, 1998, options to purchase a total of 285,321 shares were
outstanding, at exercise prices ranging from $2.19 to $7.70 per share.
Further, as of March 31, 1998, options to purchase an aggregate of 109,604
shares remained available for grant under the latter two plans. The plan
adopted in September 1984 was terminated effective June 1, 1993. Options were
granted during the fiscal year ended March 31, 1998, pursuant to the Company's
incentive stock option plans, to each of the Company's executive officers.
Options to purchase 5,000 shares and 4,000 shares at $4.88 per share were
granted to Mr. Steven W. Peterson, Vice President-Finance and Mr. Paul Duke,
Vice President, respectively. Mr. Luke R. Schmieder, President, was granted
options to purchase 4,000 shares at $5.36 per share.
Retirement Plan
No retirement, pension or profit sharing program has been adopted by the
Company. The Company may offer stock bonuses, profit sharing or pension plans
to key employees or executive officers of the Company in such amounts and upon
such conditions as the Board of Directors may in its sole discretion
determine.
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, 1998, 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, 1998 except as set forth
below.
<TABLE>
<CAPTION>
Amount and
Nature of Percentage of
Name of Beneficial Beneficial Owner Class Benefi-
Owner(1) cially Owned
<S> <C> <C>
Luke R. Schmieder 466,017 (2) 10.8
Steven W. Peterson 68,156 (3) 1.6
Paul D. Duke 154,875 (4) 3.6
H. Stuart Campbell 59,000 (5) 1.4
Philip D. Quedenfeld 166,870 (6) 3.9
G. Lee Southard 82,000 (7) 1.9
All officers and 996,918 (8) 22.8
directors as a group
(6 in number)
__________
(1) The business address for each person identified herein is 12100 West
Sixth Avenue, Lakewood, Colorado 80228.
(2) Includes 13,000 shares which Mr. Schmieder has the right to acquire
within 60 days by exercise of stock options.
(3) Includes 17,750 shares which Mr. Peterson has the right to acquire
within 60 days by exercise of stock options.
(4) Includes 13,000 shares which Mr. Duke has the right to acquire within 60
days by exercise of stock options.
(5) Includes 13,000 shares which Mr. Campbell has the right to acquire
within 60 days by exercise of stock options.
(6) Includes 13,000 shares which Mr. Quedenfeld has the right to acquire
within 60 days by exercise of stock options.
(7) Includes 13,000 shares which Dr. Southard has the right to acquire
within 60 days by exercise of stock options.
(8) Includes 82,750 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.
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.
(23)(i) Consent of Ehrhardt Keefe Steiner & Hottman PC, independent
public accountants, to the incorporation by reference in the
Registration Statements on Form S-8 (file numbers 33-89808, 333-
02074 and 333-18161) of their report dated May 1, 1998, included
in the Registrant's Report on Form 10-KSB for the fiscal year
ended March 31, 1998.
(27) Financial Data Schedule
(b) Reports on Form 8-K. During the last quarter of the period
covered by this report, the Registrant did not file any Report on
Form 8-K.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MESA LABORATORIES, INC.
Registrant
Date: June 25, 1998 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. Schnieder President, Chief Executive Officer, 06/25/98
Luke R. Schmieder Treasurer and Director
/S/Steven W. Peterson Vice President, Finance, Chief Financial 06/25/98
Steven W. Peterson and Chief Accounting Officer and Secretary
/S/Paul D. Duke Vice President and Director 06/25/98
Paul D. Duke
/S/Philip D. Quedenfeld Director 06/25/98
Philip D. Quedenfeld
/S/H. Stuart Campbell Director 06/25/98
H. Stuart Campbell
EXHIBIT (23) (i)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Annual Report on Form 10-
KSB under the Securities Exchange Act of 1934 of Mesa Laboratories, Inc. for
the year ended March 31, 1998 of our reports dated May 13, 1998 and contained
in registration Statements NO. 33-89808, 333-02074 and 333-18161 of Mesa
Laboratories, Inc. on Form S-8 under the Securities Act of 1933 insofar as
such reports relate to the financial statements of Mesa Laboratories, Inc. for
the year ended March 31, 1998.
Ehrhardt Keefe Steiner & Hottman PC
June 25, 1998
Denver, Colorado
</TABLE>
