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, 1999
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:
$8,083,273.
State the aggregate market value of the voting and non-voting
equity held by non-affiliates of the Registrant: As of June 1,
1999: $15,437,045*.
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-4,035,183 shares as of March 31, 1999.
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 $5.00, the last sales price
of the Registrant's common stock as of June 1, 1999, 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 DATATRACEr 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 DATATRACEr and ELOGGr
recording systems which are used in various industrial
applications; NUSONICSr 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 data logging market; competition in the kidney dialysis
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 offers a humidity and
temperature version of its FRB Tracer product and a pressure and
temperature version of its FRB Tracer product.
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-
$50, and each patient requires approximately 156 dialyzers
annually if no reuse is employed. Although the Company has not
conducted a scientific market survey, it estimates that more than
80% of the hemodialysis patients being treated in centers are
involved with reuse programs.
The ECHO MM-1000 Dialyzer Reprocessor is a fully automated
dialyzer reuse machine for which the Company received permission
to market from the FDA in June 1982. It automatically cleans,
rinses, tests and delivers disinfectants to dialyzers after
dialysis therapy, thereby allowing the dialyzer cartridges to be
reused rather than disposed of after each use. It is designed to
accommodate virtually all manual reprocessing procedures in use
today and can be programmed to automate them without extensive
modification or rework. Manual procedures have been used to
reprocess dialyzers effectively for over 30 years and are the
basis of most automated systems in use today. Additionally, the
system can be programmed to use prescribed chemicals. The ECHO
System is totally self-contained, aside from water and chemicals,
and requires no user adjustments.
The Reuse Data Management (RDM) System
During fiscal 1999, the Company began marketing 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 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, 1999, approximately 61% of
sales have been domestic and 39% 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, 1999, 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 material 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, 1999, the Company had a total of 43 employees,
of which 41 were full-time employees. Currently, eight persons
are employed for marketing, four for research and development, 24
for manufacturing and quality assurance and seven for
administration.
Additional Information
For the fiscal years ended March 31, 1999 and 1998, Mesa
spent approximately $236,769 and $264,151, 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
aministrative 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.
<TABLE>
<CAPTION>
(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
<S> <C> <C>
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
Quarter Ended High Low
June 30, 1998 6 1/8 5 1/8
September 30, 1998 5 3/16 4 1/8
December 31, 1998 4 3/4 3 7/8
March 31, 1999 5 7/16 4 3/16
</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, 1999, 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, 1999, 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 1999 increased 2% from fiscal 1998. In
real dollars, net sales of $8,083,273 in fiscal 1999 increased
$161,324 from $7,921,949 in 1998. Net sales increase in fiscal
1999 was due to increases in sales of Medical and Datatrace
products of 7% which were mostly off-set by a 14% decrease in
Nusonics product sales. Net sales increased in fiscal 1998 by 2%
and was attributable to increases in Medical and Datatrace sales,
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 late in fiscal 1998 in order to improve its
ability to meet the technical demands of its concentration monitor
products. During fiscal 1999, sales of concentration analyzer
products improved by 25% while flow product sales continued to
decline. Showing a small improvement during the second half of
fiscal 1999, it is believed that the Company's flow products have
now reached a stable sales level.
Cost of Sales
Cost of sales as a percent of net sales in fiscal 1999
declined 0.6% from fiscal 1998 to 32.9%. During fiscal 1999,
Medical costs increased 0.2%, Datatrace costs decreased 0.1% and
Nusonics costs decreased 0.2% as a percent of sales. For fiscal
1998, the cost of Nusonics products decreased 1.5% and Medical
products decreased 2.7%, respectively, while Datatrace products
decreased 4.4% as a percent of sales. In fiscal 1999, costs
across all three product lines remained very stable trending down
in total just slightly from the previous year. 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.
Selling, General and Administrative
Selling expenses increased 6% from fiscal 1998 to fiscal
1999. In real dollars, selling expenses increased $80,363 to
$1,382,125 in fiscal 1999 from $1,301,762 in fiscal 1998. The
increase in selling expenses in fiscal 1999 was due to an increase
in Datatrace and Medical selling expenses which were partially
off-set by a decrease in Nusonics selling expenses. Selling
expenses also decreased from fiscal 1997 to fiscal 1998. This
decrease was due chiefly to a decline in Nusonics selling
expenses.
General and administrative expenses were $849,096 in fiscal
1999 and $801,603 in fiscal 1998, which represents a $47,493 or 6%
increase from fiscal 1998 to fiscal 1999. The increase in general
and administrative costs during fiscal 1999 was due to increased
compensation and communications costs. The fiscal 1998 increase
was due to increased compensation and business development costs.
Research and Development
Company sponsored research and development costs were
$236,769 in fiscal 1999 and $264,151 in fiscal 1998, which
represents a 10% decrease from year to year. The decrease in
research and development costs in fiscal 1999 were due chiefly to
decreased compensation costs while the increase in fiscal 1998 was
due to an increase in compensation costs. Currently, the Company
plans to dedicate more resources to the internal development of
new products beginning in fiscal 2000. For this reason, research
and development costs are expected to increase as a percent of
sales during the new fiscal year.
Net Income
Net income increased 2% to $2,103,428 or $.50 per share on a
diluted basis in fiscal 1999 from $2,052,314 or $.47 per share on
a diluted basis in fiscal 1998. During fiscal 1999, net income
increased at a rate equal to the increase in net sales. 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.
Liquidity and Capital Resources
On March 31, 1999, the Company had cash and short term
investments of $6,675,417. In addition, the Company had other
current assets totaling $3,610,760 and total current assets of
$10,286,177. Current liabilities of Mesa Laboratories, Inc. were
$655,527 which resulted in a current ratio of 16:1. For
comparison purposes at March 31, 1998, Mesa Laboratories, Inc. had
cash and short term investments of $5,407,167, other current
assets of $3,811,207, total current assets of $9,218,374, current
liabilities of $544,221 and a current ratio of 17:1.
Mesa Laboratories, Inc. has made net capital purchases of
$26,257 during the past fiscal year.
The Company has instituted a program to repurchase up to
400,000 shares of its outstanding common stock. Under the plan,
the shares may be purchased from time to time in the open market
at prevailing prices or in negotiated transactions off the market.
Shares purchased will be canceled and repurchases will be made
with existing cash reserves.
Year 2000
The year 2000 issue is the result of computer programs being
written using two digits rather than four digits to define the
applicable year. Some computer programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including a
temporary inability to process transactions, send invoices, or
engage in normal business and operating activities.
Most of the Company's systems are Year 2000 compliant. The
Company has a program in place to assess the remaining software
and systems and bring them into Year 2000 compliance in time to
minimize any significant detrimental effects on operations. The
program focuses on four main functional areas:
(i) Information technology which addresses data, phone and
administrative systems, including personal computers,
telecommunications, local area networks, and business
applications. These systems are computer devices and software
that the Company wrote or purchased. The software systems include
applications developed or purchased by corporate departments and
operated by departmental personnel. The computer devices are
desktop personal computers and server computer equipment including
system hardware, firmware, and installed commercial application
software.
(ii) Embedded chip technology which addresses manufacturing
systems, laboratory instruments and plant maintenance systems with
programmable logic controllers with date functions. The Process
Control Systems are used in the Company's manufacturing and
research and development processes, among other operations. These
generally are systems, devices and instruments which utilize date
functionality and generate, send, receive or manipulate date-
stamped data and signals. These systems may be found in data
acquisition/processing software, laboratory instrumentation, and
other equipment with embedded code.
(iii) Material suppliers and marketing partners which address
third parties that are critical to the Company's manufacturing
process and distribution of product. The Company has identified
critical providers of information, goods and services in order to
assess their Year 2000 compliance/readiness. The Company will
send letters to all critical suppliers and marketing partners.
The Company recognizes that to a certain degree it is relying on
information provided by such third parties regarding their Year
2000 compliance readiness. While the Company is attempting to
evaluate information provided by these third parties, there can be
no assurance that in all instances accurate information is being
provided. Failure of these third parties' systems to be Year 2000
compliant could have a material adverse effect on the Company's
financial position, results of operations and cash flows.
(iv) Products manufactured by the Company utilize
microprocessors that utilize date functions. Additionally, the
Company has developed software packages that are sold and utilized
with the Company's electronic hardware. These systems have been
tested extensively, and currently, the Company believes all of its
products are Year 2000 compliant.
The Company is using both internal and external resources to
identify, correct/reprogram, and test its computer systems,
equipment and software for Year 2000 compliance.
The Company estimates that the costs associated with the Year
2000 issue will not be material, and as such will not have a
significant impact on the Company's financial position or
operating results. However, the failure to correct a material Year
2000 problem could result in an interruption in certain normal
business activities or operations. Such failures could materially
and adversely affect the Company's results of operations,
liquidity and financial condition. The aggregate additional costs
of the Company's Year 2000 program cannot be known at this time.
However, given the current status of the validation phase the
additional costs are expected to be less than $25,000. The actual
additional costs will depend on numerous factors, including
without limitation, the costs of replacing, upgrading or repairing
systems, software and equipment, and consulting fees and expenses.
All costs are expected to be funded through operations.
The Company is also developing a contingency plan to address
a situation in which Year 2000 problems do cause an interruption
in normal business activities. Once developed, contingency plans
and related cost estimates will be continually refined, as
additional information becomes available. The Company expects to
have the contingency plan in place for critical operations by
September 30, 1999.
There can be no assurance that the Company will be able to
complete all of the modifications in the required time frame, that
unanticipated events will not occur or that the Company will be
able to identify all Year 2000 issues before problems arise.
Therefore, there can be no assurance that the Year 2000 issue will
not have a material adverse effect on the Company's financial
position, results of operations and cash flows.
The statements set forth herein concerning the Year 2000
problem which are not historical facts are forward-looking
statements that involve risk and uncertainties that could cause
actual results to differ materially from those in the forward-
looking statements. There can be no guarantee that any estimates
or other forward-looking statements will be achieved and actual
results could differ significantly from those planned or
contemplated. The Company plans to update the status of its Year
2000 program as necessary in its periodic filings and in
accordance with applicable securities laws.
ITEM 7. FINANCIAL STATEMENTS.
TABLE OF CONTENTS
Independent Auditors' Report
Financial Statements:
Balance Sheets
Statements of Income
Statements of Stockholders' Equity
Statements of Cash Flows
Notes to Financial Statements
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Mesa Laboratories, Inc.
Lakewood, Colorado
We have audited the accompanying balance sheets of Mesa
Laboratories, Inc. as of March 31, 1999 and 1998, 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 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, 1999 and 1998, 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
April 29, 1999
Denver, Colorado
<TABLE>
<CATION>
MESA LABORATORIES, INC.
BALANCE SHEETS
ASSETS March 31,
<S> 1999 1998
CURRENT ASSETS: <C> <C>
Cash and cash equivalents (Note 1) $ 6,675,417 $ 3,358,968
Marketable securities (Note 1) - 2,048,199
Accounts receivable (Note 1)-
trade, net of allowance for doubtful
accounts of $33,000 (1999) and
$33,000 (1998) 1,744,066 1,740,327
Other - 14,455
Inventories (Notes 1 and 2) 1,741,815 1,895,273
Prepaid expenses 33,879 76,152
Deferred income taxes (Note 4) 91,000 85,000
TOTAL CURRENT ASSETS 10,286,177 9,218,374
PROPERTY, PLANT AND EQUIPMENT, net of
accumulated depreciation of
$1,160,061 (1999) and
$1,057,085 (1998)
(Notes 1 and 3) 1,600,304 1,677,023
OTHER ASSETS (Note 1):
Intangible Assets, net of accumulated
amortization of $948,052 (1999) and
$815,156 (1998) 752,670 884,695
$12,639,151 $11,780,092
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
MESA LABORATORIES, INC.
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY March 31,
<S> 1999 1998
CURRENT LIABILITIES: <C> <C>
Accounts payable, trade $ 89,400 $ 65,015
Accrued salaries and payroll taxes 300,976 306,547
Accrued warranty expense (Note 1) 15,000 15,000
Other accrued liabilities 180,879 121,059
Taxes payable 69,272 36,600
TOTAL CURRENT LIABILITIES 655,527 544,221
LONG TERM LIABILITIES:
Deferred income taxes (Note 4) 78,000 75,000
COMMITMENTS
STOCKHOLDERS' EQUITY (Notes 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, 4,035,183 (1999) and
4,284,587 shares (1998) 2,894,900 3,352,009
Retained earnings 9,010,724 7,808,862
11,905,624 11,160,871
$12,639,151 $11,780,092
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
MESA LABORATORIES, INC.
STATEMENTS OF INCOME
Year Ended March 31,
1999 1998
<S> <C> <C>
SALES (Notes 1 and 7) $ 8,083,273 $ 7,921,949
COST OF SALES 2,660,217 2,652,414
GROSS PROFIT 5,423,056 5,269,535
OPERATING EXPENSES:
Selling 1,382,125 1,301,762
General and administrative 849,096 801,603
Research and development (Note 1) 236,769 264,151
TOTAL OPERATING EXPENSES 2,467,990 2,367,516
OPERATING INCOME 2,955,066 2,902,019
INTEREST INCOME, NET AND OTHER 271,362 231,046
EARNINGS BEFORE INCOME TAXES 3,226,428 3,133,065
INCOME TAXES (Note 4) 1,123,000 1,080,751
NET INCOME $ 2,103,428 $ 2,052,314
NET INCOME PER SHARE - BASIC $ .51 $ .48
NET INCOME PER SHARE - DILUTED $ .50 $ .47
AVERAGE COMMON SHARES OUTSTANDING -
BASIC 4,135,521 4,303,818
AVERAGE COMMON SHARES OUTSTANDING -
DILUTED 4,172,398 4,399,373
See notes to financial statements.
</TABLE>
<TABLE>
<CATION>
MESA LABORATORIES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
Common Stock Total
Number of Retained Stockholders'
Shares Amount Earnings Equity
<S> <C> <C> <C> <C>
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
Common stock issued for the
conversion of incentive
stock options net of
shares returned to Company
as payment 44,837 80,655 - 80,655
Purchase and retirement of
treasury stock
(Notes 5 and 6) (294,241) (537,764) (901,566)(1,439,330)
Net income for the year - - 2,103,428 2,103,428
BALANCE, March 31,
1999 4,035,183 $ 2,894,900 $ 9,010,724$11,905,624
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
MESA LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
Year Ended March 31,
<S> 1999 1998
Cash flows from operating activities: <C> <C>
Net income $ 2,103,428 $ 2,052,314
Depreciation and amortization 235,872 239,749
Provision for bad debts - 4,000
Provision for warranty reserve - (25,000)
Provision for inventory reserve 5,000 40,000
Deferred income taxes (3,000) 20,600
Change in assets and liabilities-
(Increase) decrease in accounts
receivable 10,716 (100,692)
(Increase) decrease in inventories 148,458 28,299
(Increase) decrease in prepaid expenses 42,273 (44,442)
Increase (decrease) in accounts payable,
trade 24,385 18,733
Increase (decrease) in accrued
liabilities 86,921 (24,985)
Net cash provided by operating activitie 2,654,053 2,208,576
Cash flows from investing activities:
(Increase) decrease in investments 2,048,199 (2,048,199)
(Capital expenditures) (26,257) (193,980)
(Increase) decrease in intangibles (871) (1,281)
(Increase) decrease in deposits and other
assets - (14,097)
Net cash (used) provided by investing
activities 2,021,071 (2,257,557)
Cash flow from financing activities:
Net proceeds from the issuance of common
stock 80,655 147,071
Common stock repurchases (1,439,330) (606,671)
Net cash (used)provided by financing
activities (1,358,675) (459,600)
Net increase (decrease) in cash and cash
equivalents 3,316,449 (508,581)
Cash and cash equivalents at
beginning of year 3,358,968 3,867,549
Cash and cash equivalents at
end of year $ 6,675,417 $ 3,358,968
Supplemental disclosures of cash flow
information:
Cash paid during the year for
income taxes $ 1,056,340 $ 1,116,000
See notes to financial statements.
</TABLE>
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.
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.
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 36,877 and
95,555 additional shares in 1999 and 1998, respectively.
MESA LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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 less than its carrying value. In that event, a loss is
recognized based on the amount by which the carrying value
exceeds the fair market value of the long-lived asset. Fair
market value is determined primarily using the anticipated cash
flows discounted at a rate commensurate with the risk involved.
Use of Estimates - The preparation of financial statements in
conformity with 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, 1999
and 1998 were $107,200 and $140,469, respectively.
Fair Value of Financial Instruments - The carrying amount of
financial instruments including cash and cash equivalents,
accounts receivable, accounts payable and accrued expenses
approximated fair value as of March 31, 1999 because of the
relatively short maturity of these instruments.
Recently Issued Accounting Pronouncements - In June of 1998,
the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS No. 133). SFAS No. 133 addresses the accounting
for derivative instruments embedded in other contracts and hedging
activities. SFAS No. 133 is effective for all fiscal quarters of
all fiscal years beginning after June 15, 1999. Initial
application of SFAS No. 133 shall be as of the beginning of an
entity's fiscal quarter, on that date, hedging relationships shall
be designated and documented under the provisions of this
statement. This statement currently has no impact on the financial
statements of the Company, as the Company does not hold any
derivative instruments or participate in any hedging activities.
MESA LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
2. Inventories:
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31,
1999 1998
<S> <C> <C>
Raw materials $ 1,430,632 $ 1,517,191
Work-in-process 215,665 191,427
Finished goods 175,518 261,655
Less reserve (80,000) (75,000)
$ 1,741,815 $ 1,895,273
</TABLE>
Work-in-process and finished goods include raw materials,
direct labor and manufacturing overhead at March 31, 1999 and
1998.
3. Property, Plant and Equipment:
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
March 31,
1999 1998
<S> <C> <C>
Land 148,104 $ 148,104
Building 1,229,591 1,224,904
Manufacturing equipment 1,132,673 1,124,186
Computer equipment 176,457 163,374
Furniture and fixtures 63,009 63,009
Truck 10,531 10,531
2,760,365 2,734,108
Less accumulated
depreciation (1,160,061) (1,057,085)
$ 1,600,304 $ 1,677,023
</TABLE>
4. Income Taxes:
The components of the provision for income taxes for the
years ended March 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
March 31,
1999 1998
<S> <C> <C>
Current tax provision:
Federal $ 974,000 $ 918,100
State 152,000 142,051
1,126,000 1,060,151
Deferred tax provision:
Federal (2,100) 18,000
State (900) 2,600
(3,000) 20,600
$ 1,123,000 $ 1,080,751
</TABLE>
MESA LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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, 1999 and 1998 are as
follows:
<TABLE>
<CAPTION>
March 31,
1999 1998
<S> <C> <C>
Depreciation and amortization $ (78,000) (75,000)
Accrued vacation 30,800 26,500
Bad debt expense 12,800 13,000
Obsolete inventory 32,000 29,000
Warranty reserve 5,000 6,000
Other 8,400 8,500
Deferred service cost 2,000 2,000
Net deferred asset $ 13,000 $ 10,000
</TABLE>
A reconciliation of the Company's income tax provision for
the years ended March 31, 1999 and 1998, and the amounts computed
by applying statutory rates to income before income taxes is as
follows:
<TABLE>
<CAPTION>
March 31,
1999 1998
<S> <C> <C>
Income taxes at statutory rates $ 1,033,200 $ 992,100
State income taxes,
net of federal benefit 145,800 144,651
Foreign sales corporation exemption (56,000) (56,000)
$ 1,123,000 $ 1,080,751
</TABLE>
5. Stock Repurchase:
The Company has announced a plan to repurchase up to 400,000
shares 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 cancelled 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.
MESA LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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. No future grants are to be made from
this 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.
MESA LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
The following is a summary of options granted under the
plans:
<TABLE>
<CAPTION>
FY 1998
WEIGHTED -
AVERAGE EXERCISE
SHARES GRANT PRICE PRICE
<S> <C> <C> <C> <C>
Options outstanding at
beginning of year 327,645 $2.19 - $7.70 $3.79
Options granted 77,600 $4.88 - $6.00 $4.93
Options cancelled (35,806) $2.63 - $7.00 $6.62
Options exercised (84,118) $2.19 - $4.38 $2.82
Options outstanding at
end of year 285,321 $2.19 - $7.70 $4.32
Options exercisable at
end of year 125,996 $2.25 - $7.70 $3.34
Shares available for
future option grants:
Employee ISO Plan 115,656 - -
Outside Director Plan 126,000 - -
FY 1999
WEIGHTED -
AVERAGE EXERCISE
SHARES GRANT PRICE PRICE
Options outstanding at
beginning of year 285,321 $2.19 - $7.70 $4.32
Options granted 74,700 $4.00 - $6.33 $5.07
Options cancelled (24,268) $2.75 - $7.00 $5.57
Options exercised (64,753) $2.19 - $2.75 $2.73
Options outstanding at
end of year 271,000 $2.25 - $7.70 $4.81
Options exercisable at
end of year 110,925 $2.25 - $7.70 $4.16
Shares available for
future option grants:
Employee ISO Plan 74,874 - -
Outside Director Plan 104,000 - -
</TABLE>
MESA LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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 1999 and
1998 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,
1999 1998
<S> <C> <C>
Net income - as reported $ 2,103,428 $ 2,052,314
Net income - pro forma $ 1,955,637 $ 1,877,289
Income per share - as reported $ .50 $ .47
Income per share - pro forma $ .47 $ .43
</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 approximately 30%; discount
rate of 5.5% (1999) and 8.5% (1998); 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,
1999 1998
<S> <C> <C>
Asia $ 714,468 $ 870,122
Europe 1,437,133 1,402,574
Other 1,005,574 1,049,452
$ 3,157,175 $ 3,322,148
</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> <S> <C>
Luke R. Schmieder 56 President, Chief Executive 1999
12100 West Sixth Avenue Officer, Treasurer and
Lakewood, Colorado Director
Steven W. Peterson 42 Vice President-Finance, 1999
12100 West Sixth Avenue Chief Financial and Chief
Lakewood, Colorado Accounting Officer and
Secretary
Paul D. Duke 57 Vice President 1999
12100 West Sixth Avenue and Director
Lakewood, Colorado
Philip D. Quedenfeld 68 Director 1999
12100 West Sixth Avenue
Lakewood, Colorado
H. Stuart Campbell 69 Director 1999
12100 West Sixth Avenue
Lakewood, Colorado
Michael T. Brooks 50 Director 1999
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.
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.
Michael T. Brooks, Director
Mr. Brooks received his Bachelor of Arts in History from Ohio
Wesleyan University in 1971. While pursuing a career in fluid
power, he received a Masters in Business from the University of
Denver in 1983. Mr. Brooks was an independent manufacturer's
representative from 1982 - 1985 at which time he purchased an
interest in Fiero Fluid Power which he presently owns and
operates. Fiero Fluid Power is a Rep/Distributor selling
pneumatic and instrumentation equipment. He has been a director
since October, 1998 and devotes such time as is necessary to the
affairs of the Company.
Based solely upon a review of Forms 3 and 4 and amendments
thereto furnished to the Company pursuant 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, 1999, March
31, 1998 and March 31, 1997. No other executive officer received
total annual salary and bonus for the fiscal year ended March 31,
1999 in excess of $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term
Compensation
Name and All
Principal Fiscal Options Other
Position Year Salary Bonus(1) Granted Compensation
<S> <C> <C> <C> <C> <C>
Luke R. Schmieder,
Chief Executive
Officer 1999 $96,061 $18,436 4,000 -
1998 $92,019 $19,367 4,000 -
1997 $88,775 $14,000 4,000 -
</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, 1999 to the Company's Chief Executive Officer.
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
Name Options Granted % of Total Exercise Price Expiration Date
Options Granted
in Fiscal Year
<S> <C> <C> <C> <C>
Luke R.
Schmieder 4,000 5% $6.33 March 31, 2003
</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. No future
grants will be made from this 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, 1998, the Company's three outside directors were
granted options to purchase 4,000 shares of common stock at $5.75
per share. The Company's two inside directors each were granted
options to purchase 4,000 shares of common stock at a price of
$5.75 per share for Mr. Duke and at a price of $6.33 per share for
Mr. Schmieder.
Currently, all outside directors receive cash compensation of
$500 for each Board of Directors meeting attended in person.
Incentive Stock Option Plans
The Company has adopted three incentive stock option plans,
approved by the shareholders of the Company in September 1984,
October 1989 and November 1993, respectively, for the benefit of
the Company's employees. The plans are administered by the non-
participating members of the Board of Directors, who select the
optionees and determine the terms and conditions of the stock
option grant. The exercise price for options granted under the
plans cannot be less than the fair market value of the stock at
the date of grant or 110% of such fair market value with respect
to options granted to any optionee who holds more than 10% of the
Company's common stock. Options are not exercisable until one
year after the date of grant and expire five years after the date
of grant. All outstanding options are subject to vesting
provisions whereby they become exercisable over a four-year
period. The plans authorize options to purchase up to 200,000,
300,000 and 300,000 shares of common stock, respectively.
As of March 31, 1999, options to purchase a total of 271,000
shares were outstanding, at exercise prices ranging from $2.25 to
$7.70 per share. Further, as of March 31, 1999, options to
purchase an aggregate of 77,074 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 4,000 shares at $5.75 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 $6.33 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, 1999, 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, 1999 except as set forth below.
<TABLE>
<CAPTION>
Amount and Percentage of
Name of Beneficial Nature of Class Benefi-
Owner(1) Beneficial Owner cially Owned
<S> <C> <C>
Luke R. Schmieder 446,017 (2) 11.0
Steven W. Peterson 69,450 (3) 1.7
Paul D. Duke 154,465 (4) 3.8
H. Stuart Campbell 62,000 (5) 1.5
Philip D. Quedenfeld 169,870 (6) 4.2
Michael T. Brooks 200 -
All officers and 902,002 (7) 22.0
directors as a group
(6 in number)
</TABLE>________
(1) The business address for each person identified herein is
12100 West Sixth Avenue, Lakewood, Colorado 80228.
(2) Includes 11,000 shares which Mr. Schmieder has the right to
acquire within 60 days by exercise of stock options.
(3) Includes 15,250 shares which Mr. Peterson has the right to
acquire within 60 days by exercise of stock options.
(4) Includes 11,000 shares which Mr. Duke has the right to
acquire within 60 days by exercise of stock options.
(5) Includes 11,000 shares which Mr. Campbell has the right to
acquire within 60 days by exercise of stock options.
(6) Includes 11,000 shares which Mr. Quedenfeld has the right to
acquire within 60 days by exercise of stock options.
(7) Includes 59,250 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 April 29, 1999,
included in the Registrant's Report on Form 10-KSB for the fiscal
year ended March 31, 1999.
(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 29, 1999 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 6/29/99
Luke R. Schmieder Treasurer and Director
/S/Steven W. Peterson Vice President, Finance, Chief 6/29/99
Steven W. Peterson Financial Officer and Chief
Accounting Officer and Secretary
/S/Paul D. Duke Vice President and Director 6/29/99
Paul D. Duke
/S/Philip D. Quedenfeld Director 6/29/99
Philip D. Quedenfeld
/S/H. Stuart Campbell Director 6/29/99
H. Stuart Campbell
/S/Michael T. Brooks Director 6/29/99
Michael T. Brooks
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, 1999 of our
reports dated April 29, 1999 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, 1999.
Ehrhardt Keefe Steiner & Hottman PC
June 29, 1999
Denver, Colorado
[ARTICLE] 5
<TABLE>
<S> <C> <C>
[PERIOD-TYPE] 12-MOS 12-MOS
[FISCAL-YEAR-END] MAR-31-1999 MAR-31-1998
[PERIOD-END] MAR-31-1999 MAR-31-1998
[CASH] 6,675,417 3,358,968
[SECURITIES] 0 2,048,199
[RECEIVABLES] 1,777,066 1,773,327
[ALLOWANCES] 33,000 33,000
[INVENTORY] 1,741,815 1,895,273
[CURRENT-ASSETS] 10,286,177 9,218,374
[PP&E] 2,760,365 2,734,108
[DEPRECIATION] 1,160,061 1,057,085
[TOTAL-ASSETS] 12,639,151 11,780,092
[CURRENT-LIABILITIES] 655,527 544,221
[BONDS] 0 0
[PREFERRED-MANDATORY] 0 0
[PREFERRED] 0 0
[COMMON] 2,894,900 3,352,009
[OTHER-SE] 9,010,724 7,808,862
[TOTAL-LIABILITY-AND-EQUITY] 11,905,624 11,160,871
[SALES] 8,083,273 7,921,949
[TOTAL-REVENUES] 8,083,273 7,921,949
[CGS] 2,660,217 2,652,414
[TOTAL-COSTS] 2,660,217 2,652,414
[OTHER-EXPENSES] 2,467,990 2,367,516
[LOSS-PROVISION] 0 0
[INTEREST-EXPENSE] 0 0
[INCOME-PRETAX] 3,226,428 3,133,065
[INCOME-TAX] 1,123,000 1,080,751
[INCOME-CONTINUING] 2,103,428 2,052,314
[DISCONTINUED] 0 0
[EXTRAORDINARY] 0 0
[CHANGES] 0 0
[NET-INCOME] 2,103,428 2,052,314
[EPS-BASIC] .51 .48
[EPS-DILUTED] .50 .47
</TABLE>
