form10ksb-033103
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, 2003
Commission File Number 0-11740
MESA LABORATORIES, INC.
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(Name of small business issuer in its charter)
Colorado 84-0872291
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
12100 West Sixth Avenue Lakewood, Colorado 80228
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (303) 987-8000
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, No Par Value
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
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Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $9,081,776.
State the aggregate market value of the voting and non-voting equity held by
non-affiliates of the Registrant: As of May 31, 2003: $17,362,657*.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: No Par Value Common Stock--3,077,407
shares as of May 31, 2003.
Documents incorporated by reference: none.
Transitional Small Business Disclosure Format: Yes ; No X .
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* The aggregate market value was determined by multiplying the number of
outstanding shares (excluding those shares held of record by officers,
directors and greater than five percent shareholders) by $6.95, the last
sales price of the Registrant's common stock as of May 31, 2003, such date
being within 60 days prior to the date of filing.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Introduction
Mesa Laboratories, Inc. (hereinafter referred to as the "Company" or
"Mesa") was incorporated as a Colorado corporation on March 26, 1982. The
Company designs, develops, acquires, manufactures and markets instruments and
systems utilized in connection with industrial applications and hemodialysis
therapy. In August 1984, the Company acquired Western Laboratories Corp., a
manufacturer and marketer of a line of instruments for use in calibrating
hemodialysis proportioning equipment. In June 1989, the Company acquired the
DATATRACE(R)product line of Ball Corporation. In February 1993, the Company
acquired the assets of NUSONICS, Inc., a manufacturer of ultrasonic flow meters
and analyzers. In December 1999, the Company acquired Automata Instrumentation,
Inc., a manufacturer and marketer of a line of instruments for use in
calibrating and verifying performance of hemodialysis equipment.
The Company presently markets the DATATRACE(R) and ELOGG(R) recording
systems which are used in various industrial applications;
NUSONICS(R)Concentration Analyzers, Pipeline Interface Detectors and Flow Meter
products which are used in various industrial applications; and two product
lines used in kidney dialysis [Dialysate Meters and the ECHO Reprocessing
Products]. The Company is also performing research and development to expand the
application of its technology.
All statements other than statements of historical fact included in this
annual report regarding the Company's financial position and operating and
strategic initiatives and addressing industry developments are forward-looking
statements. Where, in any forward-looking statement, the Company, or its
management, expresses an expectation or belief as to future results, such
expectation or belief is expressed in good faith and believed to have a
reasonable basis, but there can be no assurance that the statement of
expectation or belief will result or be achieved or accomplished. Factors which
could cause actual results to differ materially from those anticipated, include
but are not limited to general economic, financial and business conditions;
competition in the data logging market; competition in the kidney dialysis
market; competition in the fluid measurement market; the discontinuance of the
practice of dialyzer reuse; the business abilities and judgement of personnel;
the impacts of unusual items resulting from ongoing evaluations of business
strategies; and changes in business strategy.
Mesa's executive offices are located at 12100 West Sixth Avenue, Lakewood,
Colorado 80228, telephone (303) 987-8000.
Data Logging
The world market for temperature sensors, indicators and recorders is
currently estimated at over $2 billion and is projected to grow at an annual
rate of 4-6% over the next several years. The electronics-based thermal sensor
market to which DATATRACE(R)products belong currently exceeds $100 million.
The temperature and humidity recording markets are highly segmented.
DATATRACE(R)products have developed application niches within major industry
segments such as food processing, medical sterilization, pharmaceutical
processing, transportation, electronics, aerospace, storage facilities and
textile manufacturing. DATATRACE(R) products are used in any industry where
temperature, pressure or humidity is critical to the manufacturing process,
quality of the product or where product temperature, pressure or humidity
profiles are required in a continuous or moving process environment.
DATATRACE(R)Micropack Tracers, FRB Tracers and Flatpack Tracers
The Micropack Tracer utilizes the latest advances in microcircuitry, power
supply and sensor technologies. The instrument is computer based and can be
programmed by the user to take and store temperature, temperature and humidity
or temperature and pressure readings. A lithium battery is utilized so that the
device is completely self-contained and requires no external wires or cables.
The devices operate at temperatures from - 40(0)F to 680(0)F and provide both
high accuracy and reliability. Late in March 2002, the Company introduced its
Micropack III line of Tracers for temperature recording. The Micropack III
offers many new features including reduced size, optical data transfer, wider
temperature ranges and increased data points. Currently, the Micropack Tracers
for temperature are sold with various probe configurations in three temperature
ranges: LoTemp(R)which records temperatures from -40(0)F to 185(0)F; Standard
Temp(R), which records temperatures from 50(0)F to 302(0)F; and HiTemp(R), which
records temperatures from 212(0)F to 680(0)F. The Flatpack Tracer provides the
customer with a flat profile instrument in addition to the round Micropack
Tracer. The Flatpack Tracer is offered in the same temperature ranges and probe
configurations as the Micropack Tracer. Offering the same features but slightly
larger than the Micropack Tracer, the FRB Tracer provides users with the ability
to replace batteries at their facility, lowering operating cost and down time
for factory replacement of the battery. Utilizing the same electronics and FRB
Tracer packaging, the Company offers a humidity and temperature version of its
FRB Tracer product and a pressure and temperature version of its FRB Tracer
product.
The DATATRACE(R) Tracers can be placed completely inside a container or
process to provide true time and temperature or time, temperature and humidity,
or time, temperature and pressure profiles of manufacturing processes,
transportation systems and storage facilities. Optional probe configurations and
attachments allow the Tracers to be adapted to a wide variety of applications.
By eliminating the need for wires or cable connections, the Tracer greatly
reduces set up time while increasing measurement reliability.
DATATRACE(R)PC Interface
The DATATRACE(R)product line also includes PC Interface Modules and system
software for user programming of the Tracer instruments and data retrieval for
graphics software and displaying and analyzing results. Programming and
retrieval of data from the Tracer is achieved by placing the instrument in the
PC Interface Module which is linked to a personal computer. The system's
software is menu driven, allowing the operator to quickly and easily program
start time and date, sample intervals and run ID. Programming can be
accomplished within fifteen seconds by the operator. After a process run, data
is retrieved by returning the Tracer to the PC Interface Module and following
the menu instructions.
ELOGG(R)Dataloggers
The Company distributes the ELOGG(R)Datalogger product line in North
America. The ELOGG(R) line is similar in concept to the DATATRACE(R)line,
featuring different benefits to the end-user such as longer battery life,
extended memory and humidity logging in certain models. Unlike the
DATATRACE(R)products, the ELOGG(R)is a larger device which is not as
environmentally resistant and is ideally suited for long-term monitoring
applications, such as transportation and warehousing. The ELOGG(R)line also
features a PC Interface Module and software for user programming.
Sonic Fluid Measurement
The Company's sonic fluid measurement product line consists of two major
components: Sonic Flow Meters and Concentration Monitors. While the total market
for flow meters is very large, the NUSONICS(R) Sonic Flow Meters best serve
applications where cleanliness, resistance to corrosives or portability are
required. Specific applications where the NUSONICS(R)products are particularly
well suited include water treatment, chemical processing and heating,
ventilation and air conditioning (HVAC) applications.
The Concentration Monitor component of the product line consists of
Pipeline Interface Detectors and Concentration Analyzers. The Pipeline Interface
Detector serves a smaller market niche while the Concentration Analyzers serve a
wider variety of industry application, such as chemical, food, pharmaceutical
and polymerization processes.
NUSONICS(R)Sonic Flow Meters
The Sonic Flow Meter line is a range of products which are suited to
various fluid measurement applications. The Model CM800 Sonic Flow Meter is the
Company's main wetted transducer meter. With transducers that are mounted
through the pipe wall and in contact with the material flowing through the pipe,
it is the most accurate type of ultrasonic flow meter. The Model 90 Sonic Flow
Meter features strap-on transducers and is sold in portable and fixed process
versions. This product offers flexibility and portability for measuring flow and
is totally noninvasive, measuring flow rates through the pipe wall. The Company
offers flow measurement products directed toward the heating, ventilation and
air conditioning (HVAC) market. The Balance Master Meter is a hand-held portable
meter which quickly plugs into specialized flow stations with window seal ports.
This meter allows the plant engineer to quickly read and adjust flow within a
building. The CM800 Flow Meter utilizes the same window seal flow stations as
the Balance Master to provide continuous flow monitoring for use in energy
management systems. In addition, the Company markets doppler flow meters in both
permanent and strap-on transducer models. Unlike the transit-time technology
that the Company's other flow products utilize to measure clean fluids with
dissolved solids, the doppler technology is utilized when the fluids to be
measured contain either suspended solids or entrained gases. Over the past five
years, the ultrasonic flow meter market has shifted preference to strap-on
transducer flow meters and has become highly price competitive. While the
Company continues to sell its flow meters for certain applications, demand for
this product line has contracted and the contribution of this product line has
declined to less than 5% of total revenues in fiscal 2003.
NUSONICS(R)Sonic Concentration Analyzers
Liquid composition can be determined by measuring sound velocity. Since the
sound velocity of any liquid is unique, the relationship between sound velocity,
liquid composition and temperature is different for every liquid. Once the
relationship is known, sound velocity can be used to monitor changes in liquid
composition, often with much greater precision than can be realized with other
measuring devices.
Composition Analyzers are marketed to various industrial users and are
currently used to monitor more than 250 different materials. On a real time
basis, the analyzer will monitor the composition of materials for process
control of blending operations or for tracking the progress of polymerization
processes. The CP20 Analyzer is the Company's newest analyzer product.
Incorporating state-of-the-art electronic design and a new transducer design,
this product offers advanced features, smaller size, reduced manufacturing cost
and simpler installation. In addition, the Company also offers its Model 86 and
Model 87 (a laboratory model) Composition Meters.
Based on the same technology as the Composition Analyzers, the Company also
markets Pipeline Interface Detectors to the petroleum pipeline industry. This
instrument is used to monitor the interface of similar materials in a pipeline,
such as different grades of unleaded fuel. By detecting these interfaces, the
pipeline operator can accurately perform switching operations within the
pipeline system.
Kidney Hemodialysis Treatment
Patients with kidney failure (known as end stage renal disease, or ESRD)
require the removal of toxic waste products and excess water through artificial
means. This process is generally performed three times per week and is most
often accomplished through the use of hemodialysis.
Hemodialysis requires the treatment to be conducted on a dialysis machine
through the use of a disposable cartridge known as a dialyzer. Blood is brought
extracorporally to the dialysis machine for control and monitoring and passes
through the dialyzer where waste products and excess water are removed. This
treatment generally lasts three to four hours and is conducted three times per
week. These hemodialysis procedures are performed in kidney dialysis centers,
hospitals and in the home. The bulk of the treatments are conducted in over
3,500 clinics and hospital centers. Currently, there are over 275,000 patients
in the U.S. undergoing dialysis therapy.
In addition to the reimbursement policies of the United States Government
and state agencies, the Company's revenues from its dialysis products can be
expected to be dependent upon the policies of insurance companies and kidney
foundations.
Dialysate Meters
Mesa's Dialysate Meters are instruments that are used to test various
parameters of the dialysis fluid (dialysate). Each measures some combination of
temperature, pressure, pH and conductivity to ensure that the dialysate has the
proper constituency to promote the transfer of waste products from the blood to
the dialysate. The meters are used to check the conductivity and other variables
of the dialysate before the dialysis process begins. The meters provide a
digital readout that the patient, physician or technician uses to verify that
the dialysis unit is working within prescribed limits.
The Company's Western Meter product, Model 90DX, measures conductivity,
temperature, pressure and pH. Model 90DX is microprocessor-based and features
improved accuracy and user convenience and field calibration capabilities.
In December 1999, the Company acquired Automata Instrumentation, Inc. and
its line of Dialysate Meters. This line features the NEO-2, Phoenix, Neo-Stat +
and Hydra meters. The NEO-2 Meter, introduced in October 1999, is a next
generation meter that replaces the Company's NEO-1 Meter and measures
conductivity, pressure, temperature and pH. The remaining meters are smaller
sample meters utilizing a patented, simple and unique syringe sampling system.
With its ease of operation and lower cost, this group of meters is usually
utilized by the patient care staff of hemodialysis facilities.
The ECHO MM-1000 Dialyzer Reprocessor
Dialyzer reuse is a procedure in which a patient's dialyzer is cleaned,
performance tested and disinfected before it is reused by the same patient. The
approximate cost of the dialyzer is $10-$40, and each patient requires
approximately 156 dialyzers annually if no reuse is employed.
The ECHO MM-1000 Dialyzer Reprocessor is a fully automated dialyzer reuse
machine for which the Company received permission to market from the FDA in June
1982. It automatically cleans, rinses, tests and delivers disinfectants to
dialyzers after dialysis therapy, thereby allowing the dialyzer cartridges to be
reused rather than disposed of after each use. It is designed to accommodate
virtually all manual reprocessing procedures in use today and can be programmed
to automate them without extensive modification or rework. Manual procedures
have been used to reprocess dialyzers effectively for over 30 years and are the
basis of most automated systems in use today. Additionally, the system can be
programmed to use prescribed chemicals. The ECHO System is totally
self-contained, aside from water and chemicals, and requires no user
adjustments.
The Reuse Data Management (RDM) System
The Company markets its Reuse Data Management (RDM) System. The system
consists of a custom database management software package, computer system,
barcode scanner and label printer. The RDM System is stand alone, and is capable
of operating with any reuse method whether automated or manual. Utilizing
barcode technology, the RDM System automates much of the data entry involved in
the record keeping process of managing reuse, and will provide record keeping
and reporting to satisfy both patient management and regulatory requirements.
Manufacturing
The Company assembles its manufactured products at its facility in
Lakewood, Colorado. The Company's manufacturing consists primarily of assembling
and testing materials and component parts purchased from others.
Most of the materials and components used in the Company's product lines
are available from a number of different suppliers. Mesa generally maintains
multiple sources of supplies for most items but is dependent on a single source
for certain items. Mesa believes that alternative sources could be developed, if
required, for present single supply sources. Although the Company's dependence
on these single supply sources may involve a degree of risk, to date, Mesa has
been able to acquire sufficient stock to meet its production schedules.
Marketing and Distribution
The Company's domestic sales of its dialysis products are generated by its
in-house marketing staff while the Company maintains an organization of
independent manufacturers' representatives to distribute its DATATRACE(R)and
ELOGG(R)product lines. For its NUSONICS(R) product lines, a separate
organization of manufacturers' representatives is maintained. International
sales are conducted through over 50 distributors. During the fiscal year ended
March 31, 2003, approximately 65% of sales have been domestic and 35% have been
international to countries throughout Europe, Africa, Australia, Asia and South
America, as well as Canada and Mexico.
Sales promotions include attendance by Mesa representatives at conventions,
the continuation of direct mail campaigns and trade journal advertising in
industry related publications.
Customers of Mesa's dialysis products primarily include dialysis centers
and dialysis equipment manufacturers. The primary emphasis of the Company's
marketing effort is to offer quality products to the healthcare market which
will aid in cost containment and improved patient well-being.
DATATRACE(R)and ELOGG(R)customers include numerous industrial users who
utilize the products within a variety of manufacturing, transportation and
storage applications. The emphasis of the Company's marketing effort is to offer
a quality product that provides a unique and flexible solution to monitoring
temperature, pressure or humidity without interfering with the processing,
transportation or storage of the product.
NUSONICS(R)customers include various industries such as water treatment,
manufacturing, HVAC and petroleum product transportation. The Company's
marketing efforts are focused on offering flow measurement and concentration
monitoring in difficult environments where noninvasive monitoring techniques are
required.
During the fiscal year ended March 31, 2003, one customer represented
approximately 11% of the Company's revenues and approximately 6% of the
Company's accounts receivable balance. During the fiscal year ended March 31,
2002 two customers represented approximately 12% and 11% of the Company's
revenues, respectively. At March 31, 2002, these customers represented
approximately 28% and 8% of the Company's account receivable balances.
Competition
Mesa competes with major medical and instrumentation companies as well as a
number of smaller companies, many of which are well established, with
substantially greater capital resources and larger research and development
facilities. Furthermore, many of these companies have an established product
line and a significant operating history. Accordingly, the Company may be at a
competitive disadvantage due to such factors as its limited resources and
limited marketing and distribution network.
Companies with which Mesa's medical products compete include Cantel Medical
Corporation. Companies with which Mesa's DATATRACE(R) and
ELOGG(R)instrumentation products compete include GE Kaye, Ellab and Orion.
Companies with which Mesa's NUSONICS(R)products compete include Controlotron,
Badger Meter, Rosemount, and GE Panametrics.
In the area of dialyzer reuse, management believes that the availability of
an automated reprocessing system which consistently cleans, rinses and
disinfects dialyzers, as well as tests them for physical performance and leaks,
can dramatically alter the reuse patterns. Mesa believes that it is the largest
supplier of meters used to calibrate hemodialysis equipment, although it has not
conducted independent market surveys. The DATATRACE(R)and ELOGG(R) products
offer unique solutions to monitoring temperature or humidity and temperature or
pressure and temperature through a continuous process or long-term
transportation and warehousing applications. Although there are other solutions
to temperature, humidity and pressure monitoring available, the
DATATRACE(R)products offer a miniaturized, self-contained, environmentally
resistant, wireless solution. NUSONICS(R)products offer solutions to monitoring
of clean fluids as well as highly corrosive materials, which are either
noninvasive or do not disturb the flow of the product through the pipe.
NUSONICS(R)products also offer a unique solution to monitoring variations in a
fluid's concentration as the fluid passes through a pipeline into or out of a
process.
Government Regulation
Medical devices marketed by Mesa are subject to the provisions of the
Federal Food, Drug and Cosmetic Act, as amended by the Medical Device Amendments
of 1976 (hereinafter referred to as the "Act"). A medical device which was not
marketed prior to May 28, 1976, or is not substantially equivalent to a device
marketed prior to that date, may not be marketed until certain data is filed
with the FDA and the FDA has affirmatively determined that such data justifies
marketing under conditions specified by the FDA. A medical device is defined by
the Act as an instrument which (1) is intended for use in the diagnosis or the
treatment of disease, or is intended to affect the structure of any function of
the human body; (2) does not achieve its intended purpose through chemical
action; and (3) is not dependent upon being metabolized for the achievement of
its principal intended purpose. The Act requires any company proposing to market
a medical device to notify the FDA of its intention at least ninety days before
doing so, and in such notification must advise the FDA as to whether the device
is substantially equivalent to a device marketed prior to May 28, 1976. As of
the date hereof, the Company has received permission from the FDA to market all
of its medical products.
Mesa's medical products are subject to FDA regulations and inspections,
which may be time-consuming and costly. This includes on-going compliance with
the FDA's current Good Manufacturing Practices regulations which require, among
other things, the systematic control of manufacture, packaging and storage of
products intended for human use. Failure to comply with these practices renders
the product adulterated and could subject the Company to an interruption of
manufacture and sale of its medical products and possible regulatory action by
the FDA.
The manufacture and sale of medical devices is also regulated by some
states. Although there is substantial overlap between state regulations and the
regulations of the FDA, some state laws may apply. Mesa, however, does not
anticipate that complying with state regulations will create any significant
problems. Foreign countries also have laws regulating medical devices sold in
those countries, which may cause us to expend additional resources on
compliance.
Employees
At March 31, 2003, the Company had a total of 47 employees, of which 46
were full-time employees. Currently, nine persons are employed for marketing,
three for research and development, 28 for manufacturing and quality assurance
and seven for administration.
Additional Information
For the fiscal years ended March 31, 2003 and 2002, Mesa spent $259,966 and
$289,939, respectively, on Company-sponsored research and development
activities.
Compliance with federal, state and local provisions which have been enacted
regarding the discharge of materials into the environment or otherwise relating
to the protection of the environment has not had, and is not expected to have,
any adverse effect upon capital expenditures, earnings or the competitive
position of the Company. Mesa is not presently a party to any litigation or
administrative proceedings with respect to its compliance with such
environmental standards. In addition, the Company does not anticipate being
required to expend any significant capital funds in the near future for
environmental protection in connection with its operations.
The Company has been issued patents for its DATATRACE(R) temperature
recording devices, its NUSONICS(R)sonic flow measurement and sonic concentration
monitoring products and its Automata dialysis meters. Failure to obtain patent
protection on the Company's remaining products may have a substantially adverse
effect upon the Company since there can be no assurance that other companies
will not develop functionally similar products, placing the Company at a
competitive disadvantage. Further, there can be no assurance that patent
protection will afford protection against competitors with similar inventions,
nor can there be any assurance that the patents will not be infringed or
designed around by others. Moreover, it may be costly to pursue and to prosecute
patent infringement actions against others, and such actions could interfere
with the business of the Company.
ITEM 2. DESCRIPTION OF PROPERTY.
Mesa owns its 39,616 square foot facility at 12100 W. 6th Avenue, Lakewood,
Colorado 80228. All manufacturing, warehouse, marketing, research and
administrative functions are based at this location. The facility is
approximately 80% utilized and the Company currently utilizes only one shift.
The Company does not invest in, and has not adopted any policy with respect
to investments in, real estate or interests in real estate, real estate
mortgages or securities of or interests in persons primarily engaged in real
estate activities. It is not the Company's policy to acquire assets primarily
for possible capital gain or primarily for income.
ITEM 3. LEGAL PROCEEDINGS.
No material legal proceedings to which the Company is a party or to which
any of its property is the subject are pending, and no such proceedings are
known by the Company to be contemplated. The Company is not presently a party to
any litigation or administrative proceedings with respect to its compliance with
federal, state and local provisions which have been enacted regarding the
discharge of materials into the environment or otherwise relating to the
protection of the environment and no such proceedings are known by the Company
to be contemplated. No legal actions are contemplated nor judgments entered
against any officer or director of the Company concerning any matter involving
the business of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders through the solicitation of
proxies or otherwise.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) Mesa's common stock is traded on the Nasdaq National Market under the
symbol "MLAB". For the last two fiscal years, the high and low last sales
prices of the Company's common stock as reported to the Company by the
National Association of Securities Dealers, Inc. were as follows:
Quarter Ended High Low
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June 30, 2001 5.15 4.80
September 30, 2001 4.80 4.20
December 31, 2001 6.22 4.66
March 31, 2002 7.70 6.01
Quarter Ended High Low
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June 30, 2002 7.75 5.50
September 30, 2002 6.45 5.46
December 31, 2002 6.62 5.90
March 31, 2003 7.03 6.06
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, 2003, there were approximately 1,000 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, 2003, the Company did not sell any
equity securities that were not registered under the Securities Act of
1933, as amended.
For information regarding securities authorized for issuance under our
equity compensation plans, please see Footnote 7 to the Financial Statements.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Critical Accounting Policies and Estimates
The preparation of our financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the amounts reported in
our financial statements and accompanying notes. Actual results could differ
materially from those estimates.
We believe that there are several accounting policies that are critical to
understanding the Company's historical and future performance, as these policies
affect the reported amounts of revenue and the more significant areas involving
management's judgments and estimates. These significant accounting policies
relate to revenue recognition, research and development costs, valuation of
inventory, and valuation of long-lived assets. These policies, and the Company's
procedures related to these policies, are described in detail below.
Revenue Recognition
We sell our products directly through our sales force and through
distributors. Revenue from direct sales of our product is recognized upon
shipment to the customer. Revenue from ongoing product service and repair is
fully recognized upon completion and shipment of serviced product.
Research & Development Costs
Research and development activities consist primarily of new product
development and continuing engineering on existing products. Costs related to
research and development efforts on existing or potential products are expensed
as incurred.
Valuation of inventories
Inventories are stated at the lower of cost or market, using the first-in,
first-out method (FIFO) to determine cost. The Company's policy is to
periodically evaluate the market value of the inventory and the stage of product
life cycle, and record a reserve for any inventory considered slow moving or
obsolete. As of March 31, 2003 and 2002 the Company had recorded a reserve of
$110,000 and $50,000, respectively, against slow moving inventory.
Valuation of Long-Lived Assets
The Company assesses the realizable value of long-lived assets and goodwill
for potential impairment at least annually or when events and circumstances
warrant such a review. The carrying value of a long-lived asset is considered
impaired when the anticipated fair value is less than its carrying value. In
assessing the recoverability of our long-lived assets and goodwill, we must make
assumptions regarding estimated future cash flows and other factors to determine
the fair value of the respective assets. In addition, we must make assumptions
regarding the useful lives of these assets. As of March 31, 2003, we evaluated
our long-lived assets for potential impairment. Based on our evaluation, no
impairment charge was recognized.
The above listing is not intended to be a comprehensive list of all of our
accounting policies. In many cases, the accounting treatment of a particular
transaction is specifically dictated by generally accepted accounting
principles, with no need for management's judgment in their application. There
are also areas in which management's judgment in selecting any viable
alternative would not produce a materially different result. See our audited
financial statements and notes thereto which begin at "Item 7. Financial
Statements" of this Annual Report on Form 10-KSB which contain accounting
policies and other disclosures required by generally accepted accounting
principles.
Results of Operations
Fiscal Year 2003 Compared to Fiscal Year 2002
Net Sales
Net sales for fiscal 2003 increased less than one percent from fiscal 2002.
In real dollars, net sales of $9,081,776 in fiscal 2003 increased $37,932 from
$9,043,844 in 2002.
During fiscal 2003, revenues for the Datatrace brand of products performed
exceptionally well increasing 28 percent The new Micropack III temperature
loggers were extremely successful during their first year in the marketplace,
and propelled the temperature logging products to an increase of 40 percent for
the fiscal year. Humidity logging instruments also produced a sharp increase for
the fiscal year improving more than 140 percent. Datatrace products were further
helped during the year by a decline in the value of the US dollar compared to
the EURO which is helping these products realize sales gains in the European
market.
During fiscal 2003 the company's medical products declined 16 percent for
the fiscal year. The major share of this decrease was due to a decline in Echo
Dialyzer Reprocessor sales, which had increased dramatically in the prior year
due to a large order from a single customer that was not repeated in the current
fiscal year. Also, the expanded use of single use dialyzers in the U.S. market
has reduced Reprocessor demand. Sales of the hand-held meter portion of the
medical products line decreased by 11 percent in the most recent fiscal year.
This has come after several years of strong growth in previous fiscal years.
Currently, research and development efforts are just beginning to further
enhance our line of hand-held dialysate meters.
Cost of Sales
Cost of sales as a percent of net sales in fiscal 2003 decreased 3.0% from
fiscal 2002 to 37.4%. The main factor that impacted this decrease during fiscal
2003 was an increase in Datatrace logging device sales as a percent of total
sales. The Company's logging instruments tend to have a higher gross margin over
the other instruments which the Company produces and sells. This improvement in
sales mix was partially off-set by an increase in Datatrace export sales, which
are sold at a discount to the company's international distributors and produce a
lower gross margin.
Selling, General and Administrative
Selling costs in 2003 increased 9% from fiscal 2002. In dollars, selling
costs increased $109,550 to $1,334,385 in fiscal 2003 from $1,224,835 in fiscal
2002. The increase in selling expense during fiscal 2003 was due chiefly to
increased selling and marketing cost for Datatrace products. In addition to
increases in variable costs such as commissions, bonuses and travel, more
discretionary expenses such as advertising and demonstration equipment costs
were increased during the year to support the introduction of the Company's new
Micropack III products. Selling costs for medical products decreased due chiefly
to lower compensation costs, which were partially off-set by higher training
costs. Selling expenses for the Nusonics brand of products also decreased during
fiscal 2003 due to the reallocation of personnel resources to other areas of the
Company.
General and administrative expenses were $903,710 in fiscal 2003 and
$934,536 in fiscal 2002, which represents a $30,826 or three percent decrease
from fiscal 2002 to fiscal 2003. During fiscal 2003, lower costs for business
development activities were partially off-set by higher compensation costs.
Research and Development
Company sponsored research and development cost was $259,966 in fiscal 2003
and $289,939 in fiscal 2002, which represents a 10% decrease from year to year.
During fiscal 2003, consulting expenses dropped significantly and was partially
off-set by substantially higher material and supply expenses as work during the
year focused more on hardware development and software development projects were
completed. Besides completing the Micropack III product for temperature, work
continued for other transducers to offer in the Micropack III package to measure
additional parameters.
Net Income
Net income increased to a record $2,126,879 or $.64 per share on a diluted
basis in fiscal 2003 from $2,030,947 or $.59 per share on a diluted basis in
fiscal 2002. The increase in net income during fiscal 2003 was partially due to
the changes in product mix highlighted in the Cost of Sales section of this
report. Additionally, higher sales and lower administration and research and
development expenses helped to increase income. During the fiscal year, the
Company repurchased 266,169 shares of our common stock. This program has
continued into the new fiscal year, and depending on market conditions, is
expected to continue throughout fiscal 2004. The stock repurchase program
reduced outstanding common shares and allowed diluted earnings per share to grow
at a faster rate than net income. While net income grew at a faster rate than
net sales for the fiscal year, this growth was restrained by an increase in the
net income tax rate compared to last year. This increase in the income tax rate
was due chiefly to a change in the tax code which reduced the benefit of export
sales.
Fiscal Year 2002 Compared to Fiscal Year 2001
Net Sales
Net sales for fiscal 2002 decreased less than one percent from fiscal 2001.
In real dollars, net sales of $9,043,844 in fiscal 2002 decreased $56,119 from
$9,099,963 in 2001. Net sales decreased in fiscal 2002 due to lower Datatrace
sales, which were mostly off-set by higher medical product sales. A weak economy
in the United States, the tragedies that occurred in September, 2001 and a
strong US dollar in comparison to key foreign currencies all had a negative
impact on Datatrace product sales in fiscal 2002. Overall, medical product sales
were stronger during fiscal 2002. Medical sales were helped by a key sale during
the year into the South American market, which resulted in over $800,000 of
sales of Dialysate Meters and ECHO Reprocessors.
Cost of Sales
Cost of sales as a percent of net sales in fiscal 2002 increased one
percent from fiscal 2001 to 40.4%. During fiscal 2002 medical product sales
continued to grow as a percentage of the overall sales mix. Gross margins for
the medical products tend to be lower than the Datatrace products, which led to
a small increase in cost of goods as a percentage of sales during the year.
Selling, General and Administrative
Selling costs increased 7% from fiscal 2001 to fiscal 2002. In real
dollars, selling expenses increased $80,445 to $1,224,835 in fiscal 2002 from
$1,144,390 in fiscal 2001. The increase in selling expenses in fiscal 2002 was
due to increases in Medical and Datatrace selling expenses which were partially
off-set by a decrease in Nusonics expenses. The increases in Datatrace selling
expenses were due chiefly to increased compensation costs during the year.
General and administrative expenses were $934,536 in fiscal 2002 and
$1,252,812 in fiscal 2001, which represents a $318,276 or 25% decrease from
fiscal 2001 to fiscal 2002. Decreased costs in fiscal 2002 were due to the
elimination of goodwill amortization in accordance with new accounting standards
implemented during the year. This elimination of expense was partially off-set
by increased consulting and business development costs.
Research and Development
Company sponsored research and development cost $289,939 in fiscal 2002 and
$308,166 in fiscal 2001, which represents a 6% decrease from year to year. The
decrease in fiscal 2002 was due to lower compensation and material costs for the
year due to a decrease in permanent staff during the year. This decrease in
compensation costs was partially off-set by increased consulting expense as
specialized portions of projects were outsourced.
Net Income
Net income increased to $2,030,947 or $.59 per share on a diluted basis in
fiscal 2002 from $1,832,268 or $.49 per share on a diluted basis in fiscal 2001.
Fiscal 2002 profits increased 11% from 2001 levels, due chiefly to the
elimination of amortization expense during the year. Diluted per share profits
grew 20% from year to year due to the higher net income and lower average shares
outstanding. The lower shares outstanding were due to the Company's continuing
share buy back program. The elimination of amortization also lowered the
Company's net income tax rate for the fiscal year, due to the fact that most of
these expenses were not tax deductible.
Liquidity and Capital Resources
On March 31, 2003, the Company had cash and short term investments of
$4,761,102. In addition, the Company had other current assets totaling
$4,842,556 and total current assets of $9,603,658. Current liabilities of Mesa
Laboratories, Inc. were $586,706 which resulted in a current ratio of 16:1. For
comparison purposes at March 31, 2002, Mesa had cash and short term investments
of $3,461,978, other current assets of $5,137,405, total current assets of
$8,599,383, current liabilities of $500,705 and a current ratio of 17:1.
Mesa has made capital acquisitions of $64,933 during fiscal 2003 and
$41,824 during fiscal 2002. The Company has instituted a program to repurchase
up to 500,000 shares of its outstanding common stock. Under the plan, the shares
may be purchased from time to time in the open market at prevailing prices or in
negotiated transactions off the market. Shares purchased will be canceled and
repurchases will be made with existing cash reserves.
Forward Looking Statements
All statements other than statements of historical fact included in this
annual report regarding the Company's financial position and operating and
strategic initiatives and addressing industry developments are forward-looking
statements. Where, in any forward-looking statement, the Company, or its
management, expresses an expectation or belief as to future results, such
expectation or belief is expressed in good faith and believed to have a
reasonable basis, but there can be no assurance that the statement of
expectation or belief will result or be achieved or accomplished. Factors which
could cause actual results to differ materially from those anticipated, include
but are not limited to general economic, financial and business conditions;
competition in the data logging market; competition in the kidney dialysis
market; competition in the fluid measurement market; the discontinuance of the
practice of dialyzer reuse; the business abilities and judgement of personnel;
the impacts of unusual items resulting from ongoing evaluations of business
strategies; and changes in business strategy. We do not intend to update these
forward looking statements. You are advised to review the "Additional Cautionary
Statements" section below for more information about risks that could affect the
financial results of Mesa Laboratories, Inc.
Additional Cautionary Statements
We Face Intense Competition
The markets for some of our current and potential products are intensely
competitive. We face competition from companies that possess both larger sales
forces and possess more capital resources. In addition, there are growing
numbers of competitor for certain of our products.
Our Growth Depends on Introducing New Products and the Efforts of Third Party
Distributors
Our growth depends on the acceptance of our products in the marketplace,
the penetration achieved by the companies which we sell to, and rely on, to
distribute and represent our products, and our ability to introduce new and
innovative products that meet the needs of the various markets we serve. There
can be no assurance that we will be able to continue to introduce new and
innovative products or that the products we introduce, or have introduced, will
be widely accepted by the marketplace, or that the companies which we contract
with to distribute and represent our products will continue to successfully
penetrate our various markets. Our failure to continue to introduce new products
or gain wide spread acceptance of our products would adversely affect our
operations.
We Depend on Attracting New Distributors and Representatives for Our Products
In order to successfully commercialize our products in new markets, we will
need to enter into distribution arrangements with companies that can
successfully distribute and represent our products into various markets.
Our Products are Extensively Regulated Which Could Delay Product Introduction or
Halt Sales
The process of obtaining and maintaining required regulatory approvals is
lengthy, expensive and uncertain. Although we have not experienced any
substantial regulatory delays to date, there is no assurance that delays will
not occur in the future, which could have a significant adverse effect on our
ability to introduce new products on a timely basis. Regulatory agencies
periodically inspect our manufacturing facilities to ascertain compliance with
"good manufacturing practices" and can subject approved products to additional
testing and surveillance programs. Failure to comply with applicable regulatory
requirements can, among other things, result in fines, suspensions of regulatory
approvals, product recalls, operating restrictions and criminal penalties. While
we believe that we are currently in compliance, if we fail to comply with
regulatory requirements, it could have an adverse effect on our results of
operations and financial condition.
We May be Unable to Effectively Protect Our Intellectual Property
Our ability to compete effectively depends in part on developing and
maintaining the proprietary aspects of our technology and processes. We cannot
assure you that the patents we have obtained, or any patents we may obtain, will
provide any competitive advantages for our products. We also cannot assure you
that those patents will not be successfully challenged, invalidated or
circumvented in the future. In addition, we cannot assure you that competitors,
many of which have substantial resources and have made substantial investments
in competing technologies, have not already applied for or obtained, or will not
seek to apply for or obtain, patents that will prevent, limit or interfere with
our ability to make, use and sell our products either in the United States or in
international markets. Patent applications are maintained in secrecy for a
period after filing. We may not be aware of all of the patents and patent
applications potentially adverse to our interests.
We May Have Product Liability Claims
Our products involve a risk of product liability claims. Although we
maintain product liability insurance at coverage levels which we believe are
adequate, there is no assurance that, if we were to incur substantial liability
for product liability claims, insurance would provide adequate coverage against
such liability.
Our Operating Results May Fluctuate
Our results of operations may fluctuate significantly from quarter to
quarter based on numerous factors including the following:
* the introduction of new products;
* the level of market acceptance of our products;
* achievement of research and development milestones;
* timing of the receipt of orders from, and product shipment to major
customers;
* timing of expenditures;
* delays in educating and training our distributors' and
representatives' sales forces;
* manufacturing or supply delays;
* product returns; and
* receipt of necessary regulation approval.
Changing Industry Trends May Affect Operating Results
Various changes within the industries we serve may limit future demand for
our products and may include the following:
* increasing usage of single use dialyzers;
* changes in dialysis reimbursements; and
* increased availability of donated organs.
ITEM 7. FINANCIAL STATEMENTS.
TABLE OF CONTENTS
Independent Auditors' Report
Financial Statements:
Balance Sheets
Statements of Income
Statement 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, 2003 and 2002, and the related statements of income, stockholders'
equity, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mesa Laboratories, Inc. as of
March 31, 2003 and 2002, and the results of its operations and its cash flows
for the years then ended, in conformity with auditing standards generally
accepted in the United States of America.
/s/Ehrhardt Keefe Steiner & Hottman PC
Ehrhardt Keefe Steiner & Hottman PC
April 29, 2003
Denver, Colorado
MESA LABORATORIES, INC.
BALANCE SHEETS
ASSETS
March 31,
-------------------------
2003 2002
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents .................... $ 4,761,102 $ 3,461,978
Accounts receivable -
Trade, net of allowance for doubtful accounts
of $50,000 (2003) and (2002) ............... 2,248,578 2,288,719
Other ....................................... 33,213 7,305
Inventories, net ............................ 2,328,999 2,443,091
Prepaid expenses ............................ 116,825 296,512
Deferred income taxes ....................... 114,941 101,778
----------- -----------
TOTAL CURRENT ASSETS ..................... 9,603,658 8,599,383
PROPERTY, PLANT AND EQUIPMENT, net ............. 1,347,980 1,398,398
OTHER ASSETS:
Other long-term assets ........................ -- 231,000
Goodwill ...................................... 4,207,942 4,207,942
----------- -----------
$15,159,580 $14,436,723
=========== ===========
See notes to financial statements.
MESA LABORATORIES, INC.
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31,
-------------------------
2003 2002
----------- -----------
CURRENT LIABILITIES:
Accounts payable, trade .............. $ 117,979 $ 88,894
Accrued salaries and payroll taxes ... 332,537 310,272
Accrued warranty expense ............. 15,000 30,000
Other accrued liabilities ............ 85,698 36,878
Taxes payable ........................ 35,492 34,661
----------- -----------
TOTAL CURRENT LIABILITIES ......... 586,706 500,705
LONG TERM LIABILITIES:
Deferred income taxes ................ 86,351 41,744
COMMITMENTS
STOCKHOLDERS' EQUITY:
Preferred stock, no par value;
authorized 1,000,000 shares; none
issued .............................. -- --
Common stock, no par value; authorized
8,000,000 shares; issued and
outstanding, 3,098,907 (2003)
and 3,342,376 (2002) ................ 1,284,887 1,791,758
Retained earnings .................... 13,201,636 12,102,516
----------- -----------
14,486,523 13,894,274
----------- -----------
$15,159,580 $14,436,723
=========== ===========
See notes to financial statements.
MESA LABORATORIES, INC.
STATEMENTS OF INCOME
Years Ended March 31,
-----------------------
2003 2002
---------- ----------
Sales ..................................... $9,081,776 $9,043,844
Cost of sales ............................. 3,397,239 3,652,435
---------- ----------
Gross profit .............................. 5,684,537 5,391,409
---------- ----------
Operating expenses:
Selling .................................. 1,334,385 1,224,835
General and administrative ............... 903,710 934,536
Research and development ................. 259,966 289,939
---------- ----------
Total operating expenses .............. 2,498,061 2,449,310
---------- ----------
Operating income .......................... 3,186,476 2,942,099
Interest income .......................... 55,160 78,511
---------- ----------
Earnings before income taxes ............. 3,241,636 3,020,610
Income taxes ............................. 1,114,757 989,663
---------- ----------
Net income ................................ $2,126,879 $2,030,947
========== ==========
Net income per share (basic) .............. $ .66 $ .60
========== ==========
Net income per share (diluted) ............ $ .64 $ .59
========== ==========
Average common shares outstanding - basic . 3,226,848 3,407,649
========== ==========
Average common shares outstanding - diluted 3,299,435 3,452,159
========== ==========
See notes to financial statements.
MESA LABORATORIES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
Common Stock
--------------------------
Number of
Shares Amount Earnings Equity
---------- ----------- ------------ ------------
BALANCE, March 31, 2001 .... 3,542,160 $ 2,165,549 $ 10,767,409 $ 12,932,958
Common stock issued for the
conversion of incentive
stock options net of 34,461
shares returned to Company
as payment ................ 13,995 27,909 -- 27,909
Purchase and retirement of
treasury stock ............ (213,779) (401,700) (695,840) (1,097,540)
Net income for the year .... -- -- 2,030,947 2,030,947
---------- ----------- ------------ ------------
BALANCE, March 31, 2002 .... 3,342,376 1,791,758 12,102,516 13,894,274
Common stock issued for the
conversion of incentive
stock options net of 29,704
shares returned to Company
as payment ................ 22,700 86,441 -- 86,441
Purchase and retirement of
treasury stock ............ (266,169) (593,312) (1,027,759) (1,621,071)
Net income for the year .... -- -- 2,126,879 2,126,879
---------- ----------- ------------ ------------
BALANCE, March 31, 2003 .... 3,098,907 $ 1,284,887 $ 13,201,636 $ 14,486,523
========== =========== ============ ============
See notes to financial statements.
MESA LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
Years Ended March 31,
--------------------------
2003 2002
----------- ----------
Cash flows from operating activities:
Net income ..................................... $ 2,126,879 $ 2,030,947
Depreciation and amortization .................. 115,351 115,088
Provision for warranty reserve ................. (15,000) 18,000
Provision for inventory reserve ................ 60,000 (40,000)
Deferred income taxes .......................... 31,444 20,574
Change in assets and liabilities-
(Increase) decrease in accounts receivable .... 245,233 759,313
(Increase) decrease in inventories ............ 54,092 (244)
(Increase) decrease in prepaid expenses ....... 179,687 (269,004)
Increase (decrease) in accounts payable, trade 29,085 (264,625)
Increase (decrease) in accrued liabilities
and taxes payable ........................... 71,916 (113,385)
----------- ----------
Net cash provided by operating activities . 2,898,687 2,256,664
----------- ----------
Cash flows from investing activities:
Capital expenditures ........................... (64,933) (41,824)
----------- ----------
Net cash (used) provided by investing
activities ............................... (64,933) (41,824)
----------- ----------
Cash flow from financing activities:
Net proceeds from issuance of stock ............ 86,441 27,909
Common stock repurchases ....................... (1,621,071) (1,097,540)
----------- ----------
Net cash (used) provided by financing
activities ............................... (1,534,630) (1,069,631)
----------- ----------
Net increase (decrease) in cash and cash
equivalents .................................... 1,299,124 1,145,209
Cash and cash equivalents at
beginning of year ............................. 3,461,978 2,316,769
----------- ----------
Cash and cash equivalents at
end of year ................................... $ 4,761,102 $3,461,978
=========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes $ 895,821 $1,366,200
=========== ==========
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.
During the fiscal year ended March 31, 2003, one customer represented
approximately 11% of the Company's revenues and approximately 6% of the
Company's accounts receivable balance. During the fiscal year ended March
31, 2002 two customers represented approximately 12% and 11% of the
Company's revenues, respectively. At March 31, 2002, these customers
represented approximately 28% and 8% of the Company's account receivable
balances.
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. The Company's
policy is to periodically evaluate the market value of the inventory and
the stage of product life cycle, and record a reserve for any inventory
considered slow moving or obsolete. As of March 31, 2003 and 2002 the
Company had recorded a reserve of $110,000 and $50,000, respectively,
against slow moving inventory.
Property, Plant and Equipment - Property, plant and equipment is stated at
acquisition cost. Depreciation and amortization is provided using the
straight-line method over the estimated useful lives of three to
thirty-nine years.
Goodwill - Goodwill, which resulted from the acquisitions of Nusonics,
Datatrace and Automata, is no longer subject to amortization, and is tested
annually for impairment in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 142 "Goodwill and Intangible Assets."
Valuation of Long-Lived Assets - The Company assesses the realizable value of
long-lived assets and goodwill for potential impairment at least annually
or when events and circumstances warrant such a review. The carrying value
of a long-lived asset is considered impaired when the anticipated fair
value is less than its carrying value. In assessing the recoverability of
our long-lived assets and goodwill, we must make assumptions regarding
estimated future cash flows and other factors to determine the fair value
of the respective assets. In addition, we must make assumptions regarding
the useful lives of these assets. As of March 31, 2003, we evaluated our
long-lived assets for potential impairment. Based on our evaluation, no
impairment charge was recognized.
Revenue Recognition - The Company recognizes revenues at the time products
are shipped.
Research & Development Costs - Costs related to research and development
efforts on existing or potential products are expensed as incurred.
Research and development costs for the fiscal years ended March 31, 2003
and 2002 were $259,966 and $289,939, respectively.
Accrued Warranty Expense - The Company provides limited product warranty on
its products and, accordingly, accrues an estimate of the related warranty
expense at the time of sale.
Advertising Costs - Advertising costs are expensed as incurred. Advertising
costs for the years ended March 31, 2003 and 2002 were $140,728 and
$121,539, respectively.
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 72,587 and 44,510 additional shares in 2003 and 2002,
respectively.
Stock based compensation - At March 31, 2003, the Company has stock based
compensation plans, which are described more fully in Note 7. The Company
has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation."
Accordingly, no compensation cost has been recognized for the stock option
plans. Had compensation cost for the Company's stock option plans been
determined based on the fair value at the grant date for awards in 2003 and
2002 consistent with the provisions of SFAS No. 123, the Company's net
earnings and earnings per share would have been reduced to the pro forma
amount indicated below:
March 31,
-------------------------
2003 2002
----------- -----------
Net income - as reported $ 2,126,879 $ 2,030,947
Net income - pro forma . $ 2,020,435 $ 1,868,798
Income per diluted
share - as reported ... $ .64 $ .59
Income per diluted
share - pro forma ..... $ .61 $ .54
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 20% (2003) and 30% (2002); discount rate of 3.0% (2003) and
4.9% (2002); and expected lives of 5 years.
Use of Estimates - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair Value of Financial Instruments - The carrying amount of financial
instruments including cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses approximated fair value as of March
31, 2003 because of the relatively short maturity of these instruments.
Recently Issued Accounting Pronouncements - In June 2002, the FASB issued
SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities." SFAS No. 146 addresses accounting and reporting for costs
associated with exit or disposal activities and nullifies Emerging Issues
Task Force Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (Including Certain
Costs Incurred in a Restructuring)." SFAS No. 146 requires that a liability
for a cost associated with an exit or disposal activity be recognized and
measured initially at fair value when the liability is incurred. SFAS No.
146 is effective for exit or disposal activities that are initiated after
December 31, 2002, with early application encouraged. The adoption of this
standard did not have a material impact on the Company's financial
statements at March 31, 2003.
In November 2002, the FASB published interpretation No, 45 "Guarantor's
Accounting and Disclosure requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others". The Interpretation expands on the
accounting guidance of Statements No. 5, 57, and 107 and incorporates
without change the provisions of FASB Interpretation No. 34, which is being
superseded. The Interpretation elaborates on the existing disclosure
requirements for most guarantees, including loan guarantees such as standby
letters of credit. It also clarifies that at the time a company issues a
guarantee, the company must recognize an initial liability for the fair
value, or market value, of the obligations it assumes under that guarantee
and must disclose that information in its interim and annual financial
statements. The initial recognition and initial measurement provisions
apply on a prospective basis to guarantees issued or modified after
December 31, 2002, regardless of the guarantor's fiscal year-end. The
disclosure requirements in the Interpretation are effective for financial
statements of interim or annual periods ending after December 15, 2002. The
adoption of this standard did not have a material impact on the Company's
financial statements at March 31, 2003.
In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based
Compensation- Transition and Disclosure". This statement amends SFAS No.
123, "Accounting for Stock-Based Compensation" to provide alternative
methods of transition for an entity that voluntarily changes to the fair
value method of accounting for stock-based compensation. In addition, SFAS
148 amends the disclosure provision of SFAS 123 to require more prominent
disclosure about the effects of an entity's accounting policy decisions
with respect to stock-based employee compensation on reported net income.
The effective date for this Statement is for fiscal years ended after
December 15, 2002. The Company has incorporated the disclosure requirements
of SFAS No. 148 at March 31, 2003, which require a tabular pro forma
presentation of net income had SFAS No. 123 been adopted.
In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, an interpretation of ARB 51 (FIN No. 46). The
primary objectives of FIN 46 are to provide guidance on the identification
of entities for which control is achieved through means other than through
voting rights (Variable Interest Entities or "VIEs") and to determine when
and which business enterprise should consolidate the VIE. This new model
for consolidation applies to an entity which either (1) the equity
investors (if any) do not have a controlling financial interest or (2) the
equity investment at risk is insufficient to finance that entity's
activities without receiving additional subordinated financial support from
other parties. The disclosure requirements of FIN No. 46 became effective
for financial statements issued after January 31, 2003. The adoption of
this standard did not have an impact on the Company's financial statements
at March 31, 2003.
In April 2003, FASB issued SFAS No. 149, "Accounting for Derivative
Instruments and Hedging Activities," which is effective for contracts
entered into or modified after June 30, 2003 and for hedging relationships
designated after June 30, 2003. This statement amends and clarifies
financial accounting and reporting for derivative instruments including
certain instruments embedded in other contracts and for hedging activities
under SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." The adoption of this standard is not expected to have a
material impact on the Company's financial statements.
In May 2003, FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity," which is
effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. SFAS No. 150 establishes standards
for how an issuer classifies and measures certain financial instruments
with characteristics of both liabilities and equity. The adoption of this
standard is not expected to have a material impact on the Company's
financial statements.
2. Inventories:
Inventories consist of the following:
March 31,
--------------------------
2003 2002
----------- -----------
Raw materials .. $ 1,898,599 $ 1,909,568
Work-in-process. 294,822 291,607
Finished goods.. 245,578 291,916
Less reserve .. (110,000) (50,000)
----------- -----------
$ 2,328,999 $ 2,443,091
=========== ===========
Work-in-process and finished goods include raw materials, direct labor and
manufacturing overhead at March 31, 2003 and 2002.
3. Property, Plant and Equipment:
Property, plant and equipment consist of the following:
March 31,
--------------------------
2003 2002
----------- -----------
Land ........................... $ 148,104 $ 148,104
Building ....................... 1,247,010 1,247,010
Manufacturing equipment ........ 1,219,079 1,179,073
Computer equipment ............. 287,834 262,908
Furniture and fixtures ......... 74,383 74,382
----------- -----------
2,976,410 2,911,477
Less accumulated depreciation (1,628,430) (1,513,079)
----------- -----------
$ 1,347,980 $ 1,398,398
=========== ===========
4. Income Taxes:
The components of the provision for income taxes for the years ended March
31, 2003 and 2002 are as follows:
March 31,
-----------------------
2003 2002
---------- ----------
Current tax provision:
Federal ............. $ 949,488 $ 853,498
State ............... 133,825 116,386
---------- ----------
1,083,313 969,884
---------- ----------
Deferred tax provision:
Federal ............. 27,671 17,405
State ............... 3,773 2,374
---------- ----------
31,444 19,779
---------- ----------
$1,114,757 $ 989,663
========== ==========
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, 2003
and 2002 are as follows:
March 31,
--------------------
2003 2002
-------- --------
Depreciation and amortization $(86,351) $(41,744)
Accrued vacation ............. 48,169 50,306
Bad debt expense ............. 17,000 17,000
Obsolete inventory ........... 37,400 17,000
Warranty reserve ............. 5,100 10,200
Other ........................ 7,272 7,272
-------- --------
Net deferred (liability)/asset $ 28,590 $ 60,034
======== ========
A reconciliation of the Company's income tax provision for the years ended
March 31, 2003 and 2002, and the amounts computed by applying statutory
rates to income before income taxes is as follows:
March 31,
--------------------------
2003 2002
----------- -----------
Income taxes at statutory rates .......... $ 1,028,578 $ 935,358
State income taxes, net of federal benefit 140,009 118,760
Foreign sales corporation exemption ...... (53,830) (64,455)
----------- -----------
$ 1,114,757 $ 989,663
=========== ===========
5. Stock Repurchase:
In August, 2001, the Company's Board of Directors approved program to
repurchase up to 500,000 shares of its outstanding common stock. Under the
program, shares may be purchased from time to time in the open market at
prevailing prices or in negotiated transactions off the market. Shares
purchased will be cancelled and repurchase of shares will be funded through
existing cash reserves.
6. Employee Benefit Plan:
The Company adopted a 401(k) plan effective January 1, 2000. Participation
is voluntary and employees are eligible to participate at age 21 and after
six months of employment with the Company. The Company matches 50% of the
employee's contribution up to 6% of the employees salary. A participant
vests in the Company's contributions at a rate of 25% per year, fully
vesting at the end of the participant's fourth year of service. The Company
contributed $52,617 to the plan for fiscal 2003, and $44,906 for fiscal
2002.
7. Stockholders' Equity:
The State of Colorado has eliminated the ability of Colorado corporations
to retain treasury stock. As a result, the Company reduced common stock to
its average share value and further reduced retained earnings for the
remainder of the cost of treasury stock acquired in each fiscal year.
The Company has adopted incentive stock option plans for the benefit of the
Company's key employees, excluding its outside directors. Under the terms
of the plans, options are granted at an amount not less than 100% of the
bid price of the underlying shares at the date of grant. The options are
exercisable for a term of five years and, during such term, may be
exercised as follows: 25% after each year, and 100% anytime after the
fourth year until the end of the fifth year.
On October 3, 1996, the Company adopted a nonqualified performance stock
option plan for the benefit of the Company's outside Directors. The plan
provides that the outside Directors will receive grants to be determined
and approved by the Company's inside Directors and not to exceed 20,000
options per year per director. Under the terms of the plan, the options are
exercisable for a term of ten years and, during such term are exercisable
as follows: 25% after each year, and 100% anytime after the fourth year
until the end of the tenth year. The purchase price of the common stock
will be equal to 100% of the closing price of the common stock on the
over-the-counter market on the date of grant.
On October 21, 1999, the Company adopted a new stock compensation plan. The
purpose of the plan is to encourage ownership of the Common Stock of the
Company by certain officers, directors, employees and certain advisors of
the Company in order to provide incentive to promote the success and
business of the Company. A total of 300,000 shares of Common Stock have
been reserved for issuance under the plan and are subject to terms as set
by the Compensation Committee of the Board of Directors at the time of
grant.
All option plans have been approved by the shareholders of the Company.
The following is a summary of options granted under the plans:
FY 2003 FY 2003
-------------------- --------------------
Weighted Weighted
Average Exercise Average Exercise
-------------------- --------------------
Shares Price Shares Price
-------- -------- -------- --------
Options outstanding at beginning of year 328,035 $ 4.85 308,000 $ 4.97
Options granted ........................ 75,600 $ 5.89 94,300 $ 4.56
Options cancelled ...................... (27,936) $ 5.42 (25,809) $ 5.25
Options exercised ...................... (52,404) $ 5.20 (48,456) $ 4.85
-------- --------
Options outstanding at end of year ..... 323,295 $ 4.98 328,035 $ 4.85
======== ========
Options exercisable at end of year ..... 132,045 $ 4.75 120,110 $ 5.00
Shares available for future option grant 223,371 271,395
The following is a summary of information about stock options outstanding
as of March 31, 2003:
Options Outstanding Options Exercisable
------------------------------------ -------------------------
Weighted
Average
Remaining
Contractual Weighted Number Weighted
Range of Number Life Average Exercisable Average
Exercise Outstanding as in Exercise as of Exercise
Prices of 03/31/03 Years Price 03/31/03 Price
-------------- ------- ----- ----- ------- --------
$3.75 - $4.25 61,660 3.5 $3.85 46,160 $3.88
$4.55 80,850 4.3 $4.55 14,775 $4.55
$4.56 - $5.25 50,985 2.3 $5.01 34,660 $5.00
$5.50 55,900 3.6 $5.50 28,450 $5.50
$5.75 - $7.00 73,900 5.7 $5.97 8,000 $6.38
-------------- ------- ----- ----- ------- --------
$3.75 - $7.00 323,295 4.0 $4.98 132,045 $4.75
============== ======= ===== ===== ======= ========
8. International Sales:
For the past two fiscal years, the Company had foreign sales as follows:
Years Ended March 31,
-----------------------
2003 2002
---------- ----------
Asia ........ $1,190,136 $ 866,995
Europe ...... 1,254,597 1,151,233
South America 211,400 1,302,549
Other ....... 480,656 455,540
---------- ----------
$3,136,789 $3,776,317
========== ==========
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:
Name and Address Age Office Term Expires(1)
---------------- --- ------ ------------
Luke R. Schmieder 60 President, Chief Executive 2003
12100 West Sixth Avenue Officer, Treasurer and
Lakewood, Colorado Director
Steven W. Peterson 46 Vice President-Finance, 2003
12100 West Sixth Avenue Chief Financial and Chief
Lakewood, Colorado Accounting Officer and
Secretary
Paul D. Duke 61 Director 2003
12100 West Sixth Avenue
Lakewood, Colorado
H. Stuart Campbell 73 Director 2003
12100 West Sixth Avenue
Lakewood, Colorado
Michael T. Brooks 54 Director 2003
12100 West Sixth Avenue
Lakewood, Colorado
(1) The term of office of each officer of the Company is at the discretion
of the Board of Directors.
Luke R. Schmieder, President, Chief Executive Officer, Treasurer and Director
Mr. Schmieder attended Ohio State University and Ohio University taking
courses in mechanical engineering and business management. Mr. Schmieder was
employed from 1970 to 1977 by Cobe Laboratories, Inc. (manufacturer of dialysis
and cardiovascular equipment and supplies) as a designer and process controller
on various projects. From 1977 to 1982, Mr. Schmieder served as president and
principal of a consulting company for product and process development primarily
in the medical field. Mr. Schmieder has served as president and a director of
the Company since its inception in March 1982.
Steven W. Peterson, Vice President-Finance, Chief Financial and Chief Accounting
Officer and Secretary
Mr. Peterson received his Bachelor of Arts degree in accounting from Lewis
University in 1979. He was employed as an accountant and senior accountant by
Valleylab, Inc. (a manufacturer of electrosurgical and IV infusion equipment)
from 1980 to 1983. From 1983 to 1985, he was employed as assistant controller by
Marquest Medical Products, Inc. (a manufacturer of disposable medical products).
Mr. Peterson joined the Company in February 1985 as Controller and has served as
an executive officer of the Company since June 1990.
Paul D. Duke, Director
Mr. Duke received his initial medical training while on active duty with
the United States Navy and while attending the University of Alabama. Mr. Duke
was employed from 1965 to 1969 by the University of Alabama Medical Center as
chief hemodialysis technician and was employed by Cobe Laboratories, Inc. from
1969 to 1973 as field service and training technician. From 1973 to 1979, he
served in various capacities for Cordis Dow Corporation (manufacturer of
pacemakers and hemodialysis equipment and supplies), including sales, product
management, European training manager and national service manager. From 1980 to
1982, Mr. Duke served as proprietor and president of a consulting company
specializing in medical marketing, sales, service and training. Mr. Duke has
served as vice president and a director of the Company since its inception in
1982. At March 31, 2002, Mr. Duke retired from his position as Vice President
and now devotes such time as is necessary to the affairs of the Company.
H. Stuart Campbell, Director
Mr. Campbell received his Bachelor of Science degree from Cornell
University in 1951. From 1960 through September 1982, Mr. Campbell served in
various capacities for Johnson & Johnson and Ethicon, Inc., a domestic
subsidiary of Johnson & Johnson. From 1977 through September 1982, he was a
Company Group Chairman with Johnson & Johnson and served as Chief Executive
Officer and Chairman of the Board of Directors of eight major corporate
subsidiaries. Mr. Campbell owned and served as an officer of Highland Packaging
Labs, Inc., Somerville, New Jersey (contract packaging business) until its sale
in 2002. He also serves as a director of Atrix Laboratories, Inc.
(pharmaceutical and contract research and development company). Mr. Campbell has
served as a director of the Company since May 1983 and devotes such time as is
necessary to the affairs of the Company.
Michael T. Brooks, Director
Mr. Brooks received his Bachelor of Arts in History from Ohio Wesleyan
University in 1971. While pursuing a career in fluid power, he received a
Masters in Business from the University of Denver in 1983. Mr. Brooks was an
independent manufacturer's representative from 1982 - 1985 at which time he
purchased an interest in Fiero Fluid Power which he presently owns and operates.
Fiero Fluid Power is a Rep/Distributor selling pneumatic and instrumentation
equipment. He has been a director since October, 1998 and devotes such time as
is necessary to the affairs of the Company.
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company pursuant toss.240.16a-3(e) during its most recent
fiscal year and Forms 5 and amendments thereto furnished to the Company with
respect to its most recent fiscal year, and any written representation from the
reporting person (as hereinafter defined) that no Form 5 is required, the
Company is not aware of any person who, at any time during the fiscal year, was
a director, officer, beneficial owner of more than ten percent of any class of
equity securities of the Company registered pursuant to Section 12 of the
Exchange Act ("reporting person"), that failed to file on a timely basis, as
disclosed in the above Forms, reports required by Section 16(a) of the Exchange
Act during the most recent fiscal year or prior fiscal years.
ITEM 10. EXECUTIVE COMPENSATION.
The following table, and its accompanying explanatory footnotes, includes
annual and long-term compensation information on the Company's Chief Executive
Officer and Chief Financial Officer for services rendered in all capacities
during the fiscal years ended March 31, 2003, March 31, 2002 and March 31, 2001.
No other executive officer received total annual salary and bonus for the fiscal
year ended March 31, 2003 in excess of $100,000.
SUMMARY COMPENSATION TABLE
Name and Principal Position Fiscal Year Salary Bonus(1) Options Granted Other Comp
---------------------------- ----------- -------- --------- --------------- ----------
L. Schmieder, CEO 2003 $113,885 $19,066 4,000 $3,742
2002 $108,985 $11,928 4,000 $3,100
2001 $106,867 $10,400 4,000 $3,150
S. Peterson, CFO 2003 $ 84,528 $16,228 4,000 $2,824
2002 $ 80,190 $ 9,619 6,000 $2,628
2001 $ 75,317 $ 7,400 6,000 $2,683
------
(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, 2003 to the Company's
Chief Executive Officer and Chief Financial Officer.
Option Grants in Last Fiscal Year
---------------------------------
Percent of Total
Options Options Granted Exercise Expiration
Name Granted in Fiscal Year Price Date
------------ ------- -------- -------- -----------
L. Schmieder 4,000 5% $5.91 October 15, 2012
S. Peterson 4,000 5% $5.91 October 15, 2007
Compensation of Directors
On October 3, 1996, the Company adopted a new nonqualified performance
stock option plan for the benefit of the Company's outside Directors. The plan
provides that the outside Directors will receive grants to be determined and
approved by the Company's inside directors and not to exceed 20,000 options per
year per director. Under the terms of the plan, the options are exercisable for
a term of ten years, and during such term are exercisable as follows: 25% after
each year, and 100% anytime after the fourth year until the end of the tenth
year. The purchase price of the common stock will be equal to 100% of the
closing bid price of the common stock on the over-the-counter market on the date
of grant.
On October 16, 2002, Mr. Brooks and Mr. Campbell, outside directors, were
granted options to purchase 4,000 shares of common stock at $5.91 per share. Mr.
Duke, a director who retired from his position as an executive officer in March
2002, was granted 6,000 shares of common stock at $5.91 per share. Mr.
Schmieder, the Company's inside director was granted options to purchase 4,000
shares of common stock at a price of $5.91 per share. Currently, all outside
directors receive cash compensation of $500 for each Board of Directors meeting
attended in person.
Incentive Stock Option Plans
The Company has adopted three incentive stock option plans, approved by the
shareholders of the Company in September 1984, October 1989 and November 1993,
respectively, for the benefit of the Company's employees. The plans are
administered by the non-participating members of the Board of Directors, who
select the optionees and determine the terms and conditions of the stock option
grant. The exercise price for options granted under the plans cannot be less
than the fair market value of the stock at the date of grant or 110% of such
fair market value with respect to options granted to any optionee who holds more
than 10% of the Company's common stock. Options are not exercisable until one
year after the date of grant and expire five years after the date of grant. All
outstanding options are subject to vesting provisions whereby they become
exercisable over a four-year period. The plans authorize options to purchase up
to 200,000, 300,000 and 300,000 shares of common stock, respectively.
On October 21, 1999, the Company adopted a new stock compensation plan. The
purpose of the plan is to encourage ownership of the Common Stock of the Company
by certain officers, directors, employees and certain advisors of the Company in
order to provide incentive to promote the success and business of the Company. A
total of 300,000 shares of Common Stock have been reserved for issuance under
the plan and are subject to terms as set by the Compensation Committee of the
Board of Directors at the time of grant.
As of March 31, 2003, options to purchase a total of 323,295 shares were
outstanding, at exercise prices ranging from $3.75 to $7.00 per share. Further,
as of March 31, 2003, options to purchase an aggregate of 223,371 shares
remained available for grant under the Company's stock option plans. The plan
adopted in September 1984 was terminated effective June 1, 1993. Options were
granted during the fiscal year ended March 31, 2003, pursuant to the Company's
incentive stock option plans, to each of the Company's executive officers.
Options to purchase 4,000 shares at $5.91 per share were granted to Mr. Steven
W. Peterson, Vice President-Finance. Mr. Luke R. Schmieder, President, was
granted options to purchase 4,000 shares at $5.91 per share.
Retirement Plan
The Company has adopted a 401(k) plan for the benefit of its officers and
employees. Subject to certain restrictions, a participant may defer up to 15% of
their gross compensation into the plan. The Company currently matches up to 6%
of the participant's contribution at a rate of 50% of the contribution. The plan
also allows for additional contributions by the Company at its discretion.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth the number of shares of the Company's common
stock owned beneficially as of March 31, 2003 (unless otherwise noted), by each
person known by the Company to have owned beneficially more than five percent of
such shares then outstanding, by each officer and director of the Company and by
all of the Company's officers and directors as a group. This information gives
effect to securities deemed outstanding pursuant to Rule 13d-3(d)(1) under the
Securities Exchange Act of 1934, as amended. As far as is known to management of
the Company, no person owns beneficially more than five percent of the
outstanding shares of common stock as of March 31, 2003 except as set forth
below.
Amount and Percentage of
Name of Beneficial Nature of Class Benefi-
Owner Beneficial Owner cially Owned
---------------------- ---------------- -------------
Luke R. Schmieder (1) 355,967 (2) 11.4
Steven W. Peterson (1) 66,050 (3) 2.1
Paul D. Duke (1) 127,466 (4) 4.1
H. Stuart Campbell (1) 78,000 (5) 2.5
Michael T. Brooks (1) 21,200 (6) 0.7
FMR Corp. (9) 297,600 (7) 9.6
All officers and 648,683 (8) 20.5
directors as a group (5 in number)
(1) The business address is 12100 West Sixth Avenue, Lakewood, Colorado 80228.
(2) Includes 10,000 shares which Mr. Schmieder has the right to acquire within
60 days by exercise of stock options.
(3) Includes 11,500 shares which Mr. Peterson has the right to acquire within
60 days by exercise of stock options.
(4) Includes 6,000 shares which Mr. Duke has the right to acquire within 60
days by exercise of stock options.
(5) Includes 22,000 shares which Mr. Campbell has the right to acquire within
60 days by exercise of stock options.
(6) Includes 20,000 shares which Mr. Brooks has the right to acquire within 60
days by exercise of stock options.
(7) Based upon information set forth in schedule 13G filed by FMR Corp. with
the Securities and Exchange Commission dated February 14, 2003. Fidelity
Management & Research Company ("Fidelity"), a wholly-owned subsidiary of
FMR Corp., is the beneficial owner of 297,600 shares as a result of acting
as investment advisor to several investment companies. The ownership by
one investment company, Fidelity Low-Priced Stock Fund, amounted to 297,600
shares. Mr. Edward C. Johnson 3d, FMR Corp., through its control of
Fidelity, and the aforementioned investment companies each has the power to
dispose of the 297,600 shares.
(8) Includes 69,500 shares which the officers and directors of the Company as a
group have the right to acquire within 60 days by exercise of stock options.
(9) The business address is 82 Devonshire Street, Boston, MA 02109.
For information regarding securities authorized for issuance under our
equity compensation plans, please see Footnote 7 to the Financial Statements.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
---------
(3)(i) Articles of Incorporation and Articles of Amendment and Bylaws
of Registrant -incorporated by reference to the Exhibits to the
Registration Statement on Form S-18, file number 2-88647-D, filed
December 21, 1983.
(3)(ii) Articles of Amendment of Registrant - incorporated by reference
to the Exhibit to the Report on Form 10-K for the fiscal year ended
March 31, 1988.
(3)(iii) Articles of Amendment of Registrant dated October 4, 1990 -
incorporated by reference to the Exhibit to the Report on Form 10-K
for the fiscal year ended March 31, 1991.
(3)(iv) Articles of Amendment of Registrant dated October 20, 1992 -
incorporated by reference to the Exhibit to the Report on Form 10-KSB
for the fiscal year ended March 31, 1993.
(10)(i) Stock Purchase Agreement between Linda V. Masano and Thomas
Michael Masano (as sellers) and Mesa Laboratories, Inc. (as
Purchaser) dated as of December 7, 1999 - Incorporated by reference
to the exhibit to the report on form 8-K dated December 7, 1999, file
number 0-11740.
(23)(i) Consent of Ehrhardt Keefe Steiner & Hottman PC, independent
public accountants, to the incorporation by reference in the
Registration Statements on Form S-8 (file numbers 33-89808,
333-02074, 333-18161 and 333-48556) of their report dated April 29,
2003, included in the Registrant's Report on Form 10-KSB for the
fiscal year ended March 31, 2003.
(99.1) Certifications of the Chief Executive Officer.
(99.2) Certifications of the Chief Financial Officer.
(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.
ITEM 14. CONTROLS AND PROCEDURES.
Within the 90 days prior to the date of filing this Annual Report on Form10-KSB,
we carried out an evaluation, under the supervision and with the participation
of our management, including the Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures pursuant to Exchange Act Rule 13a-14 and 15d-14. Based
upon that evaluation, the Chief Executive Officer and the Chief Financial
Officer concluded that our disclosure controls and procedures are effective in
timely alerting them to material information relating to the Company required to
be included in our periodic SEC filings. Subsequent to the date of that
evaluation, there have been no significant changes in our internal controls or
in other factors that could significantly affect internal controls, nor were any
corrective actions required with regard to significant deficiencies and material
weaknesses.
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 30, 2003 By: /s/Luke R. Schmieder
-----------------------
Luke R. Schmieder, President
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Name Title
---- -----
Date
----
/s/Luke R. Schmieder President, Chief Executive Officer, June 30, 2003
---------------------------- Treasurer and Director
Luke R. Schmieder
/s/Steven W. Peterson Vice President, Finance, Chief Financial June 30, 2003
----------------------------- and Chief Accounting Officer and Secretary
Steven W. Peterson
/s/Paul D. Duke Director June 30, 2003
-------------------------------
Paul D. Duke
/s/H. Stuart Campbell Director June 30, 2003
-----------------------------
H. Stuart Campbell
/s/Michael T. Brooks Director June 30, 2003
-----------------------------
Michael T. Brooks
CERTIFICATIONS
--------------
I, Luke R. Schmieder, the Chief Executive Officer of Mesa Laboratories, Inc. (the
"Company"), certify that:
1. I have reviewed this annual report on Form 10-KSB of Mesa Laboratories,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses. Date: June 30, 2003
By: /s/ Luke R. Schmieder
----------------------
Name: Luke R. Schmieder
Title: Chief Executive Officer
I, Steven W. Peterson, the Chief Financial Officer of Mesa Laboratories, Inc.
(the "Company"), certify that:
1. I have reviewed this annual report on Form 10-KSB of Mesa Laboratories,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses. Date: June 30, 2003
By: /s/ Steven W. Peterson
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Name: Steven W. Peterson
Title: Chief Financial Officer