SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 30, 1996 Commission File Number 1-7054
- --------------------------------------------------------------------------------
SAGE LABORATORIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2179082
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification number)
11 Huron Drive, Natick Massachusetts 01760
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (508) 653 - 0844
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 _____
On March 30, 1996, the Company had outstanding 1,158,265 shares of common stock,
$.10 par value, which is its only class of stock.
<PAGE>
PART 1 - FINANCIAL INFORMATION
COMPANY OR GROUP OF COMPANIES FOR WHICH REPORT IS FILED:
SAGE LABORATORIES, INC. AND SUBSIDIARIES
(UNAUDITED)
Item 1 - Financial Statements
A. Statements of Income
<TABLE>
<CAPTION>
For the three Months Ended For the Nine Months Ended
March 30, 1996 April 1, 1995 March 30, 1996 April 1, 1995
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
NET SALES AND CONTRACT REVENUES $ 2,089,982 $ 2,816,498 $ 6,986,350 $ 6,583,411
COST OF SALES AND CONTRACT COSTS 924,401 1,345,994 3,574,504 3,118,097
ENGINEERING AND NEW PRODUCT DEVELOPMENT COSTS 66,864 49,987 195,931 134,381
----------- ----------- ----------- -----------
991,265 1,395,981 3,770,435 3,252,478
----------- ----------- ----------- -----------
Gross profit 1,098,717 1,420,517 3,215,915 3,330,933
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 569,286 780,000 1,900,700 2,042,179
----------- ----------- ----------- -----------
Operating income 529,431 640,517 1,315,215 1,288,754
INTEREST INCOME 76,694 50,146 227,609 138,583
INTEREST EXPENSE (16,334) (20,368) (53,449) (59,422)
INCOME (LOSS) ON RENTAL PROPERTY 11,539 6,508 27,504 (15,621)
----------- ----------- ----------- -----------
Income before provision for income taxes 601,330 676,803 1,516,879 1,352,294
PROVISION FOR INCOME TAXES:
Federal 135,000 204,000 420,000 408,000
State 51,000 71,000 147,000 154,000
----------- ----------- ----------- -----------
Net income $ 415,330 $ 401,803 $ 949,879 $ 790,294
=========== =========== =========== ===========
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE $ 0.36 $ 0.35 $ 0.81 $ 0.68
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING
1,169,482 1,159,200 1,168,802 1,158,305
=========== =========== =========== ===========
DIVIDENDS PAID $ .00 $ .00 $ 115,827 $ 112,724
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
SAGE LABORATORIES, INC. AND SUBSIDIARIES
B. CONSOLIDATED BALANCE SHEETS
MARCH 30, 1996 AND JUNE 30, 1995
<TABLE>
<CAPTION>
ASSETS March 30, 1996 June 30, 1995
-------------- -------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 5,972,503 $ 5,261,978
Accounts receivable, net of reserve of approximately
$48,000 at March 30, 1996 and $42,000 at June 30, 1995 1,400,900 1,543,964
Inventories 1,453,306 1,296,076
Prepaid Expenses and other current assets 504,942 501,147
----------- -----------
Total current assets 9,331,651 8,603,165
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land, building and improvements 3,768,658 3,768,658
Machinery and laboratory equipment 1,656,418 1,455,387
Furniture, fixtures and motor vehicles 590,201 471,666
----------- -----------
6,015,277 5,695,711
Less--Accumulated depreciation and amortization 3,286,141 2,840,371
----------- -----------
2,729,136 2,855,340
----------- -----------
OTHER ASSETS:
Notes receivable from an officer/stockholder 55,043 87,039
Other assets 119,236 65,932
----------- -----------
Total other assets 174,279 152,971
----------- -----------
$12,235,066 $11,611,476
=========== ===========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Current maturities of long-term debt $ 166,667 $ 166,667
Accounts payable 380,180 300,686
Accrued expenses-
Compensation 792,322 860,626
Commissions 104,649 98,469
Taxes other than federal income taxes 30,610 42,259
Federal income taxes 95,125 292,114
Other 343,590 322,218
----------- -----------
Total current liabilities 1,913,143 2,083,039
----------- -----------
LONG TERM DEBT, NET OF CURRENT MATURITIES 708,333 833,332
----------- -----------
DEFERRED INCOME TAXES 207,000 207,000
----------- -----------
STOCKHOLDERS' INVESTMENT
Common stock, $.10 par value--
Authorized--10,000,000 shares
Issued--2,675,480 shares at March 30, 1996 and
2,650,480 shares at June 30, 1995 267,548 265,048
Capital in excess of par value 2,013,802 1,943,802
Retained earnings 12,617,197 11,783,144
----------- -----------
14,898,547 13,991,994
Less--
Cost of 1,517,215 shares of treasury stock at March 30,
1996 and 1,515,740 shares at June 30, 1995 5,448,988 5,420,078
Deferred compensation 42,969 83,811
----------- -----------
Total stockholders' investment 9,406,590 8,488,105
=========== ===========
$12,235,066 $11,611,476
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE>
SAGE LABORATORIES, INC. AND SUBSIDIARIES
C. CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
--------------------------------------
March 30, 1996 April 1, 1995
-------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 949,879 $ 790,294
Adjustments to reconcile net income to net cash
provided by operating activities--
Depreciation and Amortization 445,770 298,920
Notes receivable from an officer/stockholder 31,996 31,996
Amortization of deferred compensation 40,842 40,891
Changes in assets and liabilities--
Accounts receivable 143,064 145,509
Inventories (157,230) (235,293)
Prepaid expenses and other current assets (3,795) 77,010
Accounts payable 79,494 (7,903)
Accrued expenses (249,389) (13,314)
----------- -----------
Net cash provided by operating activities 1,280,631 1,128,110
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net (319,566) (294,299)
Increase in other assets (53,304) (4,376)
----------- -----------
Net cash used in investing activities (372,870) (298,675)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options 72,500 86,535
Purchase of treasury stock (28,910) (31,827)
Payment of cash dividend (115,827) (112,724)
Payment on long-term debt (124,999) (124,999)
----------- -----------
Net cash used in financing activities (197,236) (183,015)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 710,525 646,420
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,261,978 4,249,524
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,972,503 $ 4,895,944
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for--
Interest $ 53,449 $ 59,422
Income taxes 810,500 702,541
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
SAGE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 30, 1996
(1) Basis of Presentation
The unaudited consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission and include, in the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of interim period results. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. The Company believes, however,
that its disclosures are adequate to make the information presented not
misleading. The results for the three and nine month periods ended March 30,
1996, are not necessarily indicative of results to be expected for the full
fiscal year.
(2) Inventories
Inventories, priced at the lower of cost (first-in, first-out) or market,
are as follows:
March 30, June 30,
1996 1995
---- ----
Raw materials and parts $ 362,237 $ 335,968
Work-in-process 974,458 863,328
Finished goods 116,611 96,780
---------- ----------
$1,453,306 $1,296,076
========== ==========
Work-in-process and finished goods include material, labor and manufacturing
overhead.
(3) Net Income Per Share
Net income per share was computed based on the weighted average number of
common and common equivalent shares outstanding during the year. Common share
equivalents consist of dilutive outstanding stock options computed under the
treasury stock method. Fully diluted net income per share has not been
presented, as the results would not be materially different from primary
earnings per share.
On September 5, 1995, the Board of Directors declared a 5 for 1 stock
split, effective December 1, 1995 to stockholders of record on November 14,
1995. A total of 2,140,384 additional shares were issued in conjunction with the
stock split. In addition, the par value of the company's common stock was
changed from $1.00 to $.10 per share. Stockholders' investment has been restated
to give retroactive recognition to both the stock split and change in par value
in prior periods by reclassifying approximately $267,000 from common stock to
capital in excess of par value. All references in the financial statements to
number of shares, per share amounts, and stock option data of the company's
common stock have been retroactively restated.
<PAGE>
SAGE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 30, 1996
(CONTINUED)
D. Management's Discussion and Analysis
For the three months ended March 30, 1996, the Company realized net income of
approximately $415,000, or $.36 per share, on sales of $2,090,000. This compares
with net income of approximately $402,000, or $.35 per share, on sales of
$2,816,000 for the same period a year ago.
Net income was negatively impacted in the third quarter of fiscal 1996 by an
operating loss of approximately $22,000, or $.02 per share, from the Company's
wholly-owned subsidiary, Sage Laboratories Active Microwave Inc. (SLAM). This
compares with a negative impact of approximately 118,000, or $.10 per share, for
the same period a year ago. Although SLAM's results for the quarter ended March
30, 1996 were an improvement over the quarters ended April 1, 1995 and December
30, 1995, it is difficult to predict whether this trend can be sustained, due to
increased costs for additional personnel.and whether orders will continue at the
pace we have enjoyed over the last nine months.
Net sales for the three months ended March 30, 1996, decreased by approximately
$727,000, or 25.8% from the previous year. SLAM recorded sales of approximately
$141,000 for the quarter, as compared with $32,000 for the same period a year
ago. The decrease in Sage core business of approximately $838,000 is primarily
due to delays.in certain orders caused by custom engineering problems. Other
contributing factors were customers' requests to extend the delivery on certain
programs and to a reduction in orders received over the past six months.. Orders
received in the third quarter totaled approximately $2,529,000, including
$33,000 from SLAM. This compares to $3,437,000, including $81,000 from SLAM for
the same period a year ago. The decline in orders of approximately $908,000 for
the quarter is attributed to customers' delays in placing orders, and to certain
orders received in the third quarter of fiscal year 1995 which were not recorded
in the third quarter of fiscal year 1996, due to programs coming to closure. The
Company's backlog at the end of the quarter was $5,425,000, including $306,000
from SLAM. This compares to $5,566,000, including $52,000 from SLAM for the
previous year.
Gross profit as a percentage of sales was 53% for the quarter ended March 30,
1996, as compared to 50% for the same period a year ago. The increase in gross
profit is primarily due to Sage core product mix and to an increase in SLAM's
gross profit to approximately $25,000 compared to a gross profit loss of $22,000
for the same period a year ago.
Selling, General and Administrative expenses (S G & A) as a percentage of sales
was 27% for the quarter ended March 30, 1996, as compared to 28% for the same
period a year ago. In absolute dollars, S.G.& A decreased by approximately
$211,000 from the same period a year ago.This decrease is due to a decrease of
approximately $4,000 in commission expense attributed to a lower sales volume, a
decrease in marketing expense of approximately $56,000 due to reduced expenses
associated with salaries and related items, as well as reduced advertising
expense. G & A expenses decreased by approximately $151,000, due to reduction in
fees associated with the consulting and non-compete agreement with the Company's
former chairman, as well as a reduction in compensation and related items during
the quarter.
<PAGE>
Interest income for the three months ended March 30, 1996 increased by
approximately $27,000 from the same period a year ago. This increase is due to a
higher cash position, as well as higher interest rates being paid. Interest
expense for the three months ended March 30, 1996 decreased by approximately
$4,000, due to a decrease in outstanding principal.
The Company generated a profit of approximately $12,000 from its rental
property, compared to a loss of approximately $7,000 for the same period a year
ago. As of March 30, 1996, the Company's rental property is fully occupied. A
new five year lease has been negotiated with a tenant in the Company's corporate
headquarters. The Company has taken occupancy of approximately 6,000 square feet
of space in its corporate headquarters that had previously been leased. This
space will house the Company's new line of commercial switches.
The Company's net book value of property held for rent (including renovations)
at March 30, 1996 and April 1, 1995 is as follows:
1996 1995
---- ----
3 Huron Drive (old facility) $ 520,612 $ 598,522
11 Huron Drive (rented portion) 280,684* 626,291
---------- ----------
Total $ 801,296 $1,224,813
========== ==========
*Change due to the Company occupying additional space for its commercial switch
line.
Federal and state income taxes for the nine months ended March 30, 1996, and
April 1, 1995 were provided for at their respective statutory rates.
Nine Months Ended March 30, 1996 and April 1, 1995
- --------------------------------------------------
For the nine months ended March 30, 1996, the Company realized net income of
$950,000, or $.81 per share, on sales of $6,986,000. This compares with net
income of $790,000, or $.68 per share, on sales of $6,583,000 for the same
period a year ago.
Net income for the nine months ended March 30, 1996 was negatively impacted by a
loss of approximately $221,000, or $.19 per share, from SLAM. This compares with
a negative impact of approximately $369,000, or $.32 per share, for the same
period a year ago.
Net sales for the nine months ended March 30, 1996 increased by approximately
$403,000, or 6%, over the previous year. SLAM recorded sales of approximately
$259,000 for the nine months ended March 30, 1996, compared to $73,000 for the
same period a year ago. The decrease in sales was attributed to delays in
certain custom engineering programs due to design difficulties, and to
customers' wishes to extend deliveries. Another contributing factor was a
reduction in orders received over the past six months. Total orders received
were approximately $7,729,000 (including $503,000 from SLAM) for the nine months
ended March 30, 1996, as compared to $9,011,000 (including approximately
$118,000 from SLAM) for the same period a year ago. The decrease in orders of
approximately $1,667,000 in Sage core business is due in part to customers'
delays in placing orders, as well as delays in releasing new products that had
been expected to be released during the third quarter.
<PAGE>
Gross profit as a percentage of sales was approximately 46% for the nine months
ended March 30, 1996 as compared to approximately 51% for the same period a year
ago. The decrease in gross profit percentage was due to increased research and
development costs of approximately $62,000. Other contributing factors were an
increase in cost overruns on Sage core engineering programs, lower profit
margins on certain programs, as well as a negative gross profit attributed to
SLAM.
Selling, General and Administrative Expense (S G & A) decreased by approximately
$141,000 over the same period a year ago. Selling expense decreased by
approximately $49,000 This decrease is primarily due to increased commission
expense of $25,000 attributed to increased sales volume offset by a decrease in
marketing expenses of approximately $74,000. The decrease is primarily due to
reallocation of salaries and related items associated with SLAM, as well as a
decrease in the Company's advertising budget. G & A expense decreased by
approximately $92,000 due in part to a decrease of approximately $38,000 in
Consulting fees associated with the Company's former Chairman of the Board, as
well as a decrease in salaries and related items of approximately $54,000.
Interest income for the nine months ended March 30, 1996 increased by
approximately $89,000 over the same period a year ago. This increase is due to a
higher cash position, as well as higher interest rates being realized.
The Company recorded a profit of approximately $28,000 from rental property for
the nine months ended March 30, 1996 This compares with a loss of approximately
$16,000 for the same period a year ago.
Federal and state income taxes for the nine months ended March 30, 1996 and
April 1, 1995, were provided for at their respective statutory rates.
Liquidity and Capital Resources
For the nine months ended March 30, 1996 operating activities generated cash of
$1,281,000, an increase of $153,000 over the nine months ended April 1, 1995.
Cash used in investing activities amounted to $373,000 and $299,000, for the
nine months ended March 30, 1996 and April 1, 1995, respectively, while cash
used for financing activities for these same periods was $197,000 and $183,000,
respectively. The details of these activities are provided in the consolidated
statements of cash flows. The Company invests its excess cash only in
short-term, highly liquid instruments with minimal risk. Having only the debt
relating to the Company's facility, and with surplus cash, management believes
that the Company will be able to finance its operations and necessary capital
expenditures for the foreseeable future.
Although the Company has a $1,000,000 bank line of credit, the Company does not
presently anticipate a need to use the line.
The Company anticipates that Capital expenditures for fiscal year 1996 will be
approximately $750,000. Accordingly, no outside funding will be required.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings: None
2. Changes in Securities: None
3. Defaults upon Senior Securities: None
4. Submission of Matters to a Vote of Security Holders: None
5. Other Information: None
6. Exhibits and Reports on Form 8-K: None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 13, 1996 SAGE LABORATORIES, INC. AND SUBSIDIARIES
/S/ Carl A. Marguerite
-------------------------------------------
President-Treasurer
(Principal executive officer;
principal financial officer;
principal accounting officer)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000086166
<NAME> Sage Laboratories, Inc.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-30-1996
<CASH> 5,972,503
<SECURITIES> 0
<RECEIVABLES> 1,448,900
<ALLOWANCES> 48,000
<INVENTORY> 1,453,306
<CURRENT-ASSETS> 9,337,651
<PP&E> 6,015,277
<DEPRECIATION> 3,286,141
<TOTAL-ASSETS> 12,235,066
<CURRENT-LIABILITIES> 1,913,143
<BONDS> 708,333
0
0
<COMMON> 267,548
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 12,235,066
<SALES> 6,986,350
<TOTAL-REVENUES> 6,986,350
<CGS> 3,770,435
<TOTAL-COSTS> 3,770,435
<OTHER-EXPENSES> 1,900,700
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53,449
<INCOME-PRETAX> 1,516,879
<INCOME-TAX> 567,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 949,879
<EPS-PRIMARY> 0.81
<EPS-DILUTED> 0.81
</TABLE>
