SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended December 30, 1995 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 December 30, 1995, the Company had outstanding 1,158,265 shares of common
stock, $.10 par value, which is its only class of stock.
<PAGE>
PART I - FINANCIAL INFORMATION
COMPANY OR GROUP OF COMPANIES FOR WHICH REPORT IS FILED:
SAGE LABORATORIES, INC. AND SUBSIDIARIES
(UNAUDITED)
Item 1 - Financial Statements
A. Income Information:
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
Dec. 30, Dec. 31, Dec. 30, Dec. 31,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES AND CONTRACT REVENUES $ 2,680,312 $ 2,273,759 $ 4,896,368 $ 3,766,913
COST OF SALES AND CONTRACT COSTS 1,441,878 1,124,167 2,650,103 1,772,103
ENGINEERING AND NEW PRODUCT DEVELOPMENT COSTS 60,018 35,315 129,067 84,394
----------- ----------- ----------- -----------
1,501,896 1,159,482 2,779,170 1,856,497
----------- ----------- ----------- -----------
Gross profit 1,178,416 1,114,277 2,117,198 1,910,416
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 645,111 672,740 1,331,414 1,262,179
----------- ----------- ----------- -----------
Operating income 533,305 441,537 785,784 648,237
INTEREST INCOME 72,492 49,346 150,915 88,437
INTEREST EXPENSE (18,129) (19,950) (37,115) (39,054)
INCOME (LOSS) ON RENTAL PROPERTY 8,791 (752) 15,965 (22,129)
----------- ----------- ----------- -----------
Income before provision for income taxes 596,459 470,181 915,549 675,491
PROVISION FOR INCOME TAXES:
Federal 185,000 144,000 285,000 204,000
State 60,000 52,000 96,000 83,000
----------- ----------- ----------- -----------
Net income $ 351,459 $ 274,181 $ 534,549 $ 388,491
=========== =========== =========== ===========
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE $ .30 $ .24 $ .46 $ .34
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 1,168,481 1,159,415 1,167,565 1,157,855
=========== =========== =========== ===========
DIVIDENDS PAID $ .00 $ .00 $ 115,827 $ 112,724
=========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
SAGE LABORATORIES, INC. AND SUBSIDIARIES
B. CONSOLIDATED BALANCE SHEETS
DECEMBER 30, 1995 AND JUNE 30, 1995
(Unaudited)
Dec. 30, June 30,
1995 1995
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,376,512 $ 5,261,978
Accounts receivable, net of reserve of approximately
$48,000 at Dec. 30, 1995 and $42,000 at June 30, 1995 1,956,410 1,543,964
Inventories 1,058,104 1,296,076
Prepaid expenses and other current assets 444,282 501,147
----------- -----------
Total current assets 8,835,308 8,603,165
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land, buildings and improvements 3,768,658 3,768,658
Machinery and laboratory equipment 1,586,134 1,455,387
Furniture, fixtures and motor vehicles 562,253 471,666
----------- -----------
5,917,045 5,695,711
Less-Accumulated depreciation and amortization 3,137,551 2,840,371
----------- -----------
2,779,494 2,855,340
OTHER ASSETS: ----------- -----------
Notes receivable from an officer/stockholder 74,862 87,039
Other assets 86,785 65,932
----------- -----------
Total other assets 161,647 152,971
----------- -----------
$11,776,449 $11,611,476
=========== ===========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Current maturities of long-term debt $ 166,667 $ 166,667
Accounts payable 349,276 300,686
Accrued expenses-
Compensation 664,802 860,626
Commissions 96,080 98,469
Taxes other than federal income taxes 13,412 42,259
Federal income taxes 169,614 292,114
Other 381,951 322,218
----------- -----------
Total current liabilities 1,841,802 2,083,039
----------- -----------
LONG-TERM DEBT, NET OF CURRENT MATURITIES 750,000 833,332
----------- -----------
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 Dec. 30, 1995 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 12,201,868 11,783,144
----------- -----------
14,483,218 13,991,994
Less-
Cost of 1,517,215 shares of treasury stock at Dec. 30,
1995 and 1,515,740 shares at June 30, 1995 5,448,988 5,420,078
Deferred compensation 56,583 83,811
----------- -----------
Total stockholders' investment 8,977,647 8,488,105
----------- -----------
$11,776,449 $11,611,476
=========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
2
<PAGE>
SAGE LABORATORIES, INC. AND SUBSIDIARIES
C. CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Dec. 30, Dec. 31,
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 534,549 $ 388,491
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation and amortization 297,180 206,565
Notes receivable from an officer/stockholder 12,177 --
Amortization of deferred compensation 27,228 27,277
Changes in assets and liabilities-
Accounts receivable (412,446) 345,972
Inventories 237,972 (407,049)
Prepaid expenses and other current assets 56,865 25,794
Accounts payable 48,590 106,067
Accrued expenses (289,825) (429,619)
----------- -----------
Net cash provided by operating activities 512,290 263,498
=========== ===========
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net (221,334) (211,230)
(Increase) decrease in other assets (20,853) 8,497
----------- -----------
Net cash used in investing activities (242,187) (202,733)
----------- -----------
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)
Payments on long-term debt (83,332) (83,333)
----------- -----------
Net cash used in financing activities (155,569) (141,349)
=========== ===========
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 114,534 (80,584)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,261,978 4,249,524
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,376,512 $ 4,168,940
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest $ 37,115 $ 39,054
Income taxes 555,000 521,187
=========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
3
<PAGE>
SAGE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 1995
(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 six month period ended December 30,
1995, 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:
Dec. 30, June 30,
1995 1995
---- ----
Raw materials and parts $ 323,470 $ 335,968
Work-in-process 629,256 863,328
Finished goods 105,378 96,780
---------- ----------
$1,058,104 $1,296,076
========== ==========
Work-in-process and finished goods include material, labor and
manufacturing overhead.
(3) Line of Credit
At December 30, 1995, the Company has available an unsecured revolving line
of credit of $1,000,000 with a bank, expiring on November 30, 1996. Borrowings
under the line bear interest at the borrower's option at either the bank's prime
rate (8.5% at December 30, 1995), or 30-, 60-, 90-, or 180-day LIBOR (5 5/8% to
5 1/2% at December 30, 1995), plus 1.75%. There were no borrowings under the
line at December 30, 1995.
(4) 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.
4
<PAGE>
SAGE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 1995
(Continued)
(4) Net Income Per Share (Continued)
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.
(5) Stockholders' Investment
(a) Stock Option Plan
The Company has an incentive stock option plan under which key employees
may be granted options to purchase common stock at not less than fair market
value at the date of grant. Options are exercisable in whole or in part two
years after the date of grant and expire no later than 10 years from the date of
grant.
No accounting recognition is given to incentive stock options until they
are exercised, at which time the par value is credited to the common stock
account and the difference between the proceeds received and the par value is
credited to the capital in excess of par value account. An employee may exercise
an outstanding stock option by delivering to the Company mature shares of common
stock previously acquired by the employee, rather than paying cash. The number
of shares the employee must surrender to the Company is equal to the aggregate
exercise price of the stock options divided by the fair market value of the
Company's common stock on the exercise date.
The following table summarizes stock option activity for the six months
ended December 30, 1995:
SHARES PRICE RANGE
------ -----------
Options outstanding June 30, 1995 35,000 $ 2.55-$2.90
Options granted 102,500 $19.78-$21.75
Options exercised (25,000) $2.90
------- -----------
Options outstanding, December 30, 1995 112,500 $2.55-$21.75
------- -----------
Options exercisable at December 30, 1995 10,000 $2.90
------- -----------
At December 30, 1995, 250,000 shares of common stock were reserved for
issuance under the plan, of which 137,500 were available for additional grants.
5
<PAGE>
SAGE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 1995
(Continued)
(5) Stockholders' Investment (Continued)
(b) Director Stock Option Plan
The Company has a Director Stock Option Plan (the "Plan"), the purpose of
which is to attract and retain highly qualified non-employee directors and to
encourage their ownership of common stock. The plan automatically provided for
the annual grant of options to purchase 1,000 shares of common stock to each
director who is serving on the board at the time of such grant and who is not
also an employee of the Company or any subsidiary. The exercise price of the
options was equal to 80% of the fair market value of the shares on the date of
the grant. On September 5, 1995 the directors approved amendments to the Plan
which would provide for the annual automatic grant of 2,500 shares of the
Company's common stock to each eligible director at an exercise price equal to
100% of the fair market value of the shares on the date of the grant. In
addition, an aggregate of 50,000 shares of common stock will be available for
grants under the Plan. At the Company's Annual Meeting of November 14, 1995 the
above amended Plan was approved by the Company's stockholders.
The following table summarizes directors' stock option activity for the six
months ended December 30, 1995:
SHARES PRICE RANGE
------ -----------
Options outstanding June 30, 1995 4,000 $4.04-$8.08
Options granted 10,000 $20.00
Options exercised -- --
------ ------------
Options outstanding, December 30, 1995 14,000 $4.04-$20.00
====== ============
Options exercisable at December 30, 1995 4,000 $4.04-$ 8.08
====== ============
At December 30, 1995, 50,000 shares of common stock were reserved for
issuance under the Directors plan, of which 36,000 shares were available for
additional grants.
6
<PAGE>
D. Management's Discussion and Analysis of Quarterly Income Statements
For the three months ended December 30, 1995, the Company realized net income of
approximately $351,000, or $.30 per share, on sales of $2,680,000. This compares
with net income of approximately $274,000, or $.24 per share, *on sales of
$2,274,000 for the same period a year ago.
Net income was negatively impacted in the second quarter of fiscal 1996 by an
operating loss of approximately $89,000, or $.08 per share, from the Company's
wholly-owned subsidiary, Sage Laboratories Active Microwave Inc. (SLAM). This
compares with a negative impact of approximately 102,000, or $.09 per share, for
the same period a year ago.
Net sales for the three months ended December 30, 1995, increased by
approximately $407,000, or 18% over the previous year. SLAM recorded sales of
approximately $84,000 for the quarter, as compared with $30,000 for the same
period a year ago. The increase in total sales is due to a larger backlog at the
beginning of fiscal 1996 and increased orders received during the first quarter
of fiscal 1996. Orders received in the second quarter totaled approximately
$2,642,000, including $64,000 from SLAM. This compares to $3,647,000, including
$67,000 from SLAM for the same period a year ago. The decline in orders of
approximately $1,000,000 for the quarter is attributed to customers' delays in
placing orders for certain programs. The Company's backlog at the end of the
quarter was $4,988,000, including $357,000 from SLAM. This compares to
$5,077,000, including $72,000 from SLAM for the previous year.
Gross profit as a percentage of sales was 44% for the quarter ended December 30,
1995, as compared to 49% for the same period a year ago. The decrease in gross
profit percentage was due to increased research and development costs of
approximately $25,000 associated with the Company's new commercial switch line
of products, and to cost overruns on certain engineering programs over which the
Company is experiencing design difficulties.
Selling, General and Administrative expense (S G & A) decreased by approximately
$28,000. As a percentage of sales, S G & A decreased to approximately 24% for
the second quarter, as compared to 30% for the same period a year ago. This
reduction is due in part to the increased sales volume. Sales and marketing
expense decreased by approximately $6,000, while commission expense increased by
approximately $17,000, due to the higher sales volume. G & A expense decreased
by approximately $38,000, due to a 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.
Interest income for the three months ended December 30, 1995 increased by
approximately $23,000 from the same period a year ago. This increase is due to a
slightly higher cash position, as well as higher interest rates being paid.
Interest expense for the three months ended December 30, 1995 decreased by
approximately $2,000, due to a decrease in outstanding principal.
7
<PAGE>
The Company generated a profit of approximately $9,000 from its rental property,
compared to a loss of approximately $1,000 for the same period a year ago. 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 commercial line of switches.
The Company's net book value of property held for rent (including renovations)
at December 30, 1995, and December 31, 1994, is as follows:
1995 1994
---- ----
3 Huron Drive (old facility) $ 540,112 $ 618,050
11 Huron Drive (rented portion) 289,239* 639,390
---------- ----------
Total $ 829,351 $1,257,440
========== ==========
*Change due to the Company occupying additional space for its commercial switch
line.
Federal and state income taxes for the six months ended December 30, 1995, and
December 31, 1994, were provided for at their respective statutory rates. Six
Months Ended December 30, 1995 and December 31, 1994
For the Six months ended December 30, 1995, the Company realized net income of
$535,000, or $.46 per share, on sales of $4,896,000. This compared with net
income of $388,000, or $.34 per share, on sales of $3,767,000 for the same
period a year ago.
Net income for the six months ended December 30, 1995 was negatively impacted by
a loss of approximately $199,000, or $.17 per share, from SLAM. This compares
with a negative impact of approximately $250,000, or $.22 per share, for the
same period a year ago.
Net sales for the six months increased by approximately $1,129,000 or 30%, over
the previous year. Slam recorded sales of $118,000 for the six months ended
December 30, 1995, compared to $41,000 for the same period a year ago. The
increase in total sales is due to a larger backlog at the start of fiscal 1996
and increased orders received in the first quarter of fiscal 1996. total orders
received were $5,200,000 (including $412,000 from SLAM) for the first six months
of fiscal 1996, as compared to $5,719,000 (including $123,000 from SLFAM) for
the same period a year ago. Although Sage core business orders have decreased by
approximately $800,000 from the previous year, we feel confident that the
Company's goals for orders in fiscal 1996 will be met.
Gross profit as a percentage of sales was approximately 43% for the six months
ended December 30, 1995 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 $45,000. This increase is comprised of
$65,000 in Research and Development expenses for Sage core business associated
with Sage's new commercial switch line, and a reduction of approximately $20,000
in SLAM Research and Development expenses for the previous year. Other
contributing factors are $59,000 negative gross profit attributed to SLAM, and
an increase in cost overruns on Sage core engineering programs.
8
<PAGE>
Selling, General and Administrative Expense (S G & A) increased by approximately
$69,000 over the same period a year ago. Selling expense increased by
approximately $12,000. This increase is primarily due to increased commission
expense of approximately $29,000 attributed to increased sales volume and an
increase in Sage core marketing expenses of approximately $26,000, offset by a
decrease in SLAM's marketing expenses of approximately $43,000. The increase in
Sage core marketing expenses is due to increased travel, technical publications,
and catalog expenses. General and Administrative expense increased by
approximately $57,000. This increase is due to increases in compensation and
related items, as well as professional expenses, offset by a decrease in
consulting fees associated with the Company's former chairman of the board.
Interest income for the six months ended December 30, 1995 increased by
approximately $62,000 over the same period a year ago. This increase is due to a
higher cash position, as well as higher interest rates being paid.
The Company recorded a profit of approximately $16,000 from rental property for
the six months ended December 30, 1995. This compares with a loss of
approximately $22,000 for the same period a year ago.
Federal and state income taxes for the six months ended December 30, 1995, and
December 31, 1994, were provided for at their respective statutory rates.
Liquidity and Capital Resources
For the six months ended December 30, 1995, operating activities generated cash
of $512,000, an increase of $249,000 over the six months ended December 31,
1994. Cash used in investing activities amounted to $242,000 and $203,000,
respectively, while cash used for financing activities was $156,000 and
$141,000, 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.
9
<PAGE>
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:
At the Annual Meeting of Stockholders held on November 14, 1995, the
following matters were submitted to votes of the stockholders:
(a) Amendments of the Corporation's Restated Articles of Organization
changing the par value of the Corporation's common stock from $1.00
per share to $.10 per share and increasing the number of authorized
shares of the Corporation's common stock from 650,000 shares to
10,000,000 shares. The vote with respect to this matter was as
follows:
NUMBER OF SHARES
----------------
For 175,450
Against or withheld 4,239
Abstain 560
Broker Non-Votes 180
(b) Amendment to the Corporation's 1992 Directors Stock Option Plan so
as to increase the pool of shares allocated to the plan to 10,000
shares and provide for the annual automatic grant of options for 500
shares to each director at an annual price equal to 100% of the fair
market value as of the date of the grant. The vote with respect to
such matter was as follows:
NUMBER OF SHARES
----------------
For 175,280
Against or withheld 4,489
Abstain 660
Broker Non-Votes --
5. Other Information: None
6. Exhibits and Reports on Form 8-K: None
10
<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: February 13, 1996 SAGE LABORATORIES, INC. AND SUBSIDIARIES
/S/ Carl A. Marguerite
------------------------------------
President-Treasurer
(Principal executive officer;
principal financial officer;
principal accounting officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000086166
<NAME> Sage Laboratories, Inc.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> DEC-30-1995
<CASH> 5,376,512
<SECURITIES> 0
<RECEIVABLES> 2,004,410
<ALLOWANCES> 48,000
<INVENTORY> 1,058,104
<CURRENT-ASSETS> 8,835,308
<PP&E> 5,917,045
<DEPRECIATION> 3,137,551
<TOTAL-ASSETS> 11,776,449
<CURRENT-LIABILITIES> 1,841,802
<BONDS> 750,000
0
0
<COMMON> 267,548
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 11,776,449
<SALES> 4,896,368
<TOTAL-REVENUES> 4,896,368
<CGS> 2,779,170
<TOTAL-COSTS> 2,779,170
<OTHER-EXPENSES> 1,331,414
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,115
<INCOME-PRETAX> 915,549
<INCOME-TAX> 381,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 534,549
<EPS-PRIMARY> .46
<EPS-DILUTED> .46
</TABLE>
