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 March 29, 1997 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 29, 1997, the Company had outstanding 1,161,265 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. Income Information:
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
Mar. 29, Mar. 30, Mar. 29, Mar. 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES AND CONTRACT REVENUES $ 2,177,710 $ 2,089,982 $ 6,744,179 $ 6,986,350
COST OF SALES AND CONTRACT COSTS 1,377,219 924,401 3,830,015 3,574,504
ENGINEERING AND NEW PRODUCT DEVELOPMENT COSTS 91,590 66,864 199,241 195,931
----------- ----------- ----------- -----------
1,468,809 991,265 4,029,256 3,770,435
----------- ----------- ----------- -----------
Gross profit 708,901 1,098,717 2,714,923 3,215,915
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 682,410 569,286 1,939,396 1,900,700
----------- ----------- ----------- -----------
Operating income 26,491 529,431 775,527 1,315,215
INTEREST INCOME 64,664 76,694 205,327 227,609
INTEREST EXPENSE (13,759) (16,334) (43,037) (53,449)
INCOME ON RENTAL PROPERTY 16,218 11,539 42,970 27,504
----------- ----------- ----------- -----------
Income before provision for income taxes 93,614 601,330 980,787 1,516,879
PROVISION/(BENEFIT) FOR INCOME TAXES:
Federal (5,000) 135,000 267,000 420,000
State 11,000 51,000 99,000 147,000
----------- ----------- ----------- -----------
Net income $ 87,614 $ 415,330 $ 614,787 $ 949,879
=========== =========== =========== ===========
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE $ .07 $ .36 $ .52 $ .81
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 1,176,788 1,169,482 1,172,927 1,168,802
=========== =========== =========== ===========
DIVIDENDS PAID $ -- $ -- $ 116,127 $ 115,827
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
SAGE LABORATORIES, INC. AND SUBSIDIARIES
B. CONSOLIDATED BALANCE SHEETS
MARCH 29, 1997 AND JUNE 30, 1996
(Unaudited)
Mar. 29, June 30,
ASSETS 1997 1996
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents $ 5,389,111 $ 5,878,691
Accounts receivable, net of reserve of
approximately $59,300 at Mar. 29, 1997
and $50,000 at June 30, 1996 1,715,417 1,993,452
Inventories 1,651,134 1,348,469
Prepaid expenses and other current assets 685,719 485,405
----------- -----------
Total current assets 9,441,381 9,706,017
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land, buildings and improvements 4,191,088 3,989,760
Machinery and laboratory equipment 2,051,766 1,753,072
Furniture, fixtures and motor vehicles 820,493 664,894
----------- -----------
7,063,347 6,407,726
Less--Accumulated depreciation and amortization 3,747,678 3,302,607
----------- -----------
3,315,669 3,105,119
----------- -----------
OTHER ASSETS:
Notes receivable from an officer/stockholder 23,047 55,043
Other assets 157,148 161,536
----------- -----------
Total other assets 180,195 216,579
----------- -----------
$12,937,245 $13,027,715
=========== ===========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Current maturities of long-term debt $ 166,667 $ 166,667
Accounts payable 397,084 394,221
Accrued expenses-
Compensation 600,167 762,025
Commissions 143,772 136,364
Taxes other than federal income taxes 18,603 85,259
Federal income taxes -- 261,827
Other 254,773 268,191
----------- -----------
Total current liabilities 1,581,066 2,074,554
----------- -----------
LONG-TERM DEBT, NET OF CURRENT MATURITIES 541,666 666,665
----------- -----------
DEFERRED INCOME TAXES 190,000 190,000
----------- -----------
STOCKHOLDERS' INVESTMENT:
Common Stock, $.10 par value --
Authorized--10,000,000 shares
Issued--2,678,480 shares in 1997 and 1996 267,848 267,848
Capital in excess of par value 2,030,182 2,030,182
Retained earnings 13,775,471 13,276,809
----------- -----------
16,073,501 15,574,839
Less--
Cost of 1,517,215 shares of treasury stock
in 1997 and 1996 5,448,988 5,448,988
Deferred compensation -- 29,355
----------- -----------
Total stockholders' investment 10,624,513 10,096,496
----------- -----------
$12,937,245 $13,027,715
=========== ===========
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)
Mar 29, Mar 30,
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 614,787 $ 949,879
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation and amortization 467,573 445,770
Amortization of deferred compensation 29,355 40,842
Changes in assets and liabilities-
Accounts receivable 278,035 143,064
Inventories (302,665) (157,230)
Prepaid expenses and other current assets (200,314) (3,795)
Accounts payable 2,863 79,494
Accrued expenses (496,351) (249,389)
----------- ----------
Net cash provided by operating activities 393,283 1,248,635
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net (655,621) (319,566)
Increase in other assets (18,112) (53,304)
----------- -----------
Net cash used in investing activities (673,733) (372,870)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Notes receivable
from an officer/stockholder 31,996 31,996
Exercise of stock options - 72,500
Purchase of treasury stock - (28,910)
Payment of cash dividend (116,127) (115,827)
Payments on long-term debt (124,999) (124,999)
----------- -----------
Net cash used in financing activities (209,130) (165,240)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (489,580) 710,525
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,878,691 5,261,978
---------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,389,111 $ 5,972,503
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest $ 44,195 $ 53,449
=========== ===========
Income taxes $ 593,542 $ 810,500
=========== ===========
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 29, 1997
(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 period ended March 29,
1997, are not necessarily indicative of results to be expected for the full
fiscal year.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenue and expense during the reporting period. Actual
results could differ from those estimates.
(2) Inventories
Inventories, priced at the lower of cost (first-in, first-out) or market,
are as follows:
Mar. 29, 1997 June 30, 1996
------------- -------------
Raw materials and parts $ 553,192 $ 406,581
Work-in-process 907,477 814,776
Finished goods 190,465 127,112
------------ -------------
$ 1,651,134 $ 1,348,469
============= =============
Work-in-process and finished goods include material, labor and
manufacturing overhead.
(3) Line of Credit
At March 29, 1997, the Company has available an unsecured revolving line of
credit of $2,000,000 with a bank, expiring on November 30, 1997. Borrowings
under the line bear interest at the borrower's option at either the bank's prime
rate (8.5% at March 29, 1997), or 30-, 60-, 90-, or 180-day LIBOR (5 .66% to
5.93% at March 29, 1997), plus 1.75%. There were no borrowings under the line at
March 29, 1997.
<PAGE>
SAGE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 29, 1997
(Continued)
(4) 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 as determined by the
compensation committee of the Board of Directors 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.
At the November 12, 1996 annual meeting, it was voted to add 250,000 shares
to the Company's Stock Option Plan, so that a total of 288,500 shares would be
reserved for the grant of options under the plan.
The following table summarizes stock option activity for the nine months
ended March 29,1997:
SHARES PRICE RANGE
------ -----------
Options outstanding June 30, 1996 111,500 $ 2.55-$21.75
Options granted 168,100 $12.75-$15.00
Options canceled (11,500) 19.775
------- -------------
Options outstanding March 29, 1997 268,100 $ 2.55-$21.75
======= =============
Options exercisable at March 29, 1997 103,033 $ 2.55-$21.75
======= ==============
At March 29, 1997, 500,000 shares of common stock were reserved for
issuance under the plan, of which 231,900 were available for additional grants.
<PAGE>
SAGE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 29, 1997
(Continued)
(5) New Accounting Standard
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 128 (SFAS No. 128), Earnings Per Share. SFAS
No. 128 established standards for computing and presenting earnings per share
and applies to entities with publicly held common stock. This statement is
effective for fiscal years ended after December 15, 1997 and early adoption is
not permitted.
When adopted, the statement will require restatement of prior years
earnings per share. The Company will adopt this statement during its fiscal year
ending June 30, 1998. In addition, the Company believes that the adoption of
SFAS No. 128 will not have a material effect on its financial statements.
D. Management's Discussion and Analysis of Quarterly Income Statements
For the three months ended March 29,1997, the Company realized net income
of approximately $88,000, or $.07 per share, on sales of $2,178,000. This
compares with net income of approximately $415,000, or $.36 per share, on
sales of $2,090,000 for the same period a year ago.
Net income was negatively impacted in the third quarter of fiscal 1997 by a
net loss of approximately $45,000, or $.04 per share, from the Company's
wholly-owned subsidiary, Sage Laboratories Active Microwave, Inc. (SLAM).
SLAM's net loss was approximately $14,000, or $.01 per share, for the same
period a year ago.
Net sales for the three months ended March 29, 1997, increased
approximately $88,000, or 4% over the previous year. SLAM recorded sales of
approximately $144,000 for the quarter, as compared with $141,000 for the
same period a year ago. Sage Laboratories, Inc. sales increased by $85,000,
or 4%, as compared with the same period a year ago. The sales increase is
primarily attributable to sales volume changes among certain customers.
Orders received in the third quarter totaled approximately $3,343,000,
including $352,000 from SLAM and $708,000 in new commercial switch orders.
This compares to $2,529,000, including $33,000 from SLAM for the same
period a year ago. The increase in orders of approximately $804,000 for the
quarter is attributable to receipt of orders previously delayed from
certain customers as well as orders for new product offerings. The
Company's backlog at the end of the quarter was $5,202,000, including
$504,000 from SLAM. This compares to $5,425,000, including $306,000 from
SLAM for the previous year.
<PAGE>
SAGE LABORATORIES, INC. AND SUBSIDIARIES
MARCH 29, 1997
D. Management's Discussion and Analysis of Quarterly Income Statements -
(Continued)
Gross profit as a percentage of sales was 33% for the quarter ended March
29, 1997, as compared to 53% for the same period a year ago. The decrease
in gross profit is attributable to a shift in product mix towards lower
margin products in the current quarter, additional costs incurred related
to jobs experiencing difficulties, and start up expenses from the new
commercial switch product line.
Selling, General and Administrative expense (S G & A) increased by
approximately $113,000. As a percentage of sales, S G & A increased to
approximately 31% for the third quarter, as compared to 27% for the same
period a year ago. The increase is attributable to increased marketing
expense of $60,000, supplies & services expense of $52,000, and commission
expense of $17,000. These increases were partially offset by reductions in
salaries and related items of $16,000.
Interest income for the three months ended March 29, 1997 decreased by
approximately $12,000 from the same period a year ago. This decrease is due
to a lower average cash position and to lower interest rates being paid.
Interest expense for the three months ended March 29, 1997 decreased by
approximately $3,000 due to a decrease in the outstanding principal
balance.
The Company generated a profit of approximately $16,000 from its rental
property, as compared to $12,000 for the same period a year ago. The
Company's rental property is fully occupied.
The Company's net book value of property held for rent (including
renovations) at March 29, 1997, and March 30, 1996, is as follows:
1997 1996
---- ----
3 Huron Drive (old facility) $442,814 $520,612
11 Huron Drive (rented portion) 250,171 280,684
------- -------
Total $692,985 $801,296
The Company's combined effective federal and state income tax rate for the
three months ended March 29, 1997 and March 30, 1996 was 6.4% and 31%,
respectively. Benefit for federal income taxes in the quarter ended March
29, 1997 was recorded as a result of a reduction in the Company's estimated
annual effective tax rate.
<PAGE>
SAGE LABORATORIES, INC. AND SUBSIDIARIES
MARCH 29, 1997
D. Management's Discussion and Analysis of Quarterly Income Statements -
(Continued)
Nine Months Ended March 29, 1997 and March 30, 1996
For the nine months ended March 29, 1997, the Company realized net income
of $615,000, or $.52 per share, on sales of $6,744,000. This compared with
net income of $950,000, or $.81 per share, on sales of $6,986,000 for the
same period a year ago.
Net income for the nine months ended March 29, 1997, was negatively
impacted by a net loss of approximately $138,000, or $.12 per share, from
SLAM. This compares to a net loss of approximately $146,000, or $.13 per
share, for the same period a year ago.
Net sales for the nine months March 29, 1997, decreased by $242,000 or 3%,
from the previous year. SLAM recorded sales of $457,000 for the nine months
ended March 29, 1997, compared to $259,000 for the same period a year ago.
The decrease in total sales is due to reductions in product requirements
for certain large customers. Total orders received were $7,351,000
(including $695,000 from SLAM) for the first nine months of fiscal 1997.
Included in this amount is approximately $778,000 in new commercial switch
orders. This compares to $7,729,000, including $503,000 from SLAM, for the
same period a year ago.
Gross profit as a percentage of sales was approximately 40% for the nine
months ended March 29, 1997 as compared to approximately 46% for the same
period a year ago. The decrease in gross profit is primarily attributable
to a shift in product mix towards lower margin products, additional costs
incurred related to jobs experiencing difficulties, and start up expenses
from the new commercial switch product line, partially offset by higher
margins earned on certain engineering programs.
Selling, General and Administrative Expense (S G & A) increased by
approximately $39,000 from the same period a year ago. The increase is due
to higher sales and marketing expense of $45,000, supplies and services
expense of $46,000, and commission expense of $42,000. These increases were
partially offset by a reduction in fees associated with the consulting
agreement with the Company's former chairman of $55,000 and reduced salary
and benefit costs of $39,000.
Interest income for the nine months ended March 29, 1997 decreased by
approximately $22,000 from the same period a year ago. This decrease is due
to a lower average cash position and to lower interest rates being paid.
Interest expense for the nine months ended March 29, 1997 decreased by
approximately $10,000 from the same period a year ago. This decrease is due
to lower outstanding principal balance on the Company's debt.
<PAGE>
SAGE LABORATORIES, INC. AND SUBSIDIARIES
MARCH 29, 1997
D. Management's Discussion and Analysis of Quarterly Income Statements -
(Continued)
The Company recorded a profit of approximately $43,000 from rental property
for the nine months ended March 29, 1997, as compared to a profit of
$28,000 for the same period a year ago.
The Company's combined effective Federal and state income tax rate for the
nine months ended March 29, 1997 and March 30, 1996, was 37.3% and 37.4%,
respectively. This is lower than the combined statutory rate, due to
benefits from the Company's Foreign Sales Corporation, tax credits and
favorable treatment afforded the Company's Massachusetts Security
Corporation.
Liquidity and Capital Resources
For the nine months ended March 29, 1997, operating activities generated
cash of $393,000 a decrease of $855,000 from the nine months ended March
30, 1996. Cash used in investing activities amounted to $674,000 and
$373,000, respectively, while cash used for financing activities was
$209,000 and $165,000, 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 related 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 $2,000,000 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 1997 will
be approximately $700,000. 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 9, 1997 SAGE LABORATORIES, INC. AND SUBSIDIARIES
-------------------
/S/ Carl A. Marguerite
-----------------------
(Principal executive officer;
principal financial officer)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000086166
<NAME> SAGE LABORATORIES
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-29-1997
<CASH> 5,389,111
<SECURITIES> 0
<RECEIVABLES> 1,774,717
<ALLOWANCES> 59,300
<INVENTORY> 1,651,134
<CURRENT-ASSETS> 9,441,381
<PP&E> 7,063,347
<DEPRECIATION> 3,747,678
<TOTAL-ASSETS> 12,937,245
<CURRENT-LIABILITIES> 1,581,066
<BONDS> 541,666
267,848
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 12,937,245
<SALES> 6,744,179
<TOTAL-REVENUES> 6,744,179
<CGS> 4,029,256
<TOTAL-COSTS> 4,029,256
<OTHER-EXPENSES> 1,939,396
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,037
<INCOME-PRETAX> 980,787
<INCOME-TAX> 366,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 614,787
<EPS-PRIMARY> .52
<EPS-DILUTED> .52
</TABLE>
