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 28, 1998 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__[GRAPHIC OMITTED] No_________
On March 28, 1998, the Company had outstanding 1,085,265 shares of common stock,
$.10 par value, which is its only class of stock.
<PAGE>
PART 1 - FINANCIAL INFORMATION
SAGE LABORATORIES, INC. AND SUBSIDIARIES
Item I - Financial Statements
A. Statements of Income
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
Mar. 28, Mar. 29, Mar. 28, Mar. 29,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES AND CONTRACT REVENUES $ 2,660,485 $ 2,177,710 $ 7,338,621 $ 6,744,179
COST OF SALES AND CONTRACT COSTS 1,631,549 1,377,219 4,280,096 3,830,015
ENGINEERING AND NEW PRODUCT DEVELOPMENT COSTS 149,462 91,590 339,588 199,241
----------- ----------- ----------- -----------
Gross Profit 879,474 708,901 2,718,937 2,714,923
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 846,359 682,410 2,330,929 1,939,396
----------- ----------- ----------- -----------
Operating Income 33,115 26,491 388,008 775,527
INTEREST INCOME 49,497 64,664 161,739 205,327
INTEREST EXPENSE (13,300) (13,759) (37,003) (43,037)
INCOME ON RENTAL PROPERTY 25,215 16,218 61,167 42,970
----------- ----------- ----------- -----------
Income before provision for income taxes 94,527 93,614 573,911 980,787
PROVISION FOR INCOME TAXES:
Federal 24,000 (5,000) 162,000 267,000
State 3,000 11,000 44,000 99,000
----------- ----------- ----------- -----------
Net Income $ 67,527 $ 87,614 $ 367,911 $ 614,787
=========== =========== =========== ===========
NET INCOME PER SHARE:
Basic $ 0.06 $ 0.08 $ 0.34 $ 0.53
=========== =========== =========== ===========
Diluted $ 0.06 $ 0.07 $ 0.34 $ 0.52
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING:
Basic 1,082,932 1,161,265 1,086,154 1,161,265
=========== =========== =========== ===========
Diluted 1,089,217 1,176,788 1,092,965 1,172,927
=========== =========== =========== ===========
DIVIDENDS PAID $ -- $ -- $ 108,176 $ 116,127
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
SAGE LABORATORIES, INC. AND SUBSIDIARIES
B. CONSOLIDATED BALANCE SHEETS
MARCH 28, 1998 and JUNE 30, 1997
<TABLE>
<CAPTION>
ASSETS March 28, 1998 June 30, 1997
-------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash & cash equivalents $ 4,454,121 $ 5,280,584
Accounts receivable, net of reserve of approximately
$68,000 in 1998 and $62,000 in 1997 1,801,409 1,749,778
Inventories 2,247,706 1,936,015
Prepaid expenses and other current assets 491,696 661,883
----------- -----------
Total current assets 8,994,932 9,628,260
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land, buildings, and improvements 4,213,450 4,191,088
Machinery & laboratory equipment 2,508,146 2,180,492
Furniture, fixtures, and motor vehicles 739,279 691,192
----------- -----------
7,460,875 7,062,772
Less--Accumulated depreciation and amortization 4,308,837 3,869,877
----------- -----------
3,152,038 3,192,895
----------- -----------
OTHER ASSETS:
Notes receivable from an officer/stockholder -- 23,047
Other assets 130,614 151,457
----------- -----------
Total other assets 130,614 174,504
----------- -----------
$12,277,584 $12,995,659
=========== ===========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Current maturities of long-term debt $ 166,667 $ 166,667
Accounts payable 375,644 427,022
Accrued expenses
Taxes other than federal income taxes 59,677 --
Federal Income Taxes 161,847 --
Compensation 793,154 635,297
Commission 138,720 155,701
Other 283,522 256,191
----------- -----------
Total current liabilities 1,979,231 1,640,878
----------- -----------
LONG-TERM DEBT, NET OF CURRENT MATURITIES 333,333 500,000
----------- -----------
DEFERRED INCOME TAXES 144,000 144,000
----------- -----------
STOCKHOLDERS' INVESTMENT
Common stock, .$10 par value--
Authorized--10,000,000 shares
Issued--2,685,480 shares in 1998 and
2,681,980 in 1997 268,548 268,198
Capital in excess of par value 2,047,332 2,038,757
Retained earnings 14,112,548 13,852,814
----------- -----------
16,428,428 16,159,769
Less-
Cost of 1,600,215 shares of treasury stock in
1998 and 1,517,215 in 1997 6,607,408 5,448,988
----------- -----------
Total stockholders' investment 9,821,020 10,710,781
----------- -----------
$12,277,584 $12,995,659
=========== ===========
</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
<TABLE>
<CAPTION>
For the Nine Months Ended
Mar. 28, 1998 Mar. 29, 1997
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 367,911 $ 614,787
Adjustments to reconcile net income to net cash
provided by operating activities--
Depreciation & amortization 438,960 467,573
Amortization of deferred compensation -- 29,355
Changes in assets & liabilities-
Accounts receivable (51,631) 278,035
Inventories (311,691) (302,665)
Prepaid expenses & other current assets 170,187 (200,314)
Accounts payable (51,378) 2,863
Accrued expenses 389,731 (496,351)
----------- -----------
Net cash provided by operating activities 952,089 393,283
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant, & equipment, net (398,103) (655,621)
Decrease (increase) in other assets 20,843 (18,112)
----------- -----------
Net cash used in investing activities (377,260) (673,733)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes receivable from an officer/stockholder 23,047 31,966
Exercise of stock options 8,925 --
Purchase of treasury stock (1,158,420) --
Payment of cash dividend (108,177) (116,127)
Payments on long-term debt (166,667) (124,999)
----------- -----------
Net cash used in financing activities (1,401,292) (209,130)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (826,463) (489,580)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,280,584 5,878,691
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,454,121 $ 5,389,111
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for--
Interest $ 46,145 $ 44,195
=========== ===========
Income taxes $ 6,758 $ 593,542
=========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
SAGE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 28, 1998
(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 28,
1998 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 expenses 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:
<TABLE>
<CAPTION>
March 28, June 30,
1998 1997
---------- ----------
<S> <C> <C>
Raw materials and parts $ 601,602 $ 813,606
Work-in-process 1,219,453 943,453
Finished goods 426,651 178,956
---------- ----------
$2,247,706 $1,936,015
========== ==========
</TABLE>
Work-in-process and finished goods include material, labor and manufacturing
overhead.
(3) Net Income Per Common Share
On March 31, 1997, the Financial Accounting Standards Board issued SFAS
No.128, Earnings Per Share. SFAS No.128 establishes standards for computing and
presenting earnings per share (EPS) and applies to entities with publicly held
common stock or potential common stock. During the third quarter ended March 28,
1998, the Company adopted SFAS No.128 and is now required to report both basic
and diluted earnings per share. Basic EPS is computed by dividing net income by
the weighted average number of common shares outstanding during the period.
Diluted EPS reflects the potential dilution from common stock equivalents (stock
options). The Company has restated earnings per share for the comparative prior
periods for fiscal 1997 as required by SFAS No.128.
<PAGE>
SAGE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 28, 1998
<TABLE>
<CAPTION>
For the For the
Three Months Ended Nine Months Ended
------------------------------ ------------------------------
March 28 March 29 March 28 March 29
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Income $ 67,527 $ 87,614 $ 367,911 $ 614,787
Weighted Average Common
Shares Outstanding 1,082,932 1,161,865 1,086,154 1,161,265
Dilutive Effect of Stock
Options Outstanding 6,285 15,523 6,811 11,662
---------- ---------- ---------- ----------
Weighted Average Common and Common
Equivalent Shares Outstanding 1,089,217 1,176,788 1,092,965 1,172,927
========== ========== ========== ==========
Diluted Earnings Per Share $ 0.06 $ 0.07 $ 0.34 $ 0.52
========== ========== ========== ==========
</TABLE>
Not included in the calculation of diluted earnings per share are 187,666
options for the quarter and 177,666 options for the nine months, because they
are antidiluted.
D. Management's Discussion and Analysis of Quarterly Income Statement
Three Months Ended March 28, 1998 and March 29, 1997
For the three months ended March 28, 1998, the Company realized net income of
$67,527, or $.06 per diluted share, on net sales of approximately $2,660,000.
This compares with net income of $87,614, or $.07 per diluted share, on net
sales of approximately $2,178,000 for the same period a year ago.
Total net sales for the three months ended March 28, 1998 increased by $482,000,
or 22%, compared to the same period a year ago. Sage Laboratories Active
Microwave, Inc. (SLAM) recorded sales of $288,000 for the quarter, as compared
with $144,000 for the same period a year ago. The increase in sales is mostly
attributable to increased engineered product sales of $517,000, offset by
decreases in catalog and adaptable or reorderable items of $35,000. Orders
received in the third quarter totaled $3,429,000, including $49,000 from SLAM.
This compares with $3,343,000, including $352,000 from SLAM, for the same period
a year ago. The Company's backlog as of March 28, 1998 was $5,751,000, including
$652,000 from SLAM. This compares to $5,202,000, including $504,000 from SLAM a
year ago.
Gross profit as a percentage of sales was approximately 33% for both the three
months ended March 28, 1998, and the same period a year ago.
Selling, General and Administrative expenses (S G & A) as a percentage of sales
was 32% for the quarter ended March 28, 1998, compared to 31% for the same
period a year ago. S G & A expenses increased by approximately $164,000. Selling
expense decreased by approximately $28,000. This decrease was due to a decrease
in commission expense of approximately $9,000 and decreases in sales salaries
and related items for the quarter. G & A expense increased by approximately
$192,000, primarily due to a one time charge of $258,000 associated with the
termination of the Company's former president, offset by other decreases in
salaries and related items.
<PAGE>
SAGE LABORATORIES, INC. AND SUBSIDIARIES
MARCH 28, 1998
Interest income for the three months ended March 28, 1998 decreased by
approximately $15,000 from the same period a year ago. This decrease is
attributable to reductions in cash available for investing. Interest expense for
the period ended March 28, 1998 was approximately the same as the same period a
year ago.
The Company's rental property continues to be fully leased. Profit on rental
property increased by $8,997 to approximately $25,000 for the period ended March
28, 1998, as compared to the same period a year ago.
The Company's net book value of property held for rent (including renovations)
at March 28, 1998 and March 29, 1997 is as follows:
1998 1997
---- ----
3 Huron Drive (old facility) $373,966 $442,814
11 Huron Drive (rented portion) 237,118 250,171
-------- --------
Total $611,084 $692,985
======== ========
Nine Months Ended March 28, 1998 and March 29, 1997
For the nine months ended March 28, 1998, the Company realized net income of
$367,911, or $.34 per diluted share, on sales of approximately $7,339,000. This
compared with net income of $614,787, or $.52 per diluted share, on sales of
approximately $6,744,000 for the same period a year ago.
Net sales for the nine months ended March 28, 1998 increased by approximately
$595,000, or 9%, compared to the same period a year ago. SLAM recorded sales of
$605,000 for the nine months, as compared with $457,000 for the same period a
year ago. The increase in total sales is due to increases in catalog and
adaptable or reorderable sales items, offset by decreased revenues from
engineered items. Total orders received were $7,629,000, including $656,000 from
SLAM, for the first nine months of fiscal 1998, as compared to $7,351,000,
including $695,000 from SLAM, for the same period a year ago.
Gross profit as a percentage of sales was approximately 37% for the nine months
ended March 28, 1998, as compared to approximately 40% for the same period a
year ago. The decrease in gross profit percentage is primarily attributable to
reduced margins earned on certain engineering programs, and to an increase in
research and development expense of $140,000. For the nine months ended March
28, 1998, gross profit at SLAM was $116,000, as compared to a negative gross
profit of $57,000 for the same period a year ago.
S G & A as a percentage of sales was 32% for the nine months ended March 28,
1998, compared to 29% for the same period a year ago. S G & A expense increased
by $392,000. Selling expense increased by approximately $40,000. This increase
is primarily due to increased commission expense of $25,000 attributed to
increased sales, and marketing expense of $15,000. G & A expense increased by
approximately $351,000, mainly due to a one time charge of $258,000 associated
with the termination of the Company's former president and increases in salaries
and related items, including increased accounting and administrative staff.
Interest income for the nine months ended March 28, 1998 decreased by
approximately $44,000 from the same period a year ago. This decrease is due to a
lower average cash position.
Interest expense for the nine months ended March 28, 1998 decreased by $6,000,
due to scheduled principal reductions in outstanding obligations, offset by
interest assessed on prior year tax returns.
The Company recorded a profit of approximately $61,000 from rental property for
the nine months ended March 28, 1998 as compared to a profit of $43,000 for the
same period a year ago.
<PAGE>
SAGE LABORATORIES, INC. AND SUBSIDIARIES
MARCH 28, 1998
Federal and State income taxes for the nine months ended March 28, 1998 and
March 29, 1997 were provided at their respective statutory rates.
Liquidity and Capital Resources
For the nine months ended March 28, 1998 operating activities generated cash of
$952,000, an increase of $559,000 from the nine months ended March 29, 1997.
Cash used in investing activities for the nine months ended March 28, 1998 and
March 29, 1997, amounted to $377,000 and $674,000 respectively, while cash used
for financing activities was $1,401,000 and $209,000, 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 $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 1998 will be approximately $500,000 and
that no outside funding will be required.
During the nine months ended March 28, 1998, the Company purchased 83,000 shares
of its stock at a cost of $1,158,420, at an average price of $13.96 per share.
The purchase of 65,000 shares was made pursuant to the put provision of a
put-and-call agreement with a relative of the former chairman of the Company's
Board of Directors, and the remaining balance of 18,000 shares were acquired on
the open market.
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
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 11, 1998 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, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-28-1998
<CASH> 4,454,121
<SECURITIES> 0
<RECEIVABLES> 1,733,409
<ALLOWANCES> 68,000
<INVENTORY> 2,247,706
<CURRENT-ASSETS> 8,994,932
<PP&E> 7,460,875
<DEPRECIATION> 4,308,837
<TOTAL-ASSETS> 12,277,584
<CURRENT-LIABILITIES> 1,979,231
<BONDS> 333,333
268,548
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 12,277,584
<SALES> 2,660,485
<TOTAL-REVENUES> 2,660,485
<CGS> 1,781,011
<TOTAL-COSTS> 1,781,011
<OTHER-EXPENSES> 846,359
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (13,300)
<INCOME-PRETAX> 94,527
<INCOME-TAX> 27,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 67,527
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
