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 September 30, 1995 Commission File Number 1-7054
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SAGE LABORATORIES, INC.
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(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2179082
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(State or other jurisdiction of (I.R.S.Employer
incorporation or organization Identification number)
11 Huron Drive, Natick Massachusetts 01760
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(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
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On September 30, 1995, the Company had outstanding 231,653 shares of common
stock, $1.00 par value, which is its only class of stock.
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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:
For the Three Months Ended
Sept. 30, June 30,
1995 1995
NET SALES AND CONTRACT REVENUES $ 2,216,056 $ 1,493,154
COST OF SALES AND CONTRACT COSTS 1,208,225 647,936
ENGINEERING AND NEW PRODUCT DEVELOPMENT COSTS 69,049 49,079
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1,277,274 697,015
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Gross profit 938,782 796,139
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 686,303 589,439
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Operating income 252,479 206,700
INTEREST INCOME 78,423 39,091
INTEREST EXPENSE (18,986) (19,104)
INCOME (LOSS) ON RENTAL PROPERTY 7,174 (21,377)
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Income before provision
for income taxes 319,090 205,310
PROVISION FOR INCOME TAXES:
Federal 100,000 60,000
State 36,000 31,000
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Net income $ 183,090 $ 114,310
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NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE $ .78 $ .49
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WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES OUTSTANDING 233,330 231,258
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DIVIDENDS PER SHARE $ .50 $ .50
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The accompanying notes are an integral part of these
consolidated financial statements.
F-2
SAGE LABORATORIES, INC. AND SUBSIDIARIES
B. CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 AND JUNE 30, 1995
(Unaudited)
Sept. 30, June 30,
ASSETS 1995 1995
CURRENT ASSETS:
Cash and cash equivalents $ 4,820,219 $ 5,261,978
Accounts receivable, net of reserve of
approximately $45,000 at Sept 30, 1995
and $42,000 at June 30, 1995 1,911,865 1,543,964
Inventories 1,205,401 1,296,076
Prepaid expenses and other current assets 477,292 501,147
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Total current assets 8,414,777 8,603,165
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PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land, buildings and improvements 3,769,212 3,768,658
Machinery and laboratory equipment 1,488,108 1,455,387
Furniture, fixtures and motor vehicles 511,219 471,666
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5,768,539 5,695,711
Less--Accumulated depreciation and amortization 2,988,961 2,840,371
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2,779,578 2,855,340
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OTHER ASSETS:
Notes receivable from an officer/stockholder 74,862 87,039
Other assets 69,455 65,932
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Total other assets 144,317 152,971
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$11,338,672 $11,611,476
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Sept. 30, June 30,
LIABILITIES AND STOCKHOLDERS' INVESTMENT 1995 1995
CURRENT LIABILITIES:
Current maturities of long-term debt $ 166,667 $ 166,667
Accounts payable 265,995 300,686
Accrued expenses-
Compensation 542,495 860,626
Commissions 92,201 98,469
Taxes other than federal income taxes 6,774 42,259
Federal income taxes 159,614 292,114
Other 493,687 322,218
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Total current liabilities 1,727,433 2,083,039
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LONG-TERM DEBT, NET OF CURRENT MATURITIES 791,666 833,332
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DEFERRED INCOME TAXES 207,000 207,000
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STOCKHOLDERS' INVESTMENT:
Common stock, $1.00 par value-
Authorized--650,000 shares
Issued--535,096 shares at Sept. 30, 1995
and 530,096 shares at June 30,1995 535,096 530,096
Capital in excess of par value 1,746,254 1,678,754
Retained earnings 11,850,408 11,783,144
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14,131,758 13,991,994
Less--
Cost of 303,443 shares of treasury
stock at Sept. 30, 1995 and 303,148
shares at June 30, 1995 5,448,988 5,420,078
Deferred compensation 70,197 83,811
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Total stockholders' investment 8,612,573 8,488,105
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$11,338,672 $11,611,476
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The accompanying notes are an integral part of these
consolidated financial statements.
F-3
SAGE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Sept. 30, Oct. 1,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 183,090 $ 114,310
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation and amortization 148,590 114,208
Notes receivable from an officer/stockholder 12,178 --
Amortization of deferred compensation 13,614 13,663
Changes in assets and liabilities-
Accounts receivable (367,901) 804,336
Inventories 90,675 (311,853)
Prepaid expenses and other current assets 23,855 22,142
Accounts payable (34,691) (44,875)
Accrued expenses (320,915) (496,573)
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Net cash provided by (used in)
operating activities (251,505) 215,358
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net (72,828) (64,539)
(Increase) decrease in other assets (3,523) (3,680)
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Net cash used in investing activities (76,351) (68,219)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options 72,500 79,425
Purchase of treasury stock (28,910) (31,827)
Declaration of cash dividend (115,827) (112,724)
Payments on long-term debt (41,666) (41,666)
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Net cash used in financing activities (113,903) (106,792)
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NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (441,759) 40,347
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 5,261,978 4,249,524
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,820,219 $ 4,289,871
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest $ 18,986 $ 19,104
Income taxes 350,000 358,187
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The accompanying notes are an integral part of these
consolidated financial statements.
F-4
SAGE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 month period ended September 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:
Sept. 30, June 30,
1995 1995
Raw materials and parts $ 333,322 $ 335,968
Work-in-process 776,802 863,328
Finished goods 95,277 96,780
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$ 1,205,401 $ 1,296,076
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Work-in-process and finished goods include material, labor and
manufacturing overhead.
F-5
D. Management's Discussion and Analysis of Quarterly Income Statements
For the three months ended September 30, 1995, the Company realized net income
of approximately $180,000, or $.78 per share, on sales of $2,216,000. This
compares with net income of approximately $114,000, or $.49 per share, on sales
of $1,493,000 for the same period a year ago.
Net sales for the three months ended September 30, 1995, increased by
approximately $723,000, or 48%, over the previous year. Sage Laboratories Active
Microwave, Inc. (SLAM) recorded sales of $35,000 for the quarter, as compared to
$11,000 for the same period a year ago. The increase is due to a larger backlog
at the beginning of fiscal 1996. During the first three months of fiscal 1996,
total orders received were approximately $2,558,000 including $348,000 from
SLAM. This compares to $2,065,000, including $48,000 from SLAM, for the same
period a year ago. The Company's backlog at the end of the quarter was
$5,094,000, including $363,000 from SLAM, an increase of $1,337,000, or 36%,
over the previous year.
Gross profit as a percentage of sales was approximately 42% for the three months
ended September 30, 1995, as compared to approximately 53% for the same period a
year ago. The decrease in gross margin was due to increased research and
development costs of approximately $20,000, an increase of $34,000 for the
Company's core business, and a decrease of $14,000 for SLAM from the previous
year. Gross margins were also impacted negatively by a gross loss from SLAM of
approximately $29,000, as well as additional cost overruns on certain
engineering programs, which the Company feels have been resolved. These programs
were scheduled to ship in the first quarter of fiscal 1996. However, due to
technical problems they were delayed until the second quarter.
Selling General, and Administrative expense (SG&A) as a percentage of sales, was
approximately 31% as compared to 40% for the same period a year ago. This
decrease is mainly attributable to the increased sales volume. In absolute
dollars, SG&A expense increased by approximately $97,000. This increase is
attributed to increased commission expenses of approximately $12,000, due to the
higher sales volume, and an increase in G&A expenses of $96,000 relating
primarily to increases in salaries and related items, partially offset by a
decrease in marketing expenses of approximately $11,000.
Interest income for the three months ended September 30, 1995, increased by
approximately $39,000 from the same period a year ago. This increase is due to
higher interest rates being paid.
Interest expense for the three months ended September 30, 1995, remained
relatively unchanged. A decrease in principal was offset by an increase in the
prime rate of interest over the prior year.
The Company's rental property reported a profit of $7,000, compared to a loss of
$21,000 for the same period a year ago. All of the Company's rental property is
fully leased. As stated in our annual report for fiscal 1995, the Company will
be taking occupancy of approximately 6,000 square feet of space that will be
vacated by one of its tenants at the end of November 1995. This space will house
the Company's new commercial line of switches.
F-6
The Company's net book value of property held for rent (including renovations)
at September 30, 1995, and October 1, 1994, is as follows:
1995 1994
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3 Huron Drive (old facility) $ 559,612 $ 637,500
11 Huron Drive (rented portion) 595,766 652,490
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Total $1,155,378 $1,290,070
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Federal and state income taxes for the three months ended September 30, 1995,
and October 1, 1994, were provided for at their respective statutory rates.
Liquidity and Capital Resources
For the three months ended September 30, 1995, operating activities used cash of
$252,000, a decrease of $467,000 over the three months ended October 1, 1994.
Cash used in investing activities amounted to $76,000 and $68,000, respectively,
while cash used for investing activities was $114,000 and $107,000,
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 intend to use the line.
The Company anticipates that expenditures for fiscal year 1996 will be
approximately $750,000. 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: Not Applicable
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:_____________ SAGE LABORATORIES, INC. AND SUBSIDIARIES
/S/ Carl A. Marguerite
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President-Treasurer
(Principal executive officer;
principal financial officer;
principal accounting officer)
F-8