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 September 28, 1996 Commission File Number 1-7054
SAGE LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2179082
(State or other jurisdictionof (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 September 28, 1996, the Company had outstanding 1,161,265 shares of common
stock, $.10 par value, which is its only class of stock.
PART 1 - FINANCIAL INFORMATION
COMPANY OR GROUP OF COMPANIES FOR WHICH REPORT IS FILED:
SAGE LABORATORIES, INC. AND SUBSIDIARIES
Item I - Financial Statements
A. Statements of Income
For the Three Months Ended
Sept. 28, 1996 Sept. 30, 1995
-------------- --------------
NET SALES AND CONTRACT REVENUES $ 1,864,089 $ 2,216,056
COST OF SALES AND CONTRACT COSTS 1,092,571 1,208,225
ENGINEERING AND NEW PRODUCT DEVELOPMENT COSTS 18,204 69,049
----------- -----------
Gross profit 753,314 938,782
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 535,876 686,303
----------- -----------
Operating income 217,438 252,479
INTEREST INCOME 72,640 78,423
INTEREST EXPENSE (14,788) ) (18,986)
INCOME ON RENTAL PROPERTY
12,277 7,174
----------- -----------
Income before provision for income taxes 287,567 319,090
PROVISION FOR INCOME TAXES:
Federal 87,000 100,000
State 32,000 36,000
=========== ===========
Net income $ 168,567 $ 183,090
=========== ===========
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE
$ 0.14 $ 0.16
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 1,171,104 1,166,650
=========== ===========
DIVIDENDS PAID
$ 116,127 $ 115,827
=========== ===========
The accompanying notes are an integral part of these
consolidated financialstatements.
SAGE LABORATORIES, INC. AND SUBSIDIARIES
B. CONSOLIDATED BALANCE SHEETS
SEPTEMBER 28, 1996 AND JUNE 30, 1996
ASSETS Sept. 28, 1996 June 30, 1996
-------------- -------------
CURRENT ASSETS:
Cash and cash equivalents $ 5,595,532 $ 5,878,691
Accounts receivable, net of reserve of approximately
$53,000 at Sept.28, 1996 and $45,000 at June 30, 1996 1,749,167 1,993,452
Inventories 1,480,419 1,348,469
Prepaid expenses and other current assets 490,608 485,405
----------- -----------
Total current assets 9,315,726 9,706,017
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land, building and improvements 3,989,760 3,989,760
Machinery and laboratory equipment 2,046,161 1,753,072
Furniture, fixtures and motor vehicles 680,246 664,894
----------- -----------
6,716,167 6,407,726
Less--Accumulated depreciation and amortization 3,451,098 3,302,607
----------- -----------
3,265,069 3,105,119
----------- -----------
OTHER ASSETS:
Notes receivable from an officer/stockholder 55,043 55,043
Other assets 221,219 161,536
----------- -----------
Total other assets 276,262 216,579
----------- -----------
$12,857,057 $13,027,715
=========== ===========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Current maturities of long-term debt $ 166,667 $ 166,667
Accounts payable 589,927 394,221
Accrued expenses-
Compensation 424,453 762,025
Commissions 118,397 136,364
Taxes other than federal income taxes 11,014 85,259
Federal income taxes 121,827 261,827
Other 447,222 268,191
----------- -----------
Total current liabilities 1,879,507 2,074,554
----------- -----------
LONG TERM DEBT, NET OF CURRENT MATURITIES 625,000 666,665
----------- -----------
DEFERRED INCOME TAXES 190,000 190,000
----------- -----------
STOCKHOLDERS' INVESTMENT
Common stock, $.10 par value--
Authorized--10,000,000 shares
Issued--2,678,480 shares at Sept. 28, 1996 and
June 30, 1996 267,848 267,848
Capital in excess of par value 2,030,182 2,030,182
Retained earnings 13,329,249 13,276,809
----------- -----------
15,627,279 15,574,839
Less--
Cost of 1,517,215 shares of treasury stock at
September 28, 1996 and June 30, 1996 5,448,988 5,448,988
Deferred Compensation 15,741 29,355
----------- -----------
Total stockholders' investment 10,162,550 10,096,496
=========== ===========
$12,857,057 $13,027,715
=========== ===========
The accompanying notes are an integral part of these
consolidated financialstatements
.
SAGE LABORATORIES, INC. AND SUBSIDIARIES
C. CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended
Sept.28,1996 Sept.30,1995
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 168,567 $ 183,090
Adjustments to reconcile net income to net cash
provided by operating activities--
Depreciation and Amortization 155,991 148,590
Notes receivable from an officer/stockholder -- 12,178
Amortization of deferred compensation 13,614 13,614
Changes in assets and liabilities--
Accounts receivable 244,285 (367,901)
Inventories (131,950) 90,675
Prepaid expenses and other current assets (5,203) 23,855
Accounts payable 195,706 (34,691)
Accrued expenses (390,753) (320,915)
----------- -----------
Net cash provided by (used in) operating activities 250,257 (251,505)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net (308,441) (72,828)
Increase in other assets (67,183) (3,523)
----------- -----------
Net cash used in investing activities (375,624) (76,351)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options -- 72,500
Purchase of treasury stock -- (28,910)
Payments of dividend (116,127) (115,827)
Payments on long-term debt (41,665) (41,666)
----------- -----------
Net cash used in financing activities (157,792) (113,903)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (283,159) (441,759)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,878,691 5,261,978
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,595,532 $ 4,820,219
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for--
Interest $ 14,788 $ 18,986
Income taxes 448,000 350,000
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
SAGE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 28, 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 month period ended September 28, 1996, 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:
Sept.28, June 30,
1996 1996
---- ----
Raw materials and parts $ 420,718 $ 406,581
Work-in-process 962,250 814,776
Finished goods 97,451 127,112
---------- ----------
$1,480,419 $1,348,469
========== ==========
Work-in-process and finished goods include material, labor and manufacturing
overhead.
SAGE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 28, 1996
(CONTINUED)
D. Management's Discussion and Analysis
For the three months ended September 28, 1996, the Company realized net income
of approximately $169,000, or $.14 per share, on sales of $1,864,000. This
compares with net income of approximately $183,000, or $.16 per share, on sales
of $2,216,000 for the same period a year ago.
Total net sales for the three months ended September 28, 1996, decreased by
approximately $352,000, or 16%, compared to the same period a year ago. Sage
Laboratories Active Microwave, Inc. (SLAM) recorded sales of $155,000 for the
quarter, as compared with $35,000 for the same period a year ago. The decrease
in total net sales is due to reduced orders received during the first quarter of
fiscal 1997 for catalog items and adaptable or reorderable items. During the
first three months of fiscal 1997, total orders received were approximately
$1,775,000, including $206,000 for SLAM. This compares to $2,558,000, including
$348,000 for SLAM, for the same period a year ago. The Company's backlog at the
end of the quarter was $4,539,000, including $314,000 for SLAM, a decrease of
$555,000, or 11%, from the previous year.
Gross profit as a percentage of sales was approximately 40% for the three months
ended September 28, 1996, as compared to approximately 42% for the same period a
year ago. The decrease in gross margin was primarily attributable to a sales mix
shift which resulted in a higher percentage of sales occurring in lower margin
products. This was partially offset by improvement in the gross profit for SLAM
of approximately $18,000 and a reduction in research and development costs of
approximately $51,000.
Selling, General and Administrative expenses (S G & A) as a percentage of sales
was 29% for the quarter ended September 28, 1996, as compared to 31% for the
same period a year ago. In absolute dollars, S.G.& A expense decreased by
approximately $150,000 from the same period a year ago. This decrease was
primarily attributable to a decrease in G & A expenses of approximately $135,000
relating to decreases in salaries and related items, a reduction in fees
associated with the consulting agreement with the company's former chairman, and
a decrease in marketing expenses of approximately $21,000 offset by higher
commissions expense of $5,000.
Interest income for the three months ended September 28, 1996 decreased by
approximately $6,000 from the same period a year ago. This decrease is
attributable to lower interest rates being earned on certain investments.
Interest expense for the period ended September 28, 1996 decreased by
approximately $4,000. This was attributable to a decrease in principal on
outstanding obligations.
The Company's rental property, reported a profit of $12,000, as compared to a
profit of $7,000 for the same period a year ago. All of the Company's rental
property was fully leased during the three months ended September 28, 1996.
The Company's net book value of property held for rent (including renovations)
at September 28, 1996 and September 30, 1995 is as follows:
1996 1995
---- ----
3 Huron Drive (old facility) $ 481,814 $ 559,612
11 Huron Drive (rented portion) 263,448* 595,766
--------- ----------
Total $ 745,262 $1,155,378
========= ==========
*Change due to the Company occupying additional space for its commercial switch
and high reliability product lines.
Federal and state income taxes for the three months ended September 28,
1996, and September 30, 1995 were provided for at their respective statutory
rates.
Liquidity and Capital Resources
For the three months ended September 28, 1996 operating activities generated
cash of $250,000, as compared to a use of cash of $252,000 for the three months
ended September 30, 1995. Cash used in investing activities amounted to $376,000
and $76,000 respectively, while cash used for financing activities was $158,000
and $114,000, 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 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
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: November 12, 1996 SAGE LABORATORIES, INC. AND SUBSIDIARIES
/s/ Carl A. Marguerite
------------------------------------
(principal executive officer,
principal financial officer)