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 27, 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 September 27, 1997, the Company had outstanding 1,081,765 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. 27, 1997 Sept. 28, 1996
-------------- --------------
NET SALES AND CONTRACT REVENUES $ 2,346,021 $ 1,864,089
COST OF SALES AND CONTRACT COSTS 1,388,416 1,092,571
ENGINEERING AND NEW PRODUCT DEVELOPMENT COSTS 69,139 18,204
----------- -----------
Gross profit 888,466 753,314
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 670,147 535,876
----------- -----------
Operating income 218,319 217,438
INTEREST INCOME 61,870 72,640
INTEREST EXPENSE (12,033) (14,788)
INCOME ON RENTAL PROPERTY 14,369 12,277
----------- -----------
Income before provision for income taxes 282,525 287,567
PROVISION FOR INCOME TAXES:
Federal 76,000 87,000
State 28,000 32,000
----------- -----------
Net income $ 178,525 $ 168,567
=========== ===========
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE $ 0.16 $ 0.14
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 1,103,458 1,171,104
=========== ===========
DIVIDENDS PAID $ 108,177 $ 116,127
=========== ===========
The accompanying notes are an integral part of
these consolidated financial statements.
SAGE LABORATORIES, INC. AND SUBSIDIARIES
B. CONSOLIDATED BALANCE SHEETS
SEPTEMBER 27, 1997 AND JUNE 30, 1997
ASSETS Sept. 27, 1997 June 30, 1997
-------------- -------------
CURRENT ASSETS:
Cash and cash equivalents $ 4,352,252 $ 5,280,584
Accounts receivable, net of reserve of approximately
$65,000 at Sept.27, 1997 and $62,000 at June 30, 1997 2,038,781 1,749,778
Inventories 1,883,299 1,936,015
Prepaid expenses and other current assets 368,305 661,883
----------- -----------
Total current assets 8,642,637 9,628,260
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land, building and improvements 4,191,781 4,191,088
Machinery and laboratory equipment 2,200,166 2,180,492
Furniture, fixtures and motor vehicles 693,316 691,192
----------- -----------
7,085,263 7,062,772
Less--Accumulated depreciation and amortization 4,016,217 3,869,877
----------- -----------
3,069,046 3,192,895
----------- -----------
OTHER ASSETS:
Notes receivable from an officer/stockholder 23,047 23,047
Other assets 149,214 151,457
----------- -----------
Total other assets 172,261 174,504
----------- -----------
$11,883,944 $12,995,659
=========== ===========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Current maturities of long-term debt $ 166,667 $ 166,667
Accounts payable 500,892 427,022
Accrued expenses-
Compensation 437,364 635,297
Commissions 163,853 155,701
Other 390,123 256,191
----------- -----------
Total current liabilities 1,658,899 1,640,878
----------- -----------
LONG TERM DEBT, NET OF CURRENT MATURITIES 458,333 500,000
----------- -----------
DEFERRED INCOME TAXES 144,000 144,000
----------- -----------
STOCKHOLDERS' INVESTMENT
Common stock, $.10 par value--
Authorized--10,000,000 shares
Issued--2,681,980 shares at Sept. 27, 1997 and
June 30, 1997 268,198 268,198
Capital in excess of par value 2,038,757 2,038,757
Retained earnings 13,923,165 13,852,814
----------- -----------
16,230,120 16,159,769
Less--
Cost of 1,600,215 shares of treasury stock at
September 27, 1997 and 1,517,215 at June 30, 1997 6,607,408 5,448,988
----------- -----------
Total stockholders' investment 9,622,712 10,710,781
----------- -----------
$11,883,944 $12,995,659
=========== ===========
The accompanying notes are an integral part of
these consolidated financial statements.
SAGE LABORATORIES, INC. AND SUBSIDIARIES
C. CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended
Sept. 27, 1997 Sept. 28, 1996
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 178,525 $ 168,567
Adjustments to reconcile net income to net cash
provided by operating activities--
Depreciation and Amortization 146,340 155,991
Amortization of deferred compensation -- 13,614
Changes in assets and liabilities--
Accounts receivable (289,003) 244,285
Inventories 52,716 (131,950)
Prepaid expenses and other current assets 293,578 (5,203)
Accounts payable 73,870 195,706
Accrued expenses (55,849) (390,753)
----------- -----------
Net cash provided by operating activities 400,177 250,257
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net (22,491) (308,441)
Increase in other assets 2,243 (67,183)
----------- -----------
Net cash used in investing activities (20,248) (375,624)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (1,158,420) --
Payment of cash dividend (108,174) (116,127)
Payments on long-term debt (41,667) (41,665)
----------- -----------
Net cash used in financing activities (1,308,261) (157,792)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (928,332) (283,159)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,280,584 5,878,691
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,352,252 $ 5,595,532
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid (refunded) during the period for--
Interest $ 12,691 $ 14,788
=========== ===========
Income taxes $ (44,751) $ 448,000
=========== ===========
The accompanying notes are an integral part of
these consolidated financial statements.
SAGE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 27, 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 month period ended September 27, 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 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. 27, June 30,
1997 1997
---------- ----------
Raw materials and parts $ 689,071 $ 813,606
Work-in-process 1,019,154 943,453
Finished goods 175,074 178,956
---------- ----------
$1,883,299 $1,936,015
========== ==========
Work-in-process and finished goods include material, labor and manufacturing
overhead.
(3) Put-and-Call Agreement
The Company had a put-and-call agreement with a relative of the former
chairman of the Company's Board of Directors providing that, in the event of the
relative's death prior to August 31, 1998, the relative's estate could require
the Company to acquire all of the relative's Company common stock (65,000 shares
as of June 30, 1997) at the average market value, as defined, if the Company has
achieved certain defined financial results. On July 3, 1997, the Company
repurchased all 65,000 shares from the relative's estate for $13.95 per share,
or a total of $906,420 pursuant to the put provision of this agreement.
SAGE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 27, 1997
(4) Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share. SFAS No.128
establishes standards for computing and presenting earnings per share and
applies to entities with publicly held common stock or potential common stock.
This statement is effective for annual and interim periods ending 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 second quarter ended December 27, 1997.
Pro-forma calculations of basic and diluted earnings per share as required
by SFAS No. 128 are as follows:
Three Months Ended
Sept.27, 1997 Sept. 26, 1996
Basic EPS
Net Income $ 178,525 $ 168,567
Weighted average common
shares outstanding 1,093,765 1,161,265
Basic EPS $ .16 $ .15
========== ==========
Diluted EPS
Net Income $ 178,525 $ 168,567
Weighted average common
and common equivalent
shares outstanding 1,103,458 1,171,104
Diluted EPS $ .16 $ .14
========== ==========
D. Management's Discussion and Analysis
For the three months ended September 27, 1997, the Company realized net income
of approximately $179,000, or $.16 per share, on sales of $2,346,000. This
compares with net income of approximately $169,000, or $.14 per share, on sales
of $1,864,000 for the same period a year ago.
Total net sales for the three months ended September 27, 1997, increased by
approximately $482,000, or 26%, compared to the same period a year ago. Sage
Laboratories Active Microwave, Inc. (SLAM) recorded sales of $137,000 for the
quarter, as compared with $155,000 for the same period a year ago. The increase
in total net sales is due to an increase in shipments of catalog and adaptable
or reorderable sales items, offset by decreased revenues from engineered items
and SLAM.
Gross profit as a percentage of sales was approximately 38% for the three months
ended September 27, 1997, as compared to approximately 40% for the same period a
year ago. The decrease in gross margin was primarily attributable to increased
research and development costs of approximately $51,000.
SAGE LABORATORIES, INC. AND SUBSIDIARIES
September 27, 1997
Selling, General and Administrative expenses (S G & A) as a percentage of sales
was 29% for both the quarter ended September 27, 1997, and for the same period a
year ago. S G & A expense increased by $134,000 due to increases in commissions
of $33,000, resulting from higher sales, and increases in salaries and related
items of $131,000.
Interest income for the three months ended September 27, 1997 decreased by
approximately $6,000 from the same period a year ago. This decrease is
attributable to reductions in cash available for investing.
Interest expense for the period ended September 27, 1997 decreased by
approximately $3,000, due to scheduled principal reductions on outstanding
obligations.
The Company's rental property continues to be fully leased. Profit on rental
property increased by $2,000 to $14,000 for the period ended September 27, 1997,
as compared to the same period a year ago.
The Company's net book value of property held for rent (including renovations)
at September 27, 1997 and September 28, 1996 is as follows:
1997 1996
-------- --------
3 Huron Drive (old facility) $405,566 $481,814
11 Huron Drive (rented portion) 249,442 263,448
-------- --------
Total $655,088 $745,262
======== ========
Federal and state income taxes for the three months ended September 27, 1997,
and September 28, 1996 were provided for at their respective statutory rates.
Liquidity and Capital Resources
For the three months ended September 27, 1997 operating activities generated
cash of $400,000, as compared to $250,000 for the three months ended September
28, 1996. Cash used in investing activities amounted to $20,000 and $376,000
respectively, while cash used for financing activities was $1,308,000 and
$158,000, 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 three months ended September 27, 1997, 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.
SAGE LABORATORIES, INC. AND SUBSIDIARIES
SEPTEMBER 27, 1997
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 10, 1997 SAGE LABORATORIES, INC. AND SUBSIDIARIES
/s/ Carl A. Marguerite
----------------------------
(Principal executive officer,
principal financial officer)