<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED
OCTOBER 29, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- -----
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER 0-11062
ANDROS INCORPORATED
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 94-1674541
(State or other jurisdiction of incorporated or organization) (IRS Employer Identification No.)
</TABLE>
2332 FOURTH STREET
BERKELEY, CALIFORNIA 94710-2402
(Address of principal executive offices)
(Zip code)
TELEPHONE: (510) 849-5700
(Registrant's telephone number, including area code)
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 XX No
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS: Number of shares of Common Stock, $.01 par
value outstanding as of October 29, 1995 was 4,597,300.
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INDEX
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<CAPTION>
PART I FINANCIAL INFORMATION PAGE
<S> <C>
Condensed Consolidated Balance Sheet
October 29, 1995 3
July 30, 1995 3
Condensed Consolidated Income Statement
Three Months Ended October 29, 1995 4
Three Months Ended October 30, 1994 4
Condensed Consolidated Statement of Cash Flows
Three Months Ended October 29, 1995 5
Three Months Ended October 30, 1994 5
Notes to Condensed Consolidated Financial Statements 6
Management's Discussion and Analysis of Results of
Operations and Financial Condition 7-9
PART II OTHER INFORMATION
Exhibits and Reports on Form 8-K 10
Signatures 11
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2
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ANDROS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEET
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<CAPTION>
October 29,1995 July 30,1995
--------------- --------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,044,900 $ 9,612,000
Short-term investments, available-for-sale 23,567,500 16,400,300
Accounts receivable, net 10,443,100 8,231,800
Inventories 16,614,400 16,772,500
Prepaid expenses 1,006,000 839,400
------------- --------------
Total current assets 52,675,900 51,856,000
Plant and equipment, net 5,367,000 5,298,800
Goodwill, other intangibles and other, net 6,541,300 6,715,700
------------- --------------
$ 64,584,200 $ 63,870,500
============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,973,200 $ 3,725,200
Accrued liabilities 1,280,200 1,397,200
------------- --------------
Total current liabilities 5,253,400 5,122,400
Deferred income taxes 379,900 379,900
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Total liabilities 5,633,300 5,502,300
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Shareholders' equity:
Common shares - $.01 par value, 10,000,000
shares authorized; outstanding 4,597,300
and 4,568,400 34,368,000 33,946,700
Retained earnings 24,582,900 24,421,500
------------- --------------
Total shareholders' equity 58,950,900 58,368,200
------------- --------------
$ 64,584,200 $ 63,870,500
============= ==============
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
3
<PAGE> 4
ANDROS INCORPORATED
CONDENSED CONSOLIDATED INCOME STATEMENT
(Unaudited)
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<CAPTION>
Three months ended
------------------
October 29,1995 October 30, 1994
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<S> <C> <C>
Sales $ 9,220,700 $ 11,847,200
Cost of sales 5,983,400 6,711,700
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Gross profit 3,237,300 5,135,500
------------ ------------
Expenses and other income:
Research and development 1,311,900 1,285,300
Marketing, general
and administrative 1,978,600 2,447,800
Interest and other income, net (290,500) (341,700)
------------ ------------
3,000,000 3,391,400
------------ ------------
Income before income taxes 237,300 1,744,100
Income tax provision 75,900 558,200
------------ ------------
Net income $ 161,400 $ 1,185,900
============ ============
Earnings per share
of common stock $ 0.03 $ 0.25
============ ============
Average share and outstanding
common share equivalents 4,875,700 4,827,600
============ ============
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
4
<PAGE> 5
ANDROS INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
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<CAPTION>
Three months ended
------------------
October 29,1995 October 30, 1994
--------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 161,400 $ 1,185,900
Adjustments to reconcile net income to
net cash flows from operating activities:
Depreciation and amortization 557,400 661,200
Changes in assets and liabilities:
Accounts receivable, net (2,211,300) 422,200
Inventories 158,100 (226,900)
Prepaid expenses (166,600) (179,800)
Accounts payable and accrued liabilities 131,000 325,100
Income taxes payable 0 442,800
------------ ------------
Net cash flows from operating activities (1,370,000) 2,630,500
------------ ------------
Cash flows from investing activities:
Purchases of short-term investments (23,734,700) (6,523,500)
Proceeds from maturities of short-term investments 16,567,500 4,231,300
Capital expenditures (466,500) (286,400)
Change in other assets 15,300 (1,000)
------------ ------------
Net cash flows from investing activities (7,618,400) (2,579,600)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock, net 421,300 76,600
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Net cash flows from financing activities 421,300 76,600
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Net change in cash and cash equivalents (8,567,100) 127,500
Cash and cash equivalents at beginning of period 9,612,000 3,431,700
------------ ------------
Cash and cash equivalents at end of period $ 1,044,900 $ 3,559,200
============ ============
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
5
<PAGE> 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
The accompanying unaudited condensed consolidated financial statements should be
read in conjunction with the Registrant's Annual Report on Form 10-K for the
year ended July 30, 1995. In the opinion of the Company, the accompanying
unaudited condensed consolidated financial statements contain all adjustments,
consisting only of normal recurring entries, necessary to present fairly its
financial position as of October 29, 1995 and the income and cash flows for the
period presented. The Company operates on a 52-53 week fiscal year ending the
last Sunday in July. The results of operations for the three months ended
October 29, 1995 are not necessarily indicative of the results to be expected
for the entire year.
NOTE 2
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<CAPTION>
Inventories: October 29, 1995 July 30, 1995
---------------- -------------
(unaudited)
<S> <C> <C>
Raw material $ 13,483,900 $ 14,243,000
Work in process 2,492,000 1,977,800
Finished goods 638,500 551,700
-------------- --------------
$ 16,614,400 $ 16,772,500
============== ==============
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NOTE 3
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Accounting Standards No. 123 (SFAS 123) "Accounting for Stock-Based
Compensation". Under the new standard, companies will be encouraged, but not
required, to adopt a new method of accounting for stock-based compensation
awards based on estimated fair value at the date the awards are granted.
Companies that continue to follow existing standards, which measure compensation
cost as the excess, if any, of the quoted market price of the stock at grant
date or other measurement date over the amount an employee must pay to acquire
the stock, will be required to disclose in a note to the financial statements
the effect on net income had the company recognized expense for stock options
based on SFAS 123. The requirements of this Statement are effective for
financial statements for fiscal years beginning after December 15, 1995.
The Company plans to implement the provisions of SFAS 123 during its fiscal year
ending July 27, 1997, and has not yet determined the method of adoption or its
financial statement effect.
6
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
GENERAL
The industry in which the Company competes, as well as the markets that it
serves, may be characterized by cyclical market patterns as a consequence of,
among other things, business cycles, regulatory changes or general economic
conditions affecting the timing of orders from major customers. Substantial
variations in the operations of the Company's customers or in the demand for
their products has in the past and may in the future cause substantial
variations in sales and profitability from quarter to quarter. The Company's
sales may also be adversely affected by competition from third parties,
including customers that may elect to develop internally products comparable to
those of the Company. In addition, demand for the Company's automotive and
spectrum analysis instrumentation may be substantially affected by the
enactment, timing, extent and severity of state, federal and foreign laws
governing inspection of automotive emissions and levels of lead contaminants.
The Company has experienced fluctuations in sales of such products as well as in
demand for particular product enhancements as a result of actual or perceived
changes in regulatory requirements. Legislation or regulations resulting in
stricter enforcement of, or more stringent specifications for, testing of
automotive emissions has resulted in periodic increases in sales and the
development of enhanced new products. Conversely, decreases in sales have
resulted, and may result in the future, from actual or perceived delays in or
weakening of enforcement standards. The Company expects such fluctuations to
continue in the future. In particular, state programs related to inspection of
automotive emissions have recently been subject to reconsideration in a number
of states where legislators are seeking to reduce regulation and otherwise
weaken these programs. If these efforts are successful, the Company's sales
would be adversely affected.
In addition, because Andros' products are sold primarily to OEM customers for
incorporation into their end user products, the volume and timing of the
Company's sales are largely dependent on the volume and timing of sales by the
Company's customers. Delays in release of orders or failure to place new orders
could have a substantial impact on the Company's results of operations from
quarter to quarter.
RESULTS OF OPERATIONS
The Company's sales for the first quarter of fiscal 1996 decreased 22% to
$9,220,700 from $11,847,200 in the first quarter of fiscal 1995. This decrease
in sales resulted primarily from lower sales of gas analyzers for medical
monitoring in the U.S., Europe and the Far East offset in part by higher sales
of automotive exhaust analyzers in Europe.
International automotive sales increased 167% to $5,721,100 in the first quarter
of fiscal 1996 over last year's first quarter mainly due to the increase in
sales related to the now-ongoing English MOT program. This year's first quarter
included approximately $2 million in sales resulting from that program.
U.S. automotive sales decreased 86% to $409,700 for the first quarter of fiscal
1996 over the same period last year due to delays in implementation of the IM
240 program. Management believes that the sales decrease was attributable to
customer uncertainty with respect to implementation or potential weakening of
government-mandated automotive emission inspection programs in different states.
Scitec sales decreased 27% to 769,400 for the first quarter of fiscal 1996 over
the same period last year due to delay of volume shipments of MAP 4 products.
Volume shipments of MAP 4 products should begin during the second quarter of
fiscal 1996.
7
<PAGE> 8
Automotive service sales increased 54% to $1,002,900 for the first three months
over the same period a year ago due to the increase in sales of spare parts and
oxygen sensors.
Worldwide medical sales and service decreased 74% to $1,317,600 for the first
three months of fiscal 1996 as compared to the same period in fiscal 1995. The
Company believes the decrease was mainly a result of changes in order patterns
of customers in the U.S., Europe and the Far East in fiscal 1995, as they
continue to bring their inventories in line with expected revenues.
Gross margin for the first quarter of fiscal 1996 was 35.1% compared to 43.3%
for the same period a year ago mainly due to increased material costs and
variations in the sales mix.
Research and development expense increased 2% in the first quarter of fiscal
1996 over the same period last year due primarily to significant efforts on new
products at Andros.
Marketing, general and administrative expenses were down 19% for the first three
months of fiscal 1996 mainly due to tighter control over operating expenses.
Interest and other income was down 15% in the first quarter of fiscal 1996 over
the comparable period of the prior fiscal year due mostly to the lower average
cash and investment balances.
Net income decreased 86% for the first three months of fiscal 1996 over the same
period last year mainly due to the decrease in sales and interest and other
income, as well as increases in research and development expenses. As a result,
earnings per share decreased 88% for the first three months compared to the same
period last year.
FINANCIAL CONDITION
The Company's October 29, 1995 financial position reflected a current ratio of
10:1, working capital of $47.4 million and shareholders' equity of $59 million.
Cash and cash equivalents and short-term investments decreased 5% to $24,612,400
at October 29, 1995 as compared to $26,012,300 on July 30, 1995. This decrease
resulted primarily from cash used in operations.
Management believes that the cash and cash equivalents and short-term
investments on hand at October 29, 1995, together with the cash flows
anticipated from the remainder of fiscal 1996 operations will be sufficient to
meet the Company's working capital and capital expenditure needs at least
through fiscal 1996.
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<CAPTION>
October 29, 1995 July 30, 1995
---------------- -------------
(unaudited)
<S> <C> <C>
Current ratio (:1) 10.0 10.1
Working capital $47,422,500 $46,733,600
Shareholders' equity $58,950,900 $58,368,200
Cash and cash equivalents
and short-term investments $24,612,400 $26,012,300
</TABLE>
8
<PAGE> 9
NEW ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Accounting Standards No. 123 (SFAS 123) "Accounting for Stock-Based
Compensation". Under the new standard, companies will be encouraged, but not
required, to adopt a new method of accounting for stock-based compensation
awards based on estimated fair value at the date the awards are granted.
Companies that continue to follow existing standards, which measure compensation
cost as the excess, if any, of the quoted market price of the stock at grant
date or other measurement date over the amount an employee must pay to acquire
the stock, will be required to disclose in a note to the financial statements
the effect on net income had the company recognized expense for stock options
based on SFAS 123. The requirements of this Statement are effective for
financial statements for fiscal years beginning after December 15, 1995.
The Company plans to implement the provisions of SFAS 123 during its fiscal year
ending July 27, 1997, and has not yet determined the method of adoption or its
financial statement effect.
9
<PAGE> 10
PART II
OTHER INFORMATION
ITEM 6: Exhibits and Reports on Form 8-K
None.
10
<PAGE> 11
SIGNATURE PAGE
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:
Dated: December 11, 1995
ANDROS INCORPORATED
(Registrant)
WILLIAM W. WEISS
------------------------------
William W. Weiss
Acting Chief Financial Officer
and Controller
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-29-1996
<PERIOD-START> JUL-31-1995
<PERIOD-END> OCT-29-1995
<CASH> 1,044,900
<SECURITIES> 23,567,500
<RECEIVABLES> 10,998,700
<ALLOWANCES> 555,600
<INVENTORY> 16,614,400
<CURRENT-ASSETS> 52,675,900
<PP&E> 19,580,800
<DEPRECIATION> 14,213,800
<TOTAL-ASSETS> 64,584,200
<CURRENT-LIABILITIES> 5,253,400
<BONDS> 0
<COMMON> 34,368,000
0
0
<OTHER-SE> 24,582,900
<TOTAL-LIABILITY-AND-EQUITY> 64,584,200
<SALES> 9,220,700
<TOTAL-REVENUES> 9,220,700
<CGS> 5,983,400
<TOTAL-COSTS> 5,983,400
<OTHER-EXPENSES> 3,000,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 237,300
<INCOME-TAX> 75,900
<INCOME-CONTINUING> 161,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 161,400
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
