<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
- - --- SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED
APRIL 30, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- - --- SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO ______
COMMISSION FILE NUMBER 0-11062
ANDROS INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 94-1674541
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
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 April 30, 1995 was 4,542,000.
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
<S> <C>
Condensed Consolidated Balance Sheet
April 30, 1995 3
July 31, 1994 3
Condensed Consolidated Income Statement
Quarter and Nine Months Ended April 30, 1995 4
Quarter and Nine Months Ended April 24, 1994 4
Condensed Consolidated Statement of Cash Flows
Nine Months Ended April 30, 1995 5
Nine Months Ended April 24, 1994 5
Notes to Condensed Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial Condition
and Results of Operations 7-9
PART II OTHER INFORMATION
Exhibits and Reports on Form 8-K 10
Signatures 11
</TABLE>
2
<PAGE> 3
ANDROS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
April 30, 1995 July 31,1994
-------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,408,000 $ 3,431,700
Short-term investments, available-for-sale 24,077,200 22,592,200
Accounts receivable, net 11,182,800 9,957,500
Inventories 14,684,700 8,755,000
Prepaid expenses 457,000 335,200
----------- -----------
Total current assets 51,809,700 45,071,600
Plant and equipment, net 5,303,100 5,730,800
Goodwill, other intangibles and other, net 6,775,800 7,295,100
----------- -----------
$63,888,600 $58,097,500
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,250,200 $ 1,331,400
Accrued liabilities 1,025,400 1,170,200
Income taxes payable 277,400 306,500
----------- -----------
Total current liabilities 5,553,000 2,808,100
Deferred income taxes 114,200 514,200
----------- -----------
Total liabilities 5,667,200 3,322,300
----------- -----------
Shareholders' equity:
Common shares - $.01 par value, 10,000,000
shares authorized; outstanding 4,542,000
and 4,534,000 33,524,400 33,219,200
Retained earnings 24,697,000 21,556,000
----------- -----------
Total shareholders' equity 58,221,400 54,775,200
----------- -----------
$63,888,600 $58,097,500
=========== ===========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
3
<PAGE> 4
ANDROS INCORPORATED
CONDENSED CONSOLIDATED INCOME STATEMENT
(Unaudited)
<TABLE>
<CAPTION>
Quarter ended Nine months ended
-------------- -----------------
4/30/95 4/24/94 4/30/95 4/24/94
------- ------- ------- -------
<S> <C> <C> <C> <C>
Sales $10,417,600 $14,524,600 $34,729,800 $44,614,100
Cost of sales 6,300,300 8,674,500 20,349,700 26,277,200
----------- ----------- ----------- -----------
Gross profit 4,117,300 5,850,100 14,380,100 18,336,900
----------- ----------- ----------- -----------
Expenses and other income:
Research and development 1,114,700 1,188,900 3,599,800 3,142,500
Marketing, general
and administrative 2,436,400 2,336,100 7,271,800 6,034,500
Interest and other income, net (342,900) (375,900) (1,052,700) (827,400)
----------- ----------- ----------- -----------
3,208,200 3,149,100 9,818,900 8,349,600
----------- ----------- ----------- -----------
Income before income taxes 909,100 2,701,000 4,561,200 9,987,300
Income tax provision 290,900 927,300 1,420,200 3,424,300
----------- ----------- ----------- -----------
Net income $ 618,200 $ 1,773,700 $ 3,141,000 $ 6,563,000
=========== =========== =========== ===========
Earnings per share
of common stock $.13 $.36 $.65 $1.37
==== ==== ==== =====
Average share and outstanding
common share equivalents 4,814,100 4,910,000 4,814,100 4,789,200
========= ========= ========= =========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
4
<PAGE> 5
ANDROS INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
-----------------
April 30, 1995 April 24, 1994
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,141,000 $ 6,563,000
Adjustments to reconcile net income to
net cash flows from operating activities:
Depreciation and amortization 1,780,900 2,638,400
Deferred income taxes (400,000) (793,300)
Changes in assets and liabilities,
net of amounts acquired in 1994:
Accounts receivable, net (1,225,300) 599,400
Inventories (5,929,700) (1,651,700)
Prepaid expenses (121,800) (90,500)
Accounts payable and accrued liabilities 2,774,000 26,4000
Income taxes payable (29,100) 244,400
----------- -----------
Net cash flows from operating activities (10,000) 7,536,100
----------- -----------
Cash flows from investing activities:
Change in short-term investments (1,485,000) (855,400)
Payment for purchase of Scitec Corporation,
net of cash acquired 0 (6,977,000)
Capital expenditures (824,100) (360,300)
Change in other assets (9,800) (309,600)
----------- -----------
Net cash flows from investing activities (2,318,900) (8,502,300)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock, net 282,700 968,300
Repayment of shareholder note receivable 22,500 30,400
----------- -----------
Net cash flows from financing activities 305,200 998,700
----------- -----------
Net change in cash and cash equivalents (2,023,700) 32,500
Cash and cash equivalents at beginning of period 3,431,700 2,551,600
----------- -----------
Cash and cash equivalents at end of period $ 1,408,000 $ 2,584,100
=========== ===========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
The Company purchased all of the capital stock of Scitec Corporation for
$7,000,000 in the second quarter of fiscal 1994. In conjunction with the
acquisition, liabilities were assumed as follows:
<TABLE>
<S> <C>
Fair value of assets acquired $ 8,171,300
Cash paid for the capital stock (7,000,000)
-----------
Liabilities assumed $ 1,171,300
</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 31, 1994. In the opinion of the Registrant, the accompanying
unaudited condensed consolidated financial statements contain all adjustments
necessary to present fairly its financial position as of April 30, 1995 and the
income and cash flows for the periods presented. Registrant operates on a
52-53 week fiscal year ending the last Sunday in July. The results of
operations for the three and nine months periods ended April 30, 1995 and April
24, 1994 are not necessarily indicative of the results to be expected for the
entire year.
NOTE 2
<TABLE>
<CAPTION>
Inventories: April 30, 1995 July 31, 1994
-------------- -------------
(unaudited)
<S> <C> <C>
Raw material $12,445,800 $6,055,300
Work in process 1,775,400 1,401,700
Finished goods 463,500 1,298,000
----------- ----------
$14,684,700 $8,755,000
=========== ==========
</TABLE>
NOTE 3
Investments in debt and equity securities:
Effective August 1, 1994, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 115 (SFAS No. 115) "Accounting for Certain
Investments in Debt and Equity Securities". Adoption of SFAS No. 115 had no
material effect on the Company's financial position or results of operations.
In accordance with the provisions of SFAS No. 115, the Company classifies its
investments, and accounts for changes in fair value, as follows:
# Debt securities that the Company has the positive intent and ability to
hold to maturity are classified as held-to-maturity securities and reported
at amortized cost.
# Debt and equity securities that are bought and held principally for the
purpose of selling them in the near term are classified as trading
securities and reported at fair value, with unrealized gains and losses
included in earnings.
# Debt and equity securities not classified as either held-to-maturity
securities or trading securities are classified as available-for-sale
securities and reported at fair value, with unrealized gains and losses
excluded from earnings and reported in a separate component of
shareholders' equity.
Investments at April 30, 1995 and July 31, 1994 consist principally of United
States treasury notes and municipal obligations (principally various State of
California and various California county and agency obligations). These
investments are classified as available-for-sale securities and are stated at
cost which approximates fair value.
6
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
The Company's Scitec subsidiary was acquired in the second quarter of fiscal
1994. The acquisition was accounted for as a purchase and, accordingly, its
sales are not included in the first quarter of last year. Scitec sales for the
third quarter and first nine months of fiscal 1995 were $680,600 and
$2,655,600, respectively. Scitec costs and expenses for the third quarter and
first nine months of fiscal 1995 were $1,177,000 and $4,147,900, respectively.
In the third quarter of fiscal 1994, Scitec had sales of $913,300 and costs and
expenses of $1,104,700.
RESULTS OF OPERATIONS
The Company's sales for the third quarter and first nine months of fiscal 1995
decreased 28% and 22%, respectively, over the comparable periods in fiscal
1994. This decrease in sales resulted primarily from the reduction of sales
related to the now-complete German upgraded vehicle inspection program. The
third quarter and first nine months of fiscal 1994 included approximately $2
million and $13 million,
7
<PAGE> 8
respectively, in sales related to the German vehicle inspection program as
compared with only minimal sales in the corresponding periods in fiscal 1995.
Revenue for the third quarter of fiscal 1995 was also adversely affected by a
delay in implementation of the IM 240 program as well as unexpected shipment
delays of the MAP 4 product developed by the Company's Scitec subsidiary.
International automotive sales decreased 29% and 61% to $4,009,500 and
$9,460,800, respectively, for the third quarter and first nine months of fiscal
1995 over the same periods last year for the reasons, with respect to the
German program, stated above.
U.S. automotive sales decreased 40% to $1,768,200 in the third quarter of
fiscal year 1995 over the comparable quarter last year mainly due to last
year's third quarter one-time shipment of Model MT3500s. Management believes
that the sales decrease was also attributable to customer uncertainty with
respect to implementation or potential weakening of government-mandated
automotive emission inspection programs in different states. However, U.S.
automotive sales increased 36% to $9,138,200 for the first nine months of
fiscal 1995 over the same period last year due primarily to the increased
demand in this year's second quarter for new or enhanced versions of the
Company's Model 6000 series automotive exhaust analyzers, as well as, to a
lesser extent, the improvements in the U.S. economy and variations in order
patterns from automotive customers.
Automotive service sales increased 19% and 29% to $1,105,500 and $2,754,300,
respectively, for the third quarter and first nine months of fiscal 1995 over
the same periods last year generally due to a larger installed base.
Worldwide medical sales decreased 31% to $2,853,800 in the third quarter of
fiscal 1995 over the comparable quarter last year, and increased 1% to
$10,720,900 for the first nine months of fiscal 1995 over the same period last
year. The Company believes that the quarterly decrease was mainly a result of
overstocking by certain customers in the U.S. and Europe in the first quarter
of fiscal year 1995, partially offset by increases in shipments to the Far
East.
Gross margins for the third quarter and first nine months of fiscal 1995 were
39.5% and 41.4%, respectively, compared to 40.3% and 41.1%, respectively, in
the same periods last year. These differences are due mainly to the
differences in sales mix between the applicable periods.
Research and development expenses decreased 6% in the third quarter of fiscal
1995 over the same quarter a year ago, but increased 15% in the first nine
months over the same period a year ago due primarily to research and
development expenses at Scitec. Excluding Scitec, research and development
expenses decreased 17% and 9%, respectively, for the third quarter and first
nine months of fiscal 1995 compared to the same period a year ago due to
decreased overhead cost in fiscal 1995.
Marketing, general and administrative expenses were up 4% and 21%,
respectively, for both the third quarter and first nine months of fiscal 1995
compared to the same periods a year ago. This increase primarily related to
operations at Scitec. Excluding Scitec, marketing, general and administrative
expenses increased 2% for the third quarter and decreased 1% for the first nine
months of fiscal 1995 compared to the same periods a year ago.
Interest and other income was down 9% in the third quarter of fiscal 1995
compared to the same period last year due to lower average cash and investment
balances, but was up 27% in the first nine months of fiscal 1995 over the same
period last year due mostly to higher yields resulting from increased interest
rates.
8
<PAGE> 9
Net income decreased 65% and 52%, respectively, for the third quarter and first
nine months of fiscal 1995 over the same periods last year, mainly due to the
decrease in sales, as well as the increases in marketing and general and
administrative expenses. As a result, earnings per share decreased 64% and
53%, respectively, for these same periods.
FINANCIAL CONDITION
The Company's April 30, 1995 financial position reflected a current ratio of
9.3, working capital of $46.3 million and shareholders' equity of $58.2
million. Cash and cash equivalents and short-term investments decreased 2% to
$25,485,200 at April 30, 1995 as compared to $26,023,900 on July 31, 1994.
This decrease resulted primarily from cash used in operations.
The Company's $5 million bank line of credit, which expires June 30, 1995,
remained unused through the quarter ended April 30, 1995.
Scitec shareholders are entitled to contingent consideration if and to the
extent that revenues from sales of products and services associated with the
Scitec business ("Scitec Sales") during calendar years 1994 and 1995 reach
specified targets. No contingent consideration was payable for the calendar
year ended December 31, 1994. At April 30, 1995, Scitec shareholders are
entitled to contingent consideration of up to $5,375,000 (less certain finders'
fees) if Scitec Sales reach specified targets in calendar year 1995.
Management believes that the cash and cash equivalents and short-term
investments on hand at April 30, 1995, together with the cash flows anticipated
from operations and the availability of the bank line, will be sufficient to
meet the Company's working capital and capital expenditure needs for the next
twelve months.
<TABLE>
<CAPTION>
April 30, 1995 July 31, 1994
-------------- -------------
(unaudited)
<S> <C> <C>
Current ratio (:1) 9.3 16.1
Working capital $46,256,700 $42,263,500
Shareholders' equity $58,221,400 $54,775,200
Cash and cash equivalents
and short-term investments $25,485,200 $26,023,900
</TABLE>
Investments at April 30, 1995, include approximately $1 million due from Orange
County, California (Orange County), a general obligation note. Prior to
December 6, 1994, Orange County was rated AA/Aa by Moody's and Standard &
Poors. On December 6, 1994, Orange County filed for protection under Chapter 9
of the Federal Bankruptcy Code as a result of losses incurred on certain
financial derivative instruments. Due to the preliminary stages of Orange
County's financial reorganization, it is not presently determinable whether
losses will be incurred with respect to this investment. Because of the
adequacy of the Company's working capital and cash and short-term investments
at April 30, 1995, the ultimate outcome of the uncertainty with respect to
realization of interest earned from this investment and the full realization of
the carrying amount of this investment is not expected to adversely affect the
Company's ongoing operations.
9
<PAGE> 10
PART II
OTHER INFORMATION
<TABLE>
<S> <C>
ITEM 6: Exhibits and Reports on Form 8-K
(c) Financial Data Schedule.
</TABLE>
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: June 14, 1995
ANDROS INCORPORATED
(Registrant)
WILLIAM W. WEISS
--------------------------------
William W. Weiss
Acting Chief Financial Officer
and Controller
11
<PAGE> 12
EXHIBIT INDEX
Exhibit
No.
- - -------
27 FINANCIAL DATA SCHEDULE
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-30-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> APR-30-1995
<CASH> 1,408,000
<SECURITIES> 24,077,200
<RECEIVABLES> 11,309,000
<ALLOWANCES> 126,200
<INVENTORY> 14,684,700
<CURRENT-ASSETS> 51,809,700
<PP&E> 18,770,700
<DEPRECIATION> 13,467,600
<TOTAL-ASSETS> 63,888,600
<CURRENT-LIABILITIES> 5,553,000
<BONDS> 0
<COMMON> 33,524,400
0
0
<OTHER-SE> 24,697,000
<TOTAL-LIABILITY-AND-EQUITY> 63,888,600
<SALES> 34,729,800
<TOTAL-REVENUES> 34,729,800
<CGS> 20,349,700
<TOTAL-COSTS> 20,349,700
<OTHER-EXPENSES> 9,818,900
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,561,200
<INCOME-TAX> 1,420,200
<INCOME-CONTINUING> 3,141,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,141,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
