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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
/X/ Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
FOR THE FISCAL YEAR ENDED JULY 30, 1995
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
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 (I.R.S. Employer
incorporation or organization) Identification No.)
2332 FOURTH STREET, BERKELEY, CALIFORNIA 94710-2402
(Address of principal executive offices)
Registrant's telephone number, including area code:
(510) 849-5700
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK
(Title of Class)
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
The aggregate market value of voting stock held by non-affiliates of
the Registrant on SEPTEMBER 29, 1995 was $81,588,567 (based upon the closing
sales price of such stock reported on the Nasdaq National Market for such
date).*
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock as of the latest practicable date:
AT SEPTEMBER 29, 1995 REGISTRANT HAD 4,596,539 SHARES OF COMMON STOCK
OUTSTANDING.
Documents incorporated by reference: NONE
* Excludes 853,319 shares outstanding at September 29, 1995 held by
directors, officers and holders of more than 5% of the Registrant's Common
Stock. Exclusion of shares held by any person should not be construed to
indicate that such person possesses the power, direct or indirect, to direct or
cause the direction of the management or policies of the Registrant, or that
such person is enrolled by or under common control with the Registrant.
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PART I
ITEM 1 BUSINESS
GENERAL
Andros Incorporated ("Andros" or the "Company") is a supplier of
instrumentation and a leading worldwide designer and supplier to Original
Equipment Manufacturers ("OEMs") of non- dispersive infrared ("NDIR") gas
analyzers. The largest current market for the Company's products consists of
manufacturers of automotive diagnostic equipment used in engine tune-ups and
government- mandated emissions inspections. These devices measure concentrations
of carbon dioxide, carbon monoxide and hydrocarbons. Another market for Andros'
products consists of manufacturers of medical respiratory monitoring equipment.
Andros' medical products measure gases in human breath, including carbon
dioxide, halogenated hydrocarbon gases ("anesthetic agents") and nitrous oxide.
In December 1993, the Company expanded its product line through the acquisition
of Scitec Corporation ("Scitec"), a Delaware corporation, which designs,
manufactures and sells spectrum analysis instruments that analyze selected
elements in material in its natural location and condition using x-ray
fluorescence ("XRF") technology. These products are sold to end users
principally for detection of lead in paint.
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. 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 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, during fiscal 1995, a weakening of regulatory
requirements with respect to automotive emissions standards in a number of
states resulted in a significant decline in the rate of growth of U.S. sales of
automotive gas analyzer products.
HISTORY AND STRATEGY
Andros was formed in 1968 to design and develop scientific instruments
under contract to United States government agencies, and has concentrated on the
development of instruments utilizing NDIR gas analyzer technology. In 1976, the
Company adopted a strategy of commercializing its NDIR gas analyzer technology
by producing products for and selling to instrumentation manufacturers on an OEM
basis. The Company initially concentrated its efforts on the design, manufacture
and sale of NDIR gas analyzers used in equipment for diagnostic engine tune-ups
to improve the fuel efficiency of motor vehicles. The adoption by the U.S.
government of the 1977 amendments to the Clean Air Act of 1970, and the
subsequent enactment of laws by many states and countries which require annual
inspection and maintenance of automotive emissions, created additional demand
for NDIR gas analyzers for the measurement and analysis of gases in automotive
emissions. Several leading manufacturers of automotive test equipment have
designed their equipment to incorporate Andros' products.
In addition, in the last few years, several Western European nations
have adopted active programs to improve air quality by requiring more frequent
and more stringent automotive emissions testing. The Company currently sells to
more than 15 customers located in Europe as well as three domestic manufacturers
active in the European market.
In 1980, Andros began to expand the applications for its NDIR gas
analyzer products by developing products for the medical market. Andros' medical
gas analyzer products are incorporated into devices for the analysis of the
breath of patients undergoing general anesthesia, post-surgical recovery and
intensive care.
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Andros' current primary strategy is to expand and diversify its
business by increasing worldwide sales for medical monitoring products, by
expanding its product lines and markets, through internal development and
possible acquisitions, and by increasing foreign sales. For example, in fiscal
1995, the Company increased expenditures for research and development of medical
monitoring products by approximately 20% over fiscal 1994. In addition, over the
past few years, the Company has increased its expenditures related to sales and
marketing activities in Europe.
In December 1993, Andros acquired Scitec, located in Kennewick,
Washington. Founded in 1986, Scitec designs and manufactures portable spectrum
analysis instruments that use XRF technology to test materials in place in real
time. Scitec's products are typically used in industries such as environmental
testing, mining and exploration. The most common current use of Scitec's
products is detection of lead in paint. Pursuant to the Scitec acquisition
agreement, in addition to the cash consideration of $6,180,000 paid to the
Scitec stockholders in 1993, the Scitec stockholders may become entitled to
receive contingent consideration of up to $5,750,000 (less certain finders'
fees) if and to the extent that revenues from sales of products and services
associated with the Scitec business during calendar year 1995 reach specified
targets.
As a result of the Scitec acquisition, the Company's operations have
become more complex from a variety of perspectives, including the combined
companies' products, markets, technologies, employees and geographic locations.
This complexity presents a number of strategic and other challenges. There can
be no assurance that the Company will be able to successfully incorporate
Scitec's business, continue sales to Scitec's current customer base or expand
sales to new customers, develop new products or enhancements based on Scitec's
core technology, maintain and strengthen key assets, reduce expenses through
streamlining, or otherwise realize any of the other anticipated benefits of the
acquisition. Scitec's operations have not been profitable and there can be no
assurance that the Company will be able to achieve profitable operations at
Scitec.
AUTOMOTIVE GAS ANALYZERS
The Company is a leading worldwide OEM supplier of NDIR automotive gas
analyzers. These products are incorporated into automotive diagnostic equipment
sold to garages for exhaust inspections and for engine tune-ups. Andros is a
major supplier of NDIR automotive gas analyzers to various affiliates of SPX
Corporation including Automotive Diagnostics; Crypton Wellman Ltd. (United
Kingdom); Sagem S.A. (France); Snap-on Tools Corporation and its subsidiary, Sun
Electric Corporation; Tecnotest S.r.l. (Italy); and others. Demand for Andros'
automotive products continues to be driven in large part by the adoption and
amendment of automotive emissions laws by various jurisdictions.
The following is a description of the Company's four principal
automotive gas analyzer product lines:
200 Series. Andros' 200 Series gas analyzer was first introduced in
1977. The 200 Series is a high-performance analyzer which measures
concentrations of carbon dioxide, carbon monoxide and hydrocarbon
gases. The 200 Series is sold in a three-gas configuration and is
incorporated into products used either for government-mandated
automobile emission inspection programs or for engine tune-ups to
improve fuel efficiency of motor vehicles.
5000 Series. The Company also sells a lower priced,
medium-performance gas analyzer for automotive emissions inspection in
non-U.S. programs which are materially less stringent in their
instrumentation requirements than those for which the 200 Series is
used. Like the 200 Series, the 5000 Series analyzer can measure
concentrations of carbon dioxide, carbon monoxide and hydrocarbon
gases. The 5000 Series is sold in one- gas, two-gas or three-gas
configurations. The 5000 Series meets only a limited number of
worldwide performance specifications and is sold primarily in Western
Europe.
6000 Series. Andros' 6000 Series four-gas analyzer meets all current
U.S. emission analyzer specifications, including the 1990 California
specifications, and the most stringent European standards, the
OIML-Class I. The 6000 Series is comprised of digital technology
analyzers. In addition, Andros offers a five-gas analyzer which uses
chemical sensor technology to measure oxides of nitrogen (NOx).
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7000 Series. The Model 7110 Digital Opacimeter Subsystem, otherwise
known as the Smoke Meter, provides the Company's OEM automotive test
equipment customers with an opacity measuring analyzer for diesel
engines. The Smoke Meter incorporates visible light absorption
technology, an addition to the Company's technology base. The Smoke
Meter is sold primarily in Western Europe.
In many jurisdictions, the diagnostic products sold by Andros' OEM
customers must be certified by regulatory or quasi-regulatory agencies before
they can be used in emission inspection programs. Andros' products must meet
certain specifications to enable its customers' devices to achieve
certification, although the Andros devices are not themselves certified.
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 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, during fiscal 1995, a weakening of regulatory
requirements with respect to automotive emissions standards in a number of
states resulted in a significant decline in the rate of growth of U.S. sales of
automotive gas analyzer products.
Revenue from sales and service of automotive gas analyzers was
$26,509,300 in fiscal 1995, $39,768,900 in fiscal 1994 and $30,493,300 in fiscal
1993.
MEDICAL INSTRUMENTATION
The Company entered the medical products field in 1980 with the
introduction of a gas analyzer for the measurement of carbon dioxide and nitrous
oxide in human breath for use principally in hospital operating rooms,
post-surgical recovery rooms and Intensive Care Units ("ICU"). The Company has
developed and now sells various gas analyzers for medical monitoring purposes.
Andros is a major supplier of medical gas analyzers to Dragerwerk AG and its
affiliate, North American Drager; SpaceLabs Incorporated; Boblingen Medical
Division of Hewlett-Packard Company located in Boblingen, Germany; and Datascope
Corporation.
The following is a description of the Company's medical gas analyzer
products:
Capnometers. Capnometers monitor the respiratory functions of
patients by measuring the levels of end-tidal carbon dioxide expelled
from their lungs. "End-tidal" refers to the air expelled last in the
patient's breathing cycle, which comes from an area of the lungs
closest to the blood vessels and, therefore, permits a highly accurate
measure of pulmonary gas exchange. In 1980, the Company introduced its
400 Series gas analyzer which measures the concentration of carbon
dioxide in a patient's breath. This product also measures the
concentration of nitrous oxide (an analgesic) which, together with a
patented Andros process for automatic compensation for the effect of
nitrous oxide on carbon dioxide measurements, permits more accurate
carbon dioxide measurements. In fiscal 1994, the Company introduced
the Model 4210 On-Airway CO2 Analyzer. This product is designed for
breath-by-breath monitoring in a variety of hospital settings outside
the operating room, such as ICU, emergency care and during transport.
Multi-gas Anesthesia Monitor. Andros' Model 4610 Multi-Gas Anesthesia
Monitor Analyzer ("4610") permits continuous, simultaneous monitoring
of anesthetic agents, carbon dioxide and nitrous oxide on a
breath-by-breath basis. Prior to the introduction of the 4610,
physicians were able to monitor both the gases and anesthetic agents
in a patient's breath through the use of either a single mass
spectrometer or a number of separate NDIR gas analyzers. The Company
believes that, although mass spectrometers can measure more gases than
the 4610, they cannot provide continuous monitoring as
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cost effectively as the 4610. First, mass spectrometers generally have
a much higher cost. Second, if a mass spectrometer is connected to
multiple patients to increase its cost effectiveness, it can monitor
patients only on an intermittent rather than a continuous basis.
Andros' new agent identifying module can be integrated with the 4610
to provide automatic agent identification for sophisticated monitor
applications. In fiscal 1994, the Company introduced and shipped
prototypes of the 4700 gas analyzer, an integrated system which
samples, identifies, measures and reports the concentration of gases
administered to and exhaled by the patient during anesthesia.
4700 Anesthesia Gas Monitoring Sub-Systems. In fiscal 1995, the
Company began delivery of its 4700 series of custom OEM anesthesia gas
monitoring sub-systems, incorporating measurement and identification
of anesthetic agents, carbon dioxide, nitrous oxide, oxygen, patient
breath rate, and elapsed time since the last detected breath. In
addition to gas concentration analyzers, the 4700 includes complete
sample delivery and power modules packaged per OEM customer
requirement. The Company believes that the 4700 offers unique value
and opportunity to both large and small OEM medical device
manufacturers addressing the instrumentation requirement of the
operating room. The Company anticipates that the 4700 will play a
significant role in its medical instrumentation product line.
Because the Company's medical instrumentation products are sold on an
OEM basis, the Company is not required to obtain approval of the U.S. Food and
Drug Administration ("FDA") of its medical devices prior to sale by the Company.
However, the products of the Company's customers into which the Company's
devices are incorporated are subject to pre-market clearance or other regulation
by the FDA and foreign governmental authorities. Delays or other problems with
approvals of medical instrumentation of the Company's customers that incorporate
the Company's products could have a material adverse effect on the Company's
results of operations, particularly if the delay or problem is attributable to a
product manufactured by the Company. Following regulatory approval, commercially
marketed products, as well as the manufacturer and manufacturing facility, are
subject to periodic review and inspections (see "Manufacturing"). In the event
of a discovery of previously unknown problems with a product of the Company or a
product of its customers containing the Company's devices, then restrictions on
the product, the Company or the customer, including recalls (which could require
costly redesign or reconfiguration of the Company's product) or even withdrawal
of the product from the market could result, any of which could have a material
adverse effect on the Company.
The Company's medical instrumentation products are incorporated into
products that are intended to be used on patients who may be physiologically
unstable or severely ill, and who may suffer injury or death related to their
medical treatment or condition, potentially leading to product liability claims
against the Company. While the Company has not experienced a material product
liability claim and also maintains product liability insurance, there can be no
assurance that it will be able to maintain such insurance or obtain additional
insurance on acceptable terms, that insurance will provide adequate coverage
against potential liability, or that the Company will not be subject to a claim
that could otherwise have a material adverse effect on the Company's financial
position or results of operations.
In recent years, there have been, and the Company expects there will
continue to be a number of legislative and regulatory proposals aimed at
continuing or reducing the costs of health care by dramatically modifying the
healthcare system in the United States. The Company cannot predict whether any
such legislative or regulatory proposals will be adopted or the effect such
proposals may have on the businesses of the Company or its medical equipment
customers.
Revenue from sales and service of medical gas analyzer products was
$13,359,000 in fiscal 1995, $14,946,100 in fiscal 1994 and $9,230,200 in fiscal
1993.
SPECTRUM ANALYSIS INSTRUMENTATION
The Company's Scitec subsidiary designs and manufactures portable
spectrum analysis instrumentation designed to detect and measure selected
elements in a material in its natural location and condition using XRF
technology. Scitec's current product line is used principally to detect lead in
paint and includes:
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MAP Spectrum Analyzer. Scitec's metal analysis probe ("MAP") spectrum
analyzer is an automated system that employs XRF technology to detect
and measure the intensity and frequency of x-rays emitted by an
irradiated sample. The analyzer produces a graph, or "spectrum", of
energy, which indicates the amount of lead present, whether it is
located on or below the surface of the paint and whether there are
other elements or possible contaminants in the paint. The MAP 3 is a
"full spectrum" analyzer, capable of measuring both the K and L
emission lines of lead simultaneously in a wide range of field
conditions. The basic MAP system includes a control console with 256K
of memory, which is connected to a hand scanner by a 10-foot cable, and
is calibrated on typical substrates with the U.S. Department of Housing
and Urban Development lead-in-paint reference standards. The radiation
source is a 40 millicurie Cobalt 57 radio isotope. Included with the
console are spectrum display, automatic substrate correction and
automatic source decay time correction software programs, as well as a
carry pack, rechargeable batteries, operator's manual and shipping
case.
Optional software packages include:
Advanced Report Manager ("ARM") database software electronically
records test locations, field notes, measurement results and processes the
information to produce a comprehensive test report.
AcuTransfer software allows data to be downloaded from the console to a
personal computer and checks during data transfer for indications of abnormal
field conditions, instrument malfunction or operator misuse.
Hardware, software and training packages are sold in a total system as
the AcuData System.
Additional memory capacity, additional calibration programs, and a
variety of accessories, such as telescoping poles and clamps, are also
available.
Scitec is required to be licensed by the Washington State Department
of Health to conduct certain activities related to radioactive materials. That
agency conducts periodic reviews to ensure compliance with the safety and other
conditions of the license. In addition, instruments manufactured by Scitec
containing radioactive materials must be registered with the Washington State
Department of Health. Changes in activities or modifications to instruments
typically require that an amended license or registration be approved by the
applicable regulatory agency. The process for licensing and registration is
complex, and there can be no assurance that Scitec's activities and instruments
will continue to obtain or maintain appropriate regulatory licenses and
registration. In addition, regulations in some states require that instruments
be sold or rented only to customers licensed to operate the instruments by the
appropriate state agencies. Scitec's practice has been to require that all
customers be so licensed. Scitec also conducts training courses for employees
and customers.
The Company's revenue from sales and service of spectrum analysis
instruments was $2,885,100 in fiscal 1995 and $3,026,700 in fiscal 1994.
The Company is subject to various environmental laws and regulations
both in the U.S. and abroad. The operations of the Company, like those of other
companies in the industries in which the Company competes, involve the use of
substances regulated under environmental laws. In particular, products
manufactured by the Company's Scitec subsidiary contain various radioactive
materials. The risk of accidental overexposure, contamination or injury from the
handling by customers, employees and others of these materials or related
problems cannot be eliminated completely. While the Company maintains insurance,
there can be no assurance that such insurance will provide adequate coverage
against potential liability or that the Company will be able to maintain or
obtain additional insurance on acceptable terms. In the event of an accident,
the Company could be held liable for any damages that result and any such
liability could have a material adverse effect on the Company's financial
position or results of operations.
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SERVICE AND PARTS
To date, Andros has received a significant proportion of its revenues
from upgrading or servicing customers' existing equipment. The Company performs
most of its service and repair work in its service facilities located in
Berkeley, California. The Company also has a service facility in Belp,
Switzerland for customers located in Europe. Service of Scitec products is
performed at the Scitec facility located in Kennewick, Washington. Andros'
warranties vary among products, but may extend for periods up to three years,
while products manufactured by Scitec have warranties for up to five years.
Scitec also offers a variety of training courses to all customers as well as
in-field technical support, measurement validation and test certification
services. Andros derives revenue from the sale of replacement parts as well as
from the sale of parts under license to customers to manufacture the Company's
products. Service and parts revenues were $6,909,100 in fiscal 1995, $6,584,300
in fiscal 1994 and $3,959,600 in fiscal 1993. Revenues include revenues of
Scitec commencing in December 1993.
MARKETING AND CUSTOMERS
Andros' products are sold primarily on an OEM basis. Scitec products
are sold by sales personnel and representatives primarily to end user customers
in the environmental testing and mining and exploration markets. Selling
activities consist principally of direct sales calls on customers and potential
customers by senior management, technical and sales personnel. In addition to
its Berkeley, California and Kennewick, Washington locations, the Company has an
independent sales agent in Zurich, Switzerland.
To date, the Company's products have been sold primarily to
manufacturers of automotive diagnostic equipment or respiratory monitoring
equipment. There are a relatively small number of major manufacturers in these
industries, particularly in the automotive diagnostic equipment market, which
has recently experienced a consolidation. As a result, a significant portion of
the Company's sales are to a small number of customers. In fiscal 1995, the
Company's 21 largest customers accounted in the aggregate for more than 81% of
sales. In addition, three customers, Sun Electric, various affiliates of SPX
Corporation including Automotive Diagnostics, and Dragerwerk AG and its
affiliate North American Drager, each accounted for more than 10% of total sales
and aggregated 42% of the Company's total sales. Although products of the
Company's Scitec subsidiary are sold to a broad range of end user customers in
other markets, Andros anticipates that the Company will continue to make a
substantial portion of its sales to a limited number of customers and,
therefore, the loss of, or cancellation of orders by, any major customer could
have a material adverse effect on the Company's results of operations. In
addition, the timing of orders by major customers or decisions by one or more
major customers to cancel or defer purchases could lead to substantial
variability from quarter to quarter.
In addition to domestic markets, Andros actively markets its products
in Western Europe and, to a limited extent, in the Far East. International sales
include sales to foreign customers, and sales to domestic customers for
equipment produced by them for shipment overseas. Product sales to customers
outside of the United States accounted for approximately 56% of the Company's
total sales in fiscal 1995. The Company's international sales are denominated in
U.S. dollars. Accordingly, decreases in the value of foreign currency relative
to the U.S. dollar could make the Company's products less price-competitive.
Foreign currency fluctuations have not had a material or significant impact on
the Company's results of operations historically since operating expenses
denominated in other than U.S. dollars have not been material or significant.
However, foreign operating expenses denominated in foreign currencies are
expected to increase as the Company's foreign operations grow, and foreign
currency fluctuations may, in the future, become more significant as a result.
International sales and operations may also be materially adversely affected by
changes in governmental regulations, the imposition of governmental controls,
export license requirements, restrictions on export of critical technology,
political and economic instability or conflicts, trade restrictions, changes in
tariffs and taxes, difficulties in staffing and managing international
operations, general economic conditions overseas, and other matters generally
affecting foreign operations. For information on the Company's export sales, see
Footnote 8 to the Company's consolidated financial statements appearing
elsewhere in this Form 10-K.
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BACKLOG
The Company believes that its backlog at any particular time is not an
accurate prediction of actual future sales. Andros' contracts with customers
indicate the customers' expected volume requirements over the period of the
contract, which can cover a year or more, and contain certain pricing schedules
and other contract terms. Among those terms are provisions customary in sales to
customers permitting partial cancellation and rescheduling of orders without the
imposition of substantial penalties. The Company ships its NDIR gas analyzer
products to customers based on a 90-day shipping schedule determined through
discussions with its customers. As a result, the Company considers only orders
for products to be delivered within 90 days in the future to be firm. As of July
30, 1995 and July 31, 1994, the Company held approximately $9 million and $11
million, respectively, of firm orders anticipated to be delivered during the
subsequent 90-day period. These amounts do not include any amounts for the
Company's Scitec subsidiary, products of which are typically shipped within six
weeks of receipt of product orders.
COMPETITION
The Company competes on the basis of the quality, reliability and
price of its products. The market for the Company's products is highly
competitive and many of the Company's competitors have greater research and
development, marketing, financial and other resources than does the Company. The
Company also faces potential competition from its own OEM customers who may
decide to manufacture their own proprietary products comparable to those of the
Company. By manufacturing defined subsystems rather than attempting to design,
manufacture and market complete diagnostic equipment systems for the medical and
automotive industries, the Company believes it optimizes the use of its
resources to produce reliable cost-effective products and to sell those products
in relatively high volumes at prices less than the customers' cost of
manufacturing such products themselves. Nevertheless, many of the Company's
customers have substantially greater resources than does the Company, and there
can be no assurance that any of the Company's customers will not internally
develop technologies or manufacture products or accessories to products with the
same or similar functionality as those manufactured by the Company. If any major
customer elected to manufacture such products internally, it could have a
material adverse effect on the Company's results of operations.
The Company's major competitors in the automotive gas analyzer
business are Sensors, Inc., Horiba and Siemens AG (Germany). In the medical gas
analyzer business, the Company's major competitors are Datex, a subsidiary of
Instrumentarium (Finland), and Sensors, Inc. In the spectrum analysis
instrumentation business, the Company's major competitors are Princeton Gamma
Tech, Worrington, Niton, RMD and TN-Spectrace.
PATENTS AND LICENSES
Andros owns several patents covering certain aspects of its products
and production processes and has filed applications for additional patents. The
Company aggressively enforces its patents and has settled infringement claims by
entering into license arrangements pursuant to which Andros receives license
fees and royalties. The Company believes that its patents are of value and those
for which it has applied would be of additional value, but that other factors
are of equal or greater competitive importance.
There can be no assurance that patents will issue from any present or
future applications or, if patents issue, that any claims allowed will be
sufficiently broad to protect the Company's technology. In addition, there can
be no assurance that the patents issued to the Company will not be challenged,
invalidated or circumvented, or that the rights granted thereunder will provide
proprietary protection to the Company.
The fields of NDIR gas analyzer instrumentation and XRF technology are
covered by many issued patents and patent applications. Patent applications in
the United States remain confidential until a patent is issued and, therefore,
the Company's products could infringe patents to be issued in the future. If the
Company's products are determined to use technology, processes or other subject
matter that is claimed under other existing U.S. or foreign patents, or if other
companies obtain patents claiming subject matter utilized by the Company, such
companies may bring infringement actions against the Company. Because many
holders of patents in these fields have substantially greater resources than the
Company and because patent litigation is very expensive, the Company may not
have the resources necessary to successfully challenge the validity of such
patents or withstand claims of infringement in cases
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where the Company's position has merit. Even if the Company were to be
successful in prevailing in such actions, the cost of such litigation could have
a material adverse effect on the Company's results of operations. An adverse
outcome could subject the Company to significant liabilities to third parties,
require disputed rights to be licensed or require the Company to cease using
such technology. There can be no assurance that the Company will be able to
obtain such licenses or that such licenses, if available, can be obtained on
commercially reasonable terms.
The Company also relies on trade secret protection for its
confidential and proprietary information. There can be no assurance that others
will not independently develop substantially equivalent proprietary technologies
or otherwise gain access to the Company's trade secrets or disclose such
technologies, or that the Company can meaningfully protect its trade secrets.
EMPLOYEES
At July 30, 1995, Andros employed 150 people, 78 of whom were in
manufacturing, 24 in marketing, 33 in research, development and engineering, and
15 in general and administrative operations. From time to time, the Company
retains consultants as needed for specialized projects. Andros has never had a
work stoppage, none of its employees are represented by a labor organization,
and the Company believes that its employee relations are very good.
MANUFACTURING
The Company's manufacturing operations consist of purchasing,
assembling and testing the materials and components comprising its products. The
principal materials and components used in the production of Andros' gas
analyzer products include NDIR source devices, motors, optical band-pass
filters, photodetectors, printed circuit boards, and plastic and metal parts,
all of which are purchased from independent suppliers. In addition to many of
the components identified above, Scitec products require a radioactive source,
acquisition and transportation of which is monitored by government authorities
and which requires appropriate licensing and compliance with accountability
procedures. Although most are standard parts, certain items proprietary to the
Company, such as source assemblies, molded plastic parts, filters, printed
circuit boards, and photodetectors, are fabricated or assembled by independent
vendors using Andros' production tooling or pursuant to proprietary design
specifications owned by Andros. Many of the components used in the Company's
products are currently purchased from single sources and certain of these are
manufactured or assembled according to the Company's specifications and
integrated into the Company's products. Although the Company believes that most
of the components used in its products are available from alternative suppliers,
any unanticipated interruption in the supply of these components or other
supplies could require the Company to redesign its products to use alternate
suppliers. The Company's reliance on sole source vendors involves several risks
in addition to potential shortages of supply, including reduced control over
delivery schedules, manufacturing yields, quality and costs. In the event of
yield, quality, delivery or supply problems, the Company could be forced to
delay shipment of products, which could have a material adverse effect on the
Company's results of operations.
The Company's facilities and documentation procedures for the
manufacture of medical products are required to conform to the FDA's Good
Manufacturing Practices ("GMP"). Domestic manufacturing facilities are subject
to biennial FDA inspections. Failure to maintain GMP status would have a
material adverse effect on the Company.
The Company conducts manufacturing operations for all of its NDIR gas
analyzer products in its Berkeley, California, headquarters facility. Its
spectrum analysis instruments are manufactured at its Scitec subsidiary in
Kennewick, Washington.
9
<PAGE> 10
RESEARCH AND DEVELOPMENT
The market for NDIR gas analyzer instrumentation and spectrum analysis
instrumentation is characterized by rapid technological change. In the
automotive instrumentation market, technological changes are often required as a
result of changes in government regulations which can vary among countries. In
addition, as the Company's existing products become more mature and its existing
markets more saturated, the Company's ability to develop new products and
technologies increases in importance. The Company's future success will depend
to a large extent on its ability to enhance its current products and to develop
and introduce, on a timely and cost-effective basis, new products that keep pace
with technological developments and address the evolving needs of its customers.
The principal focus of the Company's current research and development
effort is to develop new products for existing markets as well as enhancements
to current products. For example, in the market for automotive diagnostic
equipment, the Company is working to develop, among other things, an analyzer
that measures additional gases. In the medical monitoring market, the Company is
focused on developing products with more functionality. In the spectrum analysis
market, the Company continues to develop products based on XRF technology.
Products under development may be subject to delays due to, among
other things, engineering, regulatory or production problems. There can be no
assurance that the Company will not experience difficulties that could delay or
prevent the successful development, introduction and marketing of new products
or product enhancements, or that any new products or enhancements introduced
would adequately meet the requirements of the marketplace or otherwise achieve
market acceptance. If the Company were unable, for technological or other
reasons, to develop and introduce new products in a timely manner in response to
changing market environments, governmental regulations or customer requirements,
there would be a material adverse effect on the Company's results of operations.
The costs of producing, promoting and servicing new products are
generally greater than in the case of more mature products, which may also have
higher volumes. Further, as new products are introduced, such new products may
render obsolete or otherwise less marketable the Company's then current products
that address similar market needs, which could lead to inventory write-offs or
otherwise have a material adverse impact on the Company's results of operations.
The Company spent an estimated amount of $5,100,900 $4,297,300 and
$3,528,500 in fiscal years 1995, 1994 and 1993, respectively, for
Company-sponsored research and development.
EXECUTIVE OFFICERS OF THE REGISTRANT
As of July 30, 1995, the executive officers of the Company included:
Dane Nelson, 43, joined Andros in 1990. He was promoted to President,
Chief Executive Officer and a Director of the Company on September 1, 1991. From
May 1990 to September 1991, he was Vice President, Operations. Prior to joining
Andros, Mr. Nelson served as President, Nelken Supplies Solutions, a retail
computer and office supplies company, from March 1989 through May 1990. Mr.
Nelson served as Operations Manager of the Supplies Division of Convergent
Technologies, a computer manufacturer, from 1988 through March 1989.
Edward A. McClatchie, Ph.D., 54, joined Andros in 1969. He became
Senior Vice President, Sales & Corporate Development, in September 1991. From
1988 to 1991, Dr. McClatchie was Vice President, Corporate Development. Prior to
joining the Company, Dr. McClatchie was a Postdoctoral Fellow at the Lawrence
Radiation Laboratory in Berkeley, California, and a Science Research Fellow at
Queens University, Belfast, Northern Ireland. His doctorate is in Physics.
William W. Weiss, 50, joined Andros in 1977. He was elected Acting
Chief Financial Officer on October 17, 1994. From 1984 to 1994, he was
Controller. Mr. Weiss has a B.S. in Business Administration from California
State University, Hayward, California.
10
<PAGE> 11
Robert L. Turner, 58, joined Andros in 1992. He is the Vice President,
Marketing. Prior to joining Andros, Mr. Turner was hired as Vice President,
Marketing & Sales at Microsensor Technology, a developer and manufacturer of a
proprietary gas analyzer, in 1982. He was elected to the office of President at
Microsensor Technology in 1985 and remained so until coming to Andros. Mr.
Turner has a BS degree in Electrical Engineering from UC Davis, California.
Lee R. Carlson, Ph.D., 48, joined Andros in 1990 and is the Vice
President, Engineering. Prior to joining Andros, Dr. Carlson was Vice President
and Founder of Iris Medical Instruments from 1989 to 1990, and headed up their
product development effort on a diode laser endophotocoagulator. Dr. Carlson
previously held positions of Director of Research & Development at Coherent Inc.
in 1988, and Engineering Manager at Spectra Physics from 1982 to 1988. His
doctorate is in Physical Chemistry from UC Berkeley, and he has a BA degree from
Purdue University.
On September 15, 1995, Donald Madsen, 51, became Vice President,
Sales. He has been with the Company since March 1986, acting as Vice President
over various departments. He was previously with ITT/Qume Corporation for more
than 13 years, having hired on there as one of their start-up engineers. He
holds an AA degree in Engineering.
Officers serve at the discretion of the Board of Directors.
ITEM 2 PROPERTIES
Andros' administrative offices, research and development laboratories
and manufacturing operations are located in a building complex of approximately
90,000 square feet in Berkeley, California, leased until August 2005. The
Company has lease renewal options for periods extending to 2020. The Company
believes that its Berkeley facility will be adequate for its expected operations
at least through the end of fiscal 1995.
The Company also leases a 9,000 square feet facility in Kennewick,
Washington to house the Scitec operation, a small sales office in Zurich,
Switzerland, and a service depot in Belp, Switzerland.
ITEM 3 LEGAL PROCEEDINGS
Registrant is not the subject of any material legal proceedings as of
the date of filing this report.
ITEM 4 SUBMISSION OF ITEMS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders on July 21, 1995.
The shareholders elected the Board's nominees for Director by the votes
indicated:
<TABLE>
<CAPTION>
Nominee Votes in Favor Votes Withheld
------- -------------- --------------
<S> <C> <C>
John M. Huneke 3,667,347 185,323
Eugene Kleiner 3,667,547 185,123
Dane Nelson 3,667,247 185,423
Karl H. Schimmer, M.D. 3,819,022 35,648
Robert C. Wilson 3,668,996 185,674
</TABLE>
11
<PAGE> 12
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
PRICE RANGE OF COMMON STOCK
Andros' common stock is traded in the over-the-counter market under
the symbol ANDY. The following table sets forth the range of high and low sale
prices as reported on the Nasdaq National Market for the quarterly periods
indicated:
<TABLE>
<CAPTION>
---------------
High Low
---------------
<S> <C> <C>
Fiscal Year Ended July 30, 1995
First Quarter 18 1/4 15 1/4
Second Quarter 17 1/2 14 3/4
Third Quarter 18 14 3/4
Fourth Quarter 18 3/4 15 3/4
Fiscal Year Ended July 31, 1994
First Quarter 17 13
Second Quarter 16 3/4 15
Third Quarter 21 1/4 15 1/2
Fourth Quarter 19 1/2 13 1/2
</TABLE>
These prices reflect inter-dealer prices, without retail mark-up,
mark-down or commission.
The Company has paid no cash dividends since its incorporation and has
no present intention of declaring a cash dividend in the near future. As of July
30, 1995, there were 367 stockholders of record.
The trading price of the Company's common stock may be subject to wide
fluctuations in response to variations in quarterly operating results,
performance relative to securities analysts' expectations, new product
announcements by the Company or its competitors, general trends in the industry
and other events or factors outside the Company's control. In addition, the
stock market has experienced extreme price and volume fluctuations which have
particularly affected the market prices for many high technology companies.
These broad market fluctuations may adversely affect the market price of the
Company's common stock.
12
<PAGE> 13
ITEM 6 SELECTED FINANCIAL DATA
The selected financial data set forth below are derived from the
consolidated financial statements of the Company and are qualified by reference
to such financial statements and the notes thereto.
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA *
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended Last Sunday in July
---------------------------------------------------
1995 1994 1993 1992 1991
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Statement Data
Sales $42,753 $57,742 $39,724 $35,001 $22,095
Income from continuing operations 2,866 8,019 5,872 4,840 258
Income per share from
continuing operations $ 0.59 $ 1.67 $ 1.25 $ 1.19 $ .07
Common and common
equivalent shares 4,821 4,798 4,699 4,064 3,476
Balance Sheet Data
Total assets $63,871 $58,098 $50,055 $42,060 $25,122
Long-term debt 0 0 0 0 0
Shareholders' equity 58,368 54,775 45,810 39,193 20,657
</TABLE>
No cash dividends were declared during any of the periods presented.
* 1991 adjusted for discontinued operations (the disposition of the
Angiotec medical imaging product division)
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
PERCENTAGE CHANGE
COMPARED TO PRIOR YEAR
<TABLE>
<CAPTION>
As a Percentage of Sales
------------------------
1995 1994 1995 1994 1993
---- ---- ------------------------
<S> <C> <C> <C> <C> <C>
(26%) 45% Sales 100% 100% 100%
(25%) 50% Cost of sales 59% 59% 57%
(28%) 39% Gross profit 41% 41% 43%
19% 22% Research and development 12% 7% 9%
16% 57% Marketing, general and administrative 24% 15% 14%
30% 16% Interest and other income (3%) (2%) (2%)
(72%) 33% Income before income taxes 8% 21% 22%
(87%) 26% Income tax provision 1% 7% 7%
(64%) 37% Net income 7% 14% 15%
</TABLE>
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. 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 demand for
particular
13
<PAGE> 14
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, during fiscal 1995, a weakening of regulatory requirements with
respect to automotive emissions standards in a number of states resulted in a
significant decline in the rate of growth of U.S. sales of automotive gas
analyzer products.
The Company's sales are subject to significant fluctuations from
quarter to quarter. 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.
Fiscal year 1995 compared to fiscal year 1994
The Company's sales for fiscal 1995 decreased 26% from sales reported
for fiscal 1994. This decrease in sales resulted primarily from the reduction of
sales related to the now-completed German upgraded vehicle inspection program.
Fiscal 1994 included approximately $14 million in sales related to the German
vehicle inspection program as compared with minimal sales in fiscal 1995.
Revenue for fiscal 1995 was also adversely affected by a delay in implementation
of various states' emissions programs, as well as unexpected shipment delays of
the MAP 4 product developed by the Company's Scitec subsidiary. Shipments of the
MAP 4 are scheduled to begin in the first quarter of fiscal 1996.
International automotive product sales decreased 53% to $12,732,000 for
fiscal 1995 over fiscal 1994 for the reasons stated above with respect to the
German program.
U.S. automotive product sales increased 6% to $10,320,100 for fiscal
1995 over last year due primarily to the increased demand for new or enhanced
versions of the Company's Model 6000 Series Automotive Exhaust Analyzers and, to
a lesser extent, the improvements in the U.S. economy and variations in order
patterns from automotive customers. Automotive service revenues increased 12% to
$3,457,200 for fiscal 1995 over fiscal 1994 generally due to a larger installed
base.
Worldwide medical parts and service revenue decreased 11% to
$13,359,000 in fiscal 1995 over fiscal 1994. The Company believes that the
decrease was mainly a result of a decrease in orders by certain customers in the
U.S. and Europe in fiscal 1995, as customer inventories were brought in line
with expected revenues, partially offset by sales increases to customers located
in the Far East.
Gross margins were 41% for fiscal 1995, unchanged from fiscal 1994.
However, gross margins in the fourth quarter of fiscal 1995 were 37% due to
increased material costs and variations in the sales mix.
Research and development expenses increased by 19% in fiscal 1995 over
fiscal 1994 due primarily to research and development expenses for the MAP 4
project at Scitec. Excluding Scitec, research and development expenses decreased
1% compared to fiscal 1994 due to tighter control over expenses in fiscal 1995.
Marketing, general and administrative expenses were up 16% in fiscal
1995 over fiscal 1994. This increase primarily related to operations at Scitec,
including a one-time charge of $850,000 related to consolidation and
streamlining of operations. Excluding Scitec, marketing, general and
administrative expenses decreased 1% in fiscal 1995 over fiscal 1994.
Interest and other income increased by 30% to $1,354,900 mainly due to
higher interest rates on cash and cash equivalents and short-term investment
balances.
The effective rate for the income tax provision for fiscal 1995 of
15.2% was significantly below the combined federal and state statutory rate,
primarily due to tax benefits attributable to the Company's Foreign Sales
Corporation, research and development credits, and an adjustment of prior years'
taxes.
14
<PAGE> 15
Net income decreased 64% over last year to $2,865,500 mainly due to the
decrease in sales relative to fixed costs as well as the increases in marketing,
general and administrative expenses. As a result, earnings per share decreased
65% for fiscal 1995 over fiscal 1994.
For information regarding foreign operations and export sales see Part
I, Item 1 and Note 8 to the consolidated financial statements.
Fiscal year 1994 compared to fiscal year 1993
On December 28, 1993, Andros acquired Scitec in a transaction accounted
for as a purchase. Accordingly, the Company's financial results include the
results of operations of Scitec commencing on the date of acquisition. In the
approximately seven months ended July 31, 1994, Scitec's sales were $3,026,700,
cost of sales were $1,223,800, research and development expense was $269,000,
and marketing, general and administrative expense was $1,325,000. The discussion
of fiscal 1994 results of operations compared to fiscal 1993 amounts below
excludes Scitec where appropriate.
Fiscal 1994 sales of $54,715,000 (excluding Scitec) were 38% higher
than fiscal 1993 sales. Automotive product sales and service revenues were up
30% to a record $39,768,900 and represented 69% of total sales. International
automotive product sales were up 22% to $26,963,000 mainly due to shipments
resulting from the German vehicle inspection program. U.S. automotive product
sales increased by 68% over fiscal 1993 to $9,726,400 due, in part, to a
consolidation in the industry which increased Andros' market share, and also due
to shipments of higher value products.
Andros' worldwide medical product sales and service revenues were up
62% to $14,946,100 in fiscal 1994, representing 26% of total sales. Increases in
medical product sales were experienced equally in both U.S. and European
markets. Most of the overall increase was related to sales of the Model 4610
Multi-Gas Anesthesia Monitor Analyzer, a product introduced in fiscal 1993 as an
enhanced version of an earlier model.
Automotive and medical parts and service revenue increased 42% to
$5,637,700 over fiscal 1993. Substantially all of this revenue relates to
international markets and corresponds to the increase in the number of installed
units needing maintenance.
Gross margins in fiscal 1994 decreased to 41% from 43% in fiscal 1993
mainly due to variations in the sales mix, particularly, an increased
proportion of sales of international automotive and medical products which
generally have lower margins than corresponding U.S. products.
Research and development expense increased by 22% to $4,297,300
(including Scitec) representing 7% of sales. This increase reflected significant
design efforts on new products at Andros as well as increases resulting from the
acquisition of Scitec.
Marketing, general and administrative expense increased 57% over
fiscal 1993 to $8,765,800 principally due to inclusion of Scitec expenses,
amortization of Scitec goodwill, increased customer service expenses related to
increases in sales, and professional fees related to various acquisition
activities. These expenses increased as a percentage of sales from 14% to 15%
over fiscal 1993 for the reasons discussed above. Excluding Scitec expenses
(which were not included in fiscal 1993 amounts), marketing, general and
administrative expenses increased 33% over fiscal 1993 amounts and were 14% of
sales (exclusive of Scitec sales).
Interest and other income increased by 16% to $1,040,300 mainly due to
interest earned on larger cash and cash equivalents and short-term investment
balances.
The effective rate for the income tax provision for fiscal 1994 of
32.8% was significantly below the combined federal and state statutory rate,
primarily due to tax benefits attributable to the Company's Foreign Sales
Corporation.
Net income increased 37% over last year to $8,019,000, representing a
14% return on sales.
15
<PAGE> 16
Fourth Quarter Fiscal 1995
Fiscal 1995 fourth quarter sales of $8,023,600 were down 39% from the
fourth quarter of fiscal 1994. Fourth quarter net loss was $275,600 in fiscal
1995 compared to net income of $1,456,000 in the fourth quarter of fiscal 1994,
reflecting a one-time charge of approximately $850,000 related to consolidation
and streamlining of Scitec's operations, Scitec's sales adjustments and final
purchase accounting adjustments. Additionally, the delay in implementation of
the IM 240 program and shipment delays of Scitec's MAP 4 product both had a
negative impact on the Company's sales overall.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and short-term investments were $26,012,300
at July 30, 1995 as compared to $26,023,900 at July 31, 1994.
During fiscal 1995, net cash flows from operations were approximately
$459,000, a decrease of approximately $9.9 million from fiscal 1994 amounts. The
principal causes of the decrease were reduced net income of approximately $5.1
million and an increase in inventories of $8 million. These amounts were
offset by an increase of $2.6 million in accounts payable, accrued liabilities
and accrued payroll liabilities, and a decrease of $1.7 million in accounts
receivable. Other sources of cash were a net reduction in short-term
investments of approximately $6.2 million and approximately $700,000 from
proceeds from issuance of common stock.
Management has budgeted approximately $1 million for expenditures on
plant and equipment for fiscal 1996 compared with approximately $1.2 million
spent in fiscal 1995 for plant and equipment. In addition, the Scitec
shareholders may become entitled to contingent consideration of up to $5,750,000
(less finders' fees) if and to the extent that revenues from sales or products
and services associated with the Scitec business during calendar year 1995 reach
specified targets. On May 31, 1994 the Company announced a stock repurchase
program authorizing the purchase of up to 500,000 shares of Andros' common stock
on the open market. To date, 56,000 shares have been repurchased for a cost of
$839,000.
Management believes that the cash and cash equivalents and short-term
investments on hand at July 30, 1995, together with the cash flows anticipated
from fiscal 1996 operations, will be sufficient to meet the Company's working
capital and capital expenditure needs at least through fiscal 1996. The Company
has no present intention of declaring any cash dividends on its common stock and
intends to use its available cash for working capital and general corporate
purposes and, where management considers such opportunities to be appropriate,
for the acquisition of products, businesses or technology complementary to the
Company's business, although no specific plans or allocation of funds have been
made for such purposes.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements, together with the report
thereon of Price Waterhouse LLP dated September 11, 1995, appearing on pages 27
to 38 are incorporated herein.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
16
<PAGE> 17
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS OF THE REGISTRANT
Set forth below are the names of the Company's directors, their
principal occupations and their ages at July 30, 1995, and certain other
information about them.
<TABLE>
<CAPTION>
Name Age Principal Occupation
- ---- --- --------------------
<S> <C> <C>
John M. Huneke 65 Private Investor
Eugene Kleiner 72 Private Investor
Dane Nelson 43 President and Chief Executive Officer
Karl H. Schimmer, M.D. 73 Private Investor
Robert C. Wilson 75 Private Consultant and Advisor to the
President
</TABLE>
MR. HUNEKE is a founder of the Company and has been a director of
Andros since its inception in 1968. Between 1973 and 1987, he was employed in
various capacities by companies comprising the Bechtel Group, including Bechtel
Investments and Bechtel National, Inc. Since 1987, he has been a private
investor.
MR. KLEINER has been a director of Andros since 1972 and served as
Chairman of the Board from January 1993 until July 1995. He was a founding
partner of Kleiner Perkins Caufield & Byers. Since 1987, Mr. Kleiner has been a
private investor. Mr. Kleiner is currently a director of Resound Corporation and
a trustee of Polytechnic University in New York.
MR. NELSON, joined Andros in 1990. He was promoted to President, Chief
Executive Officer and a Director of the Company on September 1, 1991. From May
1990 to September 1991, he was Vice President, Operations. Prior to joining
Andros, Mr. Nelson served as President, Nelken Supplies Solutions, a retail
computer and office supplies company, from March 1989 through May 1990. Mr.
Nelson served as Operations Manager of the Supplies Division of Convergent
Technologies, a computer manufacturer, from 1988 through March 1989.
DR. SCHIMMER has been a director of Andros since 1975. From 1959 until
his retirement in 1981, he was a member of the staff, Department of
Anesthesiology, St. Francis Memorial Hospital in San Francisco. Since 1981, he
has been a private investor.
MR. WILSON has been a director of Andros since December 1992, and has
served as Chairman of the Board since July 1995. He has also been employed by
the Company as an advisor to the President of the Company since November 1992.
He is Chairman of Wilson & Chambers Inc., a consulting firm. He is currently
also a director of Storage Technology Corporation, Resound Corporation, Syquest
Technology, Inc., and Giga-Tronics Incorporated. From 1974 until his retirement
in 1980, Mr. Wilson served as Chief Executive Officer of Memorex.
17
<PAGE> 18
EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item regarding executive officers of
the Registrant is set forth on pages 10-11 of this report and incorporated
herein.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 ("1934 Act")
requires the Company's directors and executive officers, and persons who own
more than 10% of a registered class of the Company's equity securities, to file
with the Securities & Exchange Commission ("SEC") initial reports of ownership
and reports of changes in ownership of common stock and other equity securities
of the Company. Officers, directors and greater than 10% stockholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended July 30, 1995, all Section
16(a) filing requirements applicable to its officers, directors and greater than
10% beneficial owners were complied with.
ITEM 11 EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Each non-employee director of the Company received an annual fee of
$9,000 in fiscal 1995, a fee of $1,000 for each of the other 28 meetings of the
Board of Directors attended in person (except that Mr. Kleiner, formerly
Chairman of the Board, received a fee of $1,500 for each of such meetings), and
a fee of $500 for each meeting of the Board of Directors in which such director
participated by telephone (including any committee meeting (except that Mr.
Kleiner received a fee of $750 for each of such meetings). In fiscal 1995, the
total compensation paid to non-employee directors was $113,000.
Non-employee directors are granted options pursuant to the 1991 Stock
Option Plan ("Plan") under the Automatic Grant Program ("Automatic Program").
Under the Automatic Program, each individual who was serving as a non-employee
Board member on October 4, 1991, was automatically granted on such date a
non-statutory stock option to purchase 25,000 shares of common stock at an
exercise price of $8.00 per share, the fair market value of the common stock at
date of grant. The Automatic Program also provides for an automatic grant of an
option to purchase 25,000 shares of common stock to each individual who becomes
a new non-employee Board member after October 4, 1991. Each option granted under
the Automatic Program has a ten-year term, becomes exercisable for 15,000 shares
upon completion of one year of Board service (measured from the date of grant),
and for an additional 5,000 shares upon completion of each of the next two years
of Board service thereafter, and has an exercise price equal to 100% of the fair
market value per share of the Company's common stock on the date of grant.
Options granted under the Automatic Program are intended by the Company not to
qualify as incentive stock options under the Internal Revenue Code of 1986, as
amended ("Code"). During fiscal 1995, no options were granted under the
Automatic Program.
18
<PAGE> 19
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY OF COMPENSATION
The following table sets forth, for fiscal years 1995, 1994 and 1993,
certain compensation awarded or paid to, or earned by, the Company's Chief
Executive Officer and its other four most highly compensated executive officers
at July 30, 1995 ("Named Executive Officers"):
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation(1) Awards(2)
---------------------- ------------
Securities All Other
Name and Underlying Compensa-
Principal Fiscal Salary(3) Bonus Options(4) sation(5)
Position Year ($) ($) (#) ($)
--------- ------ --------- ----- ---------- ---------
<S> <C> <C> <C> <C> <C>
Dane Nelson 1995 $215,010 -- -- $4,620
President and 1994 $221,742 -- 30,000 $9,117
Chief Executive Officer 1993 $172,723 -- 35,000 --
Edward A. McClatchie, Ph.D 1995 $175,011 -- -- $4,620
Senior Vice President, 1994 $181,550 -- -- $4,622
Sales and Corporate 1993 $167,903 $13,078(6) 20,000 $5,960
Development
Lee R. Carlson, Ph.D 1995 $115,003 -- -- $3,822
Vice President, 1994 $117,533 -- 5,000 $4,125
Engineering 1993 $ 98,547 -- 30,000 $4,049
Robert L. Turner 1995 $113,422 -- -- $3,970
Vice President, 1994 $115,280 -- 10,000 $2,965
Marketing 1993 $104,826 -- 20,000 $4,854
William W. Weiss 1995 $ 71,569 -- -- --
Acting Chief Financial Officer 1994 -- -- -- --
and Controller 1993 -- -- -- --
</TABLE>
(1) As permitted by rules promulgated by the SEC, with respect to fiscal 1993,
1994 and 1995, no amounts are shown for "perquisites", as such amounts for
each Named Executive Officer do not exceed the lesser of 10% of such
executive's salary plus bonus or $50,000.
(2) To date, the Company has not granted any awards of restricted stock. The
Company does not have any long-term incentive plans.
(3) Includes amounts earned but deferred at the election of the Named
Executive Officer pursuant to the Company's Savings and Investment Plan,
which is a qualified plan under Section 401(k) of the Code.
(4) To date, the Company has not granted any stock appreciation rights (SARs)
under the Plan, although the Company has granted limited stock
appreciation rights in tandem with outstanding options held by officers
and directors of the Company.
19
<PAGE> 20
(5) Amounts shown consist of the Company's matching payments under its Savings
and Investment Plan
(6) Represents the amount received in payment of unused accrued vacation time
calculated at the base salary rate.
STOCK OPTION GRANTS AND EXERCISES
The Company grants options to its executive officers under the
Discretionary Grant Program of the Plan ("Discretionary Program"). As of
September 1, 1995, options to purchase an aggregate of 2,050,000 shares had been
granted under the Plan and options to purchase 373,198 shares remained available
for grant thereunder. There were no option grants under the Plan in fiscal 1995.
The terms of options granted to the Named Executive Officers are generally
consistent with those of options granted to other employees under the
Discretionary Program. Options granted under the Discretionary Program may be
either incentive or non-statutory stock options. The exercise price of
non-statutory options must be at least 85% of fair market value on the date of
grant and the exercise price of incentive stock options must be at least 100%.
In the event of certain changes in control of the Company, vesting of
outstanding options automatically accelerates, and the options remain
exercisable through the option term. In the event of certain other corporate
transactions, unless assumed by a successor corporation, vesting of outstanding
options will automatically accelerate, and the options will expire if not
exercised prior to the consummation of such corporate transaction. Certain
limited stock appreciation rights are granted to officers and directors of the
Company in tandem with their outstanding options. Any option with such a limited
stock appreciation right in effect for at least six months will automatically be
canceled upon the occurrence of certain hostile takeovers, and the optionee will
in return be entitled to a cash distribution from the Company in an amount equal
to the excess of (I) the take-over price of the shares of common stock at the
time subject to the canceled option (whether or not the option is otherwise at
the time exercisable for such shares, or (ii) the aggregate exercise price
payable for such shares. The 1991 Plan contains provisions permitting the
Compensation Committee to reprice outstanding options. Options generally vest in
equal daily installments over a four-year period.
During fiscal 1995, no options were granted to executive officers. The
following table shows, for fiscal 1995, aggregated option exercises and the
fiscal year-end option values by the Named Executive Officers:
<TABLE>
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
FY-End (#) FY-End ($)
Shares Acquired Value Exercisable/ Exercisable/
Name On Exercise(#) Realized($)(1) Unexercisable(2/3) Unexercisable(2/4)
---- --------------- -------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Mr. Nelson - - 107,102/42,898 $688,676/$117,274
Dr. McClatchie - - 75,194/15,306 $543,372/$49,228
Dr. Carlson - - 33,108/20,892 $146,979/$53,141
Mr. Turner - - 38,554/21,446 $152,886/$62,214
Mr. Weiss - - 6,131/4,001 $27,076/$10,843
</TABLE>
(1) Represents the fair market value of the Company's common stock on the date
of exercise (based on the closing sales price reported on the Nasdaq
National Market or the actual sales price if the shares were sold by the
optionee) less the exercise price, and does not necessarily imply that the
shares were sold by the optionee.
(2) Reflects shares vested and unvested at fiscal year end. Options granted
under the Discretionary Program are immediately exercisable, but are
subject to the Company's right to repurchase unvested shares on
termination of employment.
20
<PAGE> 21
(3) Includes both "in-the-money" and "out-of-the-money" options. In-the-money
options are options with exercise prices below the market price of the
Company's common stock at July 30, 1995.
(4) Represents the fair market value of the Company's common stock at July 30,
1995 ($15.875), based on the closing sales price reported on the Nasdaq
National Market, less the exercise price.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
ownership of the Company's common stock as of September 1, 1995 by: (i) each
director; (ii) each Named Executive Officer, (iii) all executive officers and
directors of the Company as a group; and (iv) all those known by the Company to
be beneficial owners of more than 5% of its common stock.
<TABLE>
<CAPTION>
Beneficial Ownership(1)
-------------------------
Number of Percent
Name of Beneficial Owner Shares Owned of Total
------------------------ ------------ --------
<S> <C> <C>
S.A.C. Capital Mgmt.(2) 461,300 10.0%
520 Madison Avenue
New York, NY 10022
Neuberger & Berman(3) 279,800 6.1%
605 Third Avenue
New York, NY 10158
Dane Nelson(4) 150,000 3.3%
John M. Huneke(5) 35,905 *
Eugene Kleiner(5) 85,845 1.9%
Karl H. Schimmer, M.D.(5)(6) 44,785 1.0%
Robert C. Wilson(4) 55,000 1.2%
Lee R. Carlson, Ph.D.(4)(7) 55,800 1.2%
Edward A. McClatchie, Ph.D.(4) 100,109 2.2%
Robert L. Turner(4) 61,000 1.3%
William W. Weiss(4) 10,132 *
All executive officers and
directors as a group
(9 persons)(8) 598,576 13.0%
</TABLE>
* Less than 1%.
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G filed with the SEC.
Unless otherwise indicated in the footnotes to this table and subject to
community property laws where applicable, each of the stockholders named
in this table has sole voting and investment power with respect to the
shares indicated as beneficially owned. Applicable percentages are based
on 4,595,052 shares outstanding on September 1, 1995, adjusted as required
by rules promulgated by the SEC.
21
<PAGE> 22
(2) On October 3, 1995 SAC Capital Management filed a Schedule 13D Amendment
stating that they acquired beneficial ownership of an additional 77,400
shares from September 26, 1995 to September 29, 1995, raising the total
shares held to 538,700. Of these shares, SAC has shared dispositive power
with respect to 340,400 shares, sole voting power with respect to 198,300
shares, and shared voting power with respect to 340,400 shares.
(3) Based on a Schedule 13G filed with the SEC on September 10, 1995,
Neuberger & Berman ("N&B") may be deemed to be a beneficial owner of these
shares because it shares dispositive power with respect to the securities.
The Schedule 13G states that N&B disclaims any economic interest in such
securities, that portfolio clients of N&B have the sole right to receive
and the power to direct the receipt of dividends from or proceeds from the
sale of such securities and that no client has an interest that related to
5% or more of this security. Of the shares set forth above, N&B has shared
dispositive power with respect to all 279,800 shares, sole voting power
with respect to 236,300 shares and shared voting power with respect to
43,500 shares.
Partners of N&B own 2,000 shares. Partners own these shares in their own
personal securities accounts. N&B disclaims beneficial ownership of these
shares because these shares were purchased with each partners' personal
funds and each partner has exclusive dispositive and voting power over the
shares held in their respective accounts.
(4) Includes shares subject to outstanding stock options that will be
exercisable on October 30, 1995, subject to the Company's right to
repurchase all or a portion of the unvested shares, as follows: Dane
Nelson, 150,000 shares; Robert C. Wilson, 50,000 shares; Lee R. Carlson,
Ph.D., 54,000 shares; William W. Weiss, 10,132 shares; Edward A.
McClatchie, Ph.D., 90,500 shares; Robert L. Turner, 60,000 shares; and all
employee directors and executive officers as a group (9 persons), 414,632
shares.
(5) Includes shares that certain non-employee directors of the Company have
the right to acquire by October 30, 1995 pursuant to outstanding options
and warrants, as follows: John M. Huneke, 30,000 shares; Eugene Kleiner,
30,000 shares; Karl H. Schimmer, M.D., 25,000 shares.
(6) Does not include 13,275 shares beneficially owned by the Anesthesiologist
Medical Group of San Francisco Inc. Profit Sharing and Pension Trust, of
which Dr. Schimmer is a beneficiary but does not have or share investment
or voting control.
(7) Does not include 600 shares held by Dr. Carlson's son, with respect to
which Dr. Carlson disclaims beneficial ownership.
(8) Includes shares described in the notes above, where applicable.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has entered into indemnity agreements with certain
officers and directors that provide, among other things, that the Company will
indemnify such officers or directors, under the circumstances and to the extent
provided for therein, for expenses, damages, judgments, fines and settlements he
or she may be required to pay in actions or proceedings to which he is or may be
made a party by reason of his position as a director, officer or other agent of
the Company, and otherwise to the full extent permitted under Delaware law and
the Company's By-Laws.
In December 1993, Scitec entered into a three-year employment
agreement with Lawrence T. Lynott providing for an annual base salary of
$100,000, subject to increase in accordance with the policies of the Company. On
June 7, 1995, Mr. Lynott's employment with Scitec was terminated and on
September 19, 1995, pursuant to the terms of the contract, Mr. Lynott was paid a
lump sum severance of $155,890.26 and vesting on options on 13,655 shares of the
Company's common stock was accelerated.
22
<PAGE> 23
ITEM 14 EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE
<S> <C>
(a) 1. Financial Statements
REPORT OF INDEPENDENT ACCOUNTANTS 27
JULY 30, 1995 AND JULY 31, 1994
Consolidated Balance Sheet 28
YEARS ENDED JULY 30, 1995, JULY 31, 1994 AND JULY 26, 1993
Consolidated Statement of Operations 29
Consolidated Statement of Changes in Shareholders' Equity 30
Consolidated Statement of Cash Flows 31
Notes to Consolidated Financial Statements 32-38
2. Financial Statement Schedules
YEARS ENDED JULY 30, 1995, JULY 31, 1994 AND JULY 26, 1993
Schedule I Short-term Investments 39
</TABLE>
All other schedules are omitted because they are
inapplicable, not required under the instruction, or the
information is included in the financial statements or notes
thereto.
(b) Reports on Form 8-K filed during fourth fiscal quarter.
No reports on Form 8-K were filed by the Company during the
quarter ended July 30, 1995.
(c) Exhibits
3.1 Certificate of Incorporation, as amended (incorporated by
reference to Registrant's Annual Report on Form 10-K for
the year ended July 31, 1994).
3.2 Bylaws as amended.
10.1 Lease dated as of August 20, 1990 between the Company and
Berkeley Properties, Inc. relating to premises located at
2332 Fourth Street, Berkeley, California (incorporated by
reference to Registrant's Annual Report on Form 10-K for
the fiscal year ended July 29, 1990, Exhibit 10.1).
10.2 Lease dated as of August 20, 1990 between the Company and
Fourth and Bancroft Property Account relating to premises
located at 2310 and 2314 Fourth Street, Berkeley,
California (incorporated by reference to Registrant's
Annual Report on Form 10-K for the fiscal year ended July
29, 1990, Exhibit 10.2).
*10.3 Stock Option Plan of Andros Incorporated (incorporated by
reference to Registrant's Annual Report on Form 10-K for
the fiscal year ended July 26, 1987, Exhibit 10.7).
*10.4 Stock Option Plan for Directors (incorporated by
reference to Registrant's Annual Report on Form 10-K for
the fiscal year ended July 26, 1987, Exhibit 10.8).
23
<PAGE> 24
*10.5 Employee Stock Purchase Plan (filed as Exhibit 4 to
Andros Incorporated's Registration Statement on Form S-8
(File No. 2-75884) filed on January 30, 1982, as
supplemented by an Appendix dated as of March 11, 1987
and incorporated herein by reference).
*10.9 1989 Stock Option Plan (incorporated by reference to
Exhibit 28.2 to the Registrant's Registration Statement
on Form S-8 [File No. 33- 329888] filed on January 16,
1990).
10.11 Purchase Agreement dated August 7, 1990 between the
Company and Bear Automotive Service Equipment
(incorporated by reference to Registrant's Annual Report
on Form 10-K for the fiscal year ended July 28, 1991, as
amended, Exhibit 10.11).
10.12 Purchase Agreement dated March 2, 1992 between the
Company and OTC Division (a company of SPX Corporation)
(with certain confidential information deleted as
appropriate) (incorporated by reference to Registrant's
Annual Report on Form 10-K for the fiscal year ended July
26, 1992, as amended, Exhibit 10.12).
*10.13 1991 Stock Option Plan of Andros Incorporated, as
amended (incorporated by reference to Registrant's
Annual Report on Form 10-K for the year ended July 31,
1994).
10.16 Purchase Agreement dated July 21, 1992 between the
Company and Sun Electric Corporation (incorporated by
reference to Registrant's Annual Report on Form 10-K for
the fiscal year ended July 26, 1992).
10.17 Purchase Agreement dated August 1, 1992 between the
Company and Grundig AG (incorporated by reference to
Registrant's Annual Report on Form 10- K for the fiscal
year ended July 26, 1992).
10.18 Agreement and Plan of Reorganization between the Company,
AI Acquisition Sub, Inc. and Scitec Corporation, dated as
of December 17, 1993, with exhibits (incorporated by
reference to Registrant's Current Report on Form 8-K
filed on January 12, 1995, as amended by Amendment No. 1
to Current Report on Form 8-K/A filed on March 9, 1994).
*10.19 Employee Agreement between Scitec Corporation and
Lawrence T. Lynott, dated as of December 28, 1994
(incorporated by reference to Registrant's Current Report
on Form 8-K filed on January 12, 1994, as amended).
23.1 Consent of Independent Accountants.
24.1 Power of Attorney (reference is made to the Signature
Page).
27.1 Financial Data Schedule.
* An asterisk next to the number of an exhibit indicates that the
exhibit is a management contract or compensatory plan or arrangement.
24
<PAGE> 25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: October 27, 1995
ANDROS INCORPORATED
(Registrant)
By DANE NELSON
-------------------------------------
Dane Nelson
President and Chief Executive Officer
25
<PAGE> 26
POWER OF ATTORNEY
Know all persons by these presents, that each person whose signature
appears below constitutes and appoints Dane Nelson and William W. Weiss and each
of them as his true and lawful attorneys-in-fact and agents, with full power of
substitution for him, and in his name and in any and all capacities, to sign any
and all amendments to this report, and to file the same, with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done therewith, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, and any of them, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
DANE NELSON October 27, 1995
- ---------------------------------------------------
Dane Nelson
(President and Chief Executive Officer and Director)
WILLIAM W. WEISS October 27, 1995
- ---------------------------------------------------
William W. Weiss
(Acting Chief Financial Officer and Controller)
EUGENE KLEINER October 27, 1995
- ---------------------------------------------------
Eugene Kleiner (Director)
JOHN M. HUNEKE October 27, 1995
- ---------------------------------------------------
John M. Huneke (Director)
KARL H. SCHIMMER, M.D. October 27, 1995
- ---------------------------------------------------
Karl H. Schimmer, M.D. (Director)
ROBERT C. WILSON October 27, 1995
- ---------------------------------------------------
Robert C. Wilson (Director)
26
<PAGE> 27
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Andros Incorporated
In our opinion, the consolidated financial statements listed in the index
appearing under item 14(a)(1) and (2) on page 23 present fairly, in all material
respects, the financial position of Andros Incorporated and its subsidiaries at
July 30, 1995 and July 31, 1994, and the results of their operations and their
cash flows for each of the three years in the period ended July 30, 1995, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
San Francisco, California
September 11, 1995
27
<PAGE> 28
ANDROS INCORPORATED
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
July 30, 1995 July 31, 1994
--------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 9,612,000 $ 3,431,700
Short-term investments, available for sale 16,400,300 22,592,200
Accounts receivable, less allowance for doubtful
accounts of $540,300 and $142,000 8,231,800 9,957,500
Inventories (Note 4) 16,772,500 8,755,000
Prepaid expenses and other assets 839,400 335,200
----------- -----------
TOTAL CURRENT ASSETS 51,856,000 45,071,600
Plant and equipment, net (Note 5) 5,298,800 5,730,800
Goodwill and patents, less accumulated amortization of
$1,227,900 and $706,100 6,316,900 6,808,700
Other assets 398,800 486,400
----------- -----------
TOTAL ASSETS $63,870,500 $58,097,500
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 3,725,200 $ 1,889,300
Payroll and employee benefits 1,397,200 612,300
Income taxes payable 0 306,500
----------- -----------
TOTAL CURRENT LIABILITIES 5,122,400 2,808,100
Deferred income taxes (Note 6) 379,900 514,200
----------- -----------
TOTAL LIABILITIES 5,502,300 3,322,300
----------- -----------
Commitments (Note 9)
SHAREHOLDERS' EQUITY (NOTE 7)
Common shares, $.01 par value,
10,000,000 shares authorized;
outstanding 4,568,400 and 4,534,000 33,946,700 33,219,200
Retained earnings 24,421,500 21,556,000
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 58,368,200 54,775,200
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $63,870,500 $58,097,500
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE> 29
ANDROS INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended
-----------------------------------------------------
July 30, 1995 July 31, 1994 July 25, 1993
-----------------------------------------------------
<S> <C> <C> <C>
Sales $ 42,753,400 $ 57,741,700 $ 39,723,500
Cost of sales 25,427,700 33,790,200 22,547,700
------------ ------------ ------------
GROSS PROFIT 17,325,700 23,951,500 17,175,800
------------ ------------ ------------
Expenses and other income:
Research and development 5,100,900 4,297,300 3,528,500
Marketing, general and administrative 10,201,800 8,765,800 5,580,700
Interest and other income (1,354,900) (1,040,300) (898,000)
------------ ------------ ------------
13,947,800 12,022,800 8,211,200
------------ ------------ ------------
Income before income taxes 3,377,900 11,928,700 8,964,600
Income tax provision (Note 6) 512,400 3,909,700 3,092,800
------------ ------------ ------------
NET INCOME $ 2,865,500 $ 8,019,000 $ 5,871,800
============ ============ ============
Net income per common and common
equivalent share (Note 2) $0.59 $1.67 $1.25
===== ===== =====
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE> 30
ANDROS INCORPORATED
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Shares
-------------------- Shareholders'
Retained Notes
Shares Amount Earnings Receivable Total
------ ------ -------- ------------- -----
<S> <C> <C> <C> <C> <C>
BALANCE AT JULY 26, 1992 4,383,600 $31,601,200 $ 7,665,200 $(73,800) $39,192,600
Net income 5,871,800 5,871,800
Common shares issued, net of costs, upon
exercise of options and purchases under
employee stock purchase plan 77,800 697,100 697,100
Tax benefits realized from exercise of
non-qualified stock options 27,600 27,600
Collection of shareholders' notes receivable 20,900 20,900
--------- ----------- ----------- -------- -----------
BALANCE AT JULY 25, 1993 4,461,400 32,325,900 13,537,000 (52,900) 45,810,000
Net income 8,019,000 8,019,000
Common shares issued, net of costs, upon
exercise of options and purchases under
employee stock purchase plan 128,600 1,351,200 1,351,200
Repurchases of common stock (56,000) (839,000) (839,000)
Tax benefits realized from exercise of
non-qualified stock options 403,600 403,600
Collection of shareholders' notes receivable 30,400 30,400
--------- ----------- ----------- -------- -----------
BALANCE AT JULY 31, 1994 4,534,000 33,241,700 21,556,000 (22,500) 54,775,200
Net income 2,865,500 2,865,500
Common shares issued, net of costs, upon
exercise of options and purchases under
employee stock purchase plan 34,400 631,500 631,500
Tax benefits realized from exercise of
non-qualified stock options 73,500 73,500
Collection of shareholders' notes receivable 22,500 22,500
--------- ----------- ----------- -------- -----------
BALANCE AT JULY 30, 1995 4,568,400 $33,946,700 $24,421,500 $ 0 $58,368,200
========= =========== =========== ======== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE> 31
ANDROS INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year Ended
-----------------------------------------------
July 30, 1995 July 31, 1994 July 25, 1993
-----------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,865,500 $ 8,019,000 $ 5,871,800
Adjustments to reconcile net income
to net cash flows from operating activities:
Deferred income tax provision (benefit) (134,300) (813,200) 168,200
Depreciation 1,322,800 1,519,000 1,533,500
Amortization, including goodwill and
software development costs 853,500 1,483,500 1,284,300
Changes in assets and liabilities, net of amounts
acquired:
Accounts receivable 1,725,700 2,406,000 (3,150,600)
Inventories (8,017,500) (665,600) (2,554,500)
Prepaid expenses (504,200) (44,600) (12,200)
Other assets 32,600 (269,000) 68,900
Accounts payable and accrued liabilities 1,835,900 (1,074,600) 746,200
Income taxes payable (refundable) (306,500) (224,000) 1,070,900
Payroll and employee benefits 784,900 18,000 92,500
Deferred revenue 0 0 (159,500)
------------ ------------ ------------
NET CASH FLOWS FROM OPERATING ACTIVITIES 458,400 10,354,500 4,959,500
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments (36,411,500) (35,455,600) (43,008,400)
Proceeds from maturities of short-term investments 42,603,400 32,653,200 39,495,800
Payment for purchase of Scitec Corporation, net
of cash acquired 0 (6,977,000) 0
Capital expenditures (1,167,600) (584,300) (314,000)
Additions to patents (29,900) (56,900) (68,700)
------------ ------------ ------------
NET CASH FLOWS FROM INVESTING ACTIVITIES 4,994,400 (10,420,600) (3,895,300)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock, net 705,000 1,754,800 724,700
Repurchases of common stock 0 (839,000) 0
Collection of shareholders' notes receivable 22,500 30,400 20,900
------------ ------------ ------------
NET CASH FLOWS FROM FINANCING ACTIVITIES 727,500 946,200 745,600
------------ ------------ ------------
Net change in cash and cash equivalents 6,180,300 880,100 1,809,800
Cash and cash equivalents at beginning of year 3,431,700 2,551,600 741,800
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 9,612,000 $ 3,431,700 $ 2,551,600
------------ ------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income taxes paid $ 1,852,100 $ 4,946,900 $ 1,840,700
Interest paid $ 1,500 $ 7,700 $ 500
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES
In December 1993, the Company purchased all of the capital
stock of Scitec Corporation for $7,000,000. In conjunction
with the acquisition, liabilities were assumed as follows:
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 consolidated financial statements.
31
<PAGE> 32
ANDROS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - OPERATIONS
Andros Incorporated ("Andros") and its subsidiaries ("Company")
designs, manufactures, sells and services measurement analysis and diagnostic
instruments on a worldwide basis.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR
The Company operates on a 52-53 week fiscal year ending the last Sunday
in July. Fiscal 1995, 1994 and 1993 each comprised 52 weeks.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts and
operating results of Andros Incorporated and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
INDUSTRY SEGMENT
The Company operates in a single industry segment - the design,
manufacture and service of measurement, analysis and diagnostic instruments. Its
product lines include analyzers for automotive and medical applications sold
through Original Equipment Manufacturers, and portable spectrum analysis
instrumentation sold to end users. The Company's products are sold primarily in
domestic and European markets.
CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Effective August 1, 1994, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 115 ("FAS 115") "Accounting for
Certain Investments in Debt and Equity Securities". Adoption of FAS 115 had no
material effect on the Company's financial position or results of operations. In
accordance with the provisions of FAS 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.
32
<PAGE> 33
Investments at July 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. Certain investments with maturities beyond
one year of the balance sheet date are classified as current assets since
management intends to redeem such investments prior to maturity.
INVENTORIES
Inventories are valued at the lower of cost (standard cost which
approximates first-in, first-out) or market.
PLANT AND EQUIPMENT
Depreciation is computed using the straight-line method and the
estimated useful lives of the related assets which generally range from two to
ten years. The Company's building lease renewal options extend to August 2020,
and amortization of related leasehold improvements is based on the expectation
that renewal options will be exercised. The Company considers the estimated
useful life of the leasehold improvements when evaluating the period over which
the cost of leasehold improvements are amortized. Maintenance and repairs are
charged against income as incurred and major improvements are capitalized. Parts
tooling costs, including software development costs, are capitalized, included
in machinery and equipment, and amortized generally on a unit-of-production
basis.
GOODWILL
Goodwill is amortized using the straight-line method over the period of
expected benefit which is estimated to be fifteen years.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates its long-lived assets for potential impairment by
analyzing the operating results, trends and prospects of its products,
including gross cash flows therefrom, as well as comparing them to their
competitors. The Company also takes into consideration any other events or
circumstances that might indicate potential impairment. Based upon these
evaluations, the Company has determined that no impairment of recorded
long-lived assets has occurred.
RESEARCH AND DEVELOPMENT
Research and development expenses are charged against income as
incurred.
REVENUE RECOGNITION
Revenue from product sales is recognized at the time the product is
shipped. Revenue from extended warranty contracts is recognized over the terms
of the contracts using the straight-line method.
WARRANTY COSTS
The Company provides for specific warranty items when they become known
and expenses routine warranty repairs as incurred.
INCOME TAXES
In the first quarter of fiscal 1994, the Company adopted, effective as
of July 25, 1993, Statement of Financial Accounting Standards No. 109 ("FAS
109"), "Accounting for Income Taxes". FAS 109 is an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected tax consequences of events that have been recognized in the Company's
financial statements or tax returns. In estimating future tax consequences,
33
<PAGE> 34
FAS 109 generally considers all expected future events other than enactments of
changes in the tax laws or rates. Previously, the Company used the asset and
liability approach provided under Statement of Financial Accounting Standards
No. 96 that gave no recognition to future events other than the recovery of
assets and settlement of liabilities at their carrying amounts. Adoption of
FAS 109 had no effect on the Company's previously recorded deferred tax
liability.
EARNINGS PER SHARE
Earnings per share is computed using the weighted average number of
shares outstanding plus common stock equivalents such as stock options, warrants
and convertible debt. The number of shares used in the computation of earnings
per share for the three years was 4,820,900 in fiscal 1995, 4,797,900 in fiscal
1994, and 4,698,600 in fiscal 1993.
NOTE 3 - ACQUISITION OF SCITEC CORPORATION
In December 1993, the Company acquired Scitec Corporation for
$7,000,000 in cash and assumption of liabilities aggregating $1,171,300.
Additionally, the Scitec stockholders may become entitled to receive contingent
payments of up to $5,750,000 (less certain finders' fees) if and to the extent
that revenues from sales and products and services associated with the Scitec
business during calendar year 1995 reach specified targets.
Scitec designs, manufactures and sells spectrum analysis instruments
that analyze selected elements contained in the materials tested. These products
are sold to end users principally for the detection of lead in paint. The
Consolidated Statement of Operations for fiscal 1994 includes the results of
operations of Scitec from the date of acquisition. The transaction was accounted
for as a purchase and the excess of the aggregate purchase price of $8,171,300
over the fair value of the assets acquired of Scitec of $1,629,500 was recorded
as goodwill ($6,541,800). If this acquisition had occurred as of the beginning
of the first quarter of fiscal 1993, the Company estimates that pro forma sales
would have been approximately $58,608,300 and $43,808,900 in fiscal 1994 and
fiscal 1993, respectively. Pro forma net income would have been approximately
$7,869,700, $1.64 per share, in fiscal 1994 and approximately $5,503,600, $1.17
per share, in fiscal 1993. (Such pro forma information is unaudited.)
NOTE 4 - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
-----------------------------
July 30, 1995 July 31, 1994
-----------------------------
<S> <C> <C>
Raw materials $14,243,000 $6,055,300
Work in process 1,977,800 1,401,700
Finished goods 551,700 1,298,000
----------- ----------
$16,772,500 $8,755,000
=========== ==========
</TABLE>
NOTE 5 - PLANT AND EQUIPMENT
Investment in plant and equipment, at cost, is summarized as follows:
<TABLE>
<CAPTION>
-----------------------------
July 30, 1995 July 31, 1994
-----------------------------
<S> <C> <C>
Machinery and equipment, including software development costs $15,706,600 $14,723,300
Furniture and office equipment 193,400 193,400
Leasehold improvements 3,214,200 3,029,900
------------ ------------
19,114,200 17,946,600
Less - Accumulated depreciation and amortization 13,815,400 12,215,800
------------ ------------
$ 5,298,800 $ 5,730,800
============ ============
</TABLE>
34
<PAGE> 35
Software development costs are capitalized from the date technological
feasibility is established until the product is available for general release.
The capitalized costs are amortized beginning when the related products are
available for general release and amortization is calculated on a
unit-of-production basis. The establishment of technological feasibility and the
ongoing assessment of recoverability of capitalized software costs requires
considerable judgment by management with respect to certain external factors
including, but not limited to, anticipated future gross revenue, estimated
economic life, and changes in software and hardware technologies. At July 30,
1995 and July 31, 1994, capitalized software development costs totaled $258,400
and $535,200, net of related amortization of $2,219,500 and $1,942,700,
respectively.
NOTE 6 - INCOME TAXES
The federal and state income tax provision (benefit) consisted of the
following:
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------------
July 30, 1995 July 31, 1994 July 25, 1993
-----------------------------------------------
<S> <C> <C> <C>
Federal
Current $ 680,100 $4,021,700 $2,326,400
Deferred (96,300) (811,900) 199,500
------------ ---------- ----------
583,800 3,209,800 2,525,900
------------ ---------- ----------
State
Current (33,400) 701,200 598,200
Deferred (38,000) ( 1,300) (31,300)
------------ ---------- ----------
(71,400) 699,900 566,900
------------ ---------- ----------
$ 512,400 $3,909,700 $3,092,800
============ ========== ==========
</TABLE>
In August 1993, President Clinton signed into law the Omnibus Budget
Reconciliation Act of 1993 ("Act"). The Act included certain provisions which
affected Andros including, but not limited to, retroactive reinstatement of the
research and development tax credit, effective as of the beginning of fiscal
year 1993, and increasing the corporate tax rate from 34% to 35% for corporate
taxable income in excess of $10 million. The one-time adjustment to recorded
deferred income taxes for the increase in the corporate tax rate and the benefit
resulting from the retroactive reinstatement of the research and development tax
credit was a net benefit of approximately $65,000 which was recorded in the
first quarter of fiscal year 1994.
The deferred income tax liability (asset) is comprised of the
following:
<TABLE>
<CAPTION>
---------------------------------
July 30, 1995 July 31, 1994
---------------------------------
<S> <C> <C>
Depreciation and amortization $ 819,200 $ 992,000
DISC dividend 43,000 88,000
Other 39,200 39,100
------------ ------------
Gross deferred tax liabilities 901,400 1,119,100
------------ ------------
Employee benefits (109,100) (72,200)
State income taxes (135,200) (283,700)
Bad debt expense (184,100) (23,300)
Inventory adjustment (78,000) (154,700)
Acquired loss carryforwards (Scitec) (408,600) (408,600)
Other (15,100) (71,000)
------------ ------------
Gross deferred tax assets (930,100) (1,013,500)
Less - valuation allowance 408,600 408,600
------------ ------------
Gross deferred tax assets, net (521,500) (604,900)
------------ ------------
$ 379,900 $ 514,200
============ ============
</TABLE>
35
<PAGE> 36
At July 30, 1995, the Company has available approximately $1,093,000
and $26,000 of net operating loss and tax credit carryforwards, respectively.
These carryforwards were acquired in connection with the fiscal 1994 acquisition
of Scitec (Note 3). Goodwill will be reduced in the future to the extent these
carryforwards are utilized to reduce Scitec's future taxable income. A valuation
allowance equal to the tax benefit applicable to these carryforwards has been
recorded at July 30, 1995 and July 31, 1994.
The provision for income taxes differs from the amounts that would be
computed by applying the federal statutory rate of 34% for the following
reasons:
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------------
July 30, 1995 July 31, 1994 July 25, 1993
-----------------------------------------------
<S> <C> <C> <C>
Computed expected tax provision $1,148,500 $4,056,000 $3,048,000
State income taxes, net of federal
income tax benefit (47,100) 488,000 374,200
FSC benefit (103,800) (382,000) (230,000)
Research and development credits (443,500) (161,000)
Tax exempt interest income (297,600) (206,000)
Amortization of goodwill 264,700 74,000
Other (8,800) 40,700 (99,400)
---------- ---------- ----------
$ 512,400 $3,909,700 $3,092,800
========== ========== ==========
</TABLE>
NOTE 7 - SHAREHOLDERS' EQUITY
SHAREHOLDERS' NOTES RECEIVABLE
The shareholders' notes receivable were notes from employees for the
exercise of stock options. These notes bore interest at 9% and were fully repaid
in fiscal 1995.
STOCK OPTIONS
During fiscal 1992, the shareholders approved an amendment and
restatement of the Company's three existing stock plans: the 1980 Employee Stock
Option Plan ("1980 Employee Plan"), the 1989 Employee Stock Option Plan ("1989
Employee Plan"), and the Company's Stock Option Plan for Directors ("Directors
Plan") which consolidated the existing plans into a single stock plan, increased
by 250,000 shares the number of shares for which options may be granted and
amended various other terms and provisions contained in such plans. Accordingly,
all outstanding options under the 1980 and 1989 Employee Plans and Directors
Plan have been incorporated into the Option Plan. However, each outstanding
option incorporated into the Option Plan will continue to be governed by the
terms and conditions of the instrument evidencing such grant, and nothing in the
Option Plan will affect the rights and obligations of the holders of such
options with respect to their acquisition of shares of Andros' common stock
thereunder or their exercise of any outstanding stock appreciation rights
thereunder. In December 1992, the shareholders approved an amendment to the
option plan increasing the number of shares reserved for issuance thereunder by
300,000 shares. In fiscal 1994, the shareholders approved an additional
amendment to the option plan further increasing the number of shares reserved
for issuance thereunder by an additional 300,000 shares. At July 30, 1995,
364,453 shares of common stock were available for future grants under the Option
Plan.
Pursuant to the Company's Option Plan, the Compensation Committee of
the Board of Directors may grant options to key employees to purchase shares of
common stock either as an incentive stock option or as a non-qualified stock
option. The exercise price of incentive stock options granted may not be less
than 100% of the fair market value of the common stock on the date of grant and
the exercise price of non-qualified for options granted may not be less than 85%
of the fair value of the common stock on the date of grant. Options granted
terminate within ten years after the date of the grant and vest daily over three
to five-year periods. The Board of Directors may provide for acceleration of
vesting at its discretion. In the event of certain changes in control of the
Company, vesting of outstanding options
36
<PAGE> 37
will automatically accelerate. In the event of certain other corporate
transactions, unless assumed by a successor corporation, vesting of outstanding
options will automatically accelerate, and the options will expire if not
exercised prior to the consummation of such corporate transaction. The Plan
contains a stock appreciation right feature whereby the Compensation Committee,
at its discretion, may settle the whole or any part of an exercisable
installment of an option in exchange for the surrender of such installment or
partial installment. The settlement offer may be made in shares of common stock,
cash or both. The settlement offer shall be equal to the excess of the fair
market value of the shares over the option price. The exercise price may be paid
in the form of cash or the tender of outstanding shares with a market value
equal to the exercise price. In addition, certain limited stock appreciation
rights have been granted to officers and directors of the Company in tandem with
their outstanding options. Any option with such a limited stock appreciation
right in effect for at least six months will automatically be canceled upon the
occurrence of certain hostile takeovers, and the optionee will in turn be
entitled to a cash distribution from the Company based upon the takeover price
and the option price.
New Board members will automatically be granted a non-qualified stock
option to purchase 25,000 shares of common stock. Each automatic grant will be
equal to 100% of the fair market value per share of the common stock on the date
of grant. Options granted terminate within ten years of the date of grant:
15,000 shares vest after one year of Board service, and 5,000 shares vest upon
the completion of each of the next two years of Board service thereafter.
The following summarizes the activity for the Option Plan:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
Fiscal 1995 Fiscal 1994 Fiscal 1993
------------------------------------------------------------------------------------
Number of Option Price Number of Option Price Number of Option Price
Shares Per Share Shares Per Share Shares Per Share
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Beginning balance 807,895 $5.50-6.25 781,862 $4.50-16.25 652,297 $4.50-10.84
Granted 0 153,000 $12.96-13.81 212,000 $13.81-16.25
Exercised (32,292) $5.96-13.81 (126,203) $4.50-13.81 (74,680) $4.50-10.84
Terminated (57,140) $8.125-13.81 (764) $7.66-8.125 (7,755) $6.75-8.51
------------------------------------------------------------------------------------
Ending balance 718,463 $5.50-16.25 807,895 $5.50-16.25 781,862 $4.50-16.25
------------------------------------------------------------------------------------
Exercisable 537,207 427,690 368,923
------------------------------------------------------------------------------------
</TABLE>
The exercise of stock options resulted in an increase in common stock
of $353,412, $1,124,700 and $582,200 in fiscal 1995, 1994 and 1993,
respectively.
NON-QUALIFIED STOCK OPTIONS
Tax benefits realized by the Company from the exercise of non-qualified
stock options issued under stock option plans that result in ordinary income to
the optionee are added to shareholders' equity in the year benefits are
realized.
EMPLOYEE PARTICIPATION PLANS
The Company has a stock purchase plan which permits employees to
purchase Andros' common stock at the lower of 85% of fair market value at the
date of purchase or 85% of the fair market value at the date of commencement of
the offering period. In addition, the Company has a Savings and Investment
401(k) Plan ("Savings Plan") which, until amended in fiscal 1992, provided for
matching contributions by the Company, which may be settled through
contributions of the Company's common stock to the Savings Plan. The amended
Savings Plan calls for cash contributions only. Common stock increased $28,500,
$32,000 and $36,300 in fiscal 1995, 1994 and 1993, respectively, as a result of
employee stock purchases under these plans.
At July 30, 1995, the Company has reserved 1,100,340 shares for
issuance under the above described stock option and stock purchase plans.
37
<PAGE> 38
STOCK REPURCHASES
In May 1994, the Board of Directors approved a stock repurchase program
authorizing the purchase of up to 500,000 shares of Andros' common stock on the
open market. To date, 56,000 shares have been repurchased for a cost of
$839,000. The Company intends to utilize these repurchased shares for issuances
of common shares applicable to options exercised under its stock options plans.
NOTE 8 - SALES TO MAJOR CUSTOMERS AND EXPORT SALES
During fiscal 1995, 42% of the Company's sales were made to three
customers that individually accounted for more than 10% of total sales. During
fiscal 1994, 25% of the Company's sales were made to two customers that
individually accounted for more than 10% of total sales. During fiscal 1993, 55%
of the Company's sales were made to four customers that individually accounted
for more than 10% of total sales. The Company's export sales for fiscal 1995,
1994 and 1993 amounted to $23,796,000, $36,356,400 and $27,890,300,
respectively. The Company maintains a sales office in Zurich, Switzerland and a
service depot in Belp, Switzerland. Export sales are transacted in United States
dollars.
NOTE 9 - COMMITMENTS
The Company occupies office and plant facilities worldwide under
various lease agreements. The Berkeley facility is leased under an agreement
expiring in August 2005 at an annual rental of $242,800. This lease agreement
contains renewal options for an additional 15 years. Total rent expense for
fiscal years 1995, 1994 and 1993 was $406,200, $398,900 and $346,800,
respectively.
NOTE 10 - CONCENTRATION OF CREDIT RISK
The Company invests its excess cash primarily in short-term U.S.
Treasury securities and corporate obligations. The investments generally mature
within one year and are therefore subject to little market risk. The Company has
not incurred losses related to these investments.
Concentrations of credit risk with respect to trade receivables are
mitigated due to the small number of large creditworthy customers comprising the
Company's customer base. Ongoing credit evaluations of customers' financial
condition are performed. The Company maintains reserves for potential credit
losses and such losses, in the aggregate, have not exceeded management's
expectations.
38
<PAGE> 39
SCHEDULE I
ANDROS INCORPORATED
SHORT-TERM INVESTMENTS
JULY 30, 1995
<TABLE>
<CAPTION>
Amount on
Principal Cost of Accrued Balance
Name of short-term investment Amount Issue Interest(2) Sheet(1)
- ----------------------------- --------- ------- ----------- ----------
<S> <C> <C> <C> <C>
Government & Federal Agency
FHLB Discount Notes $ 1,000,000 $ 974,800 $ 14,800 $ 989,600
FHLB Discount Notes 1,000,000 985,900 3,100 989,000
FNMA Discount Notes 1,000,000 989,100 5,000 994,100
State & Local Authority
Abilene TX Health Fac Savrs 1,000,000 1,000,000 1,300 1,001,300
Alameda Co Tran 1,000,000 1,005,500 48,800 1,054,300
Bakersfield CA Hosp Rev (AMBAC) 1,000,000 1,000,000 700 1,000,700
Colorado Hlth Fac Savrs 1,000,000 1,000,000 1,600 1,001,600
Conn St Hlth & Ed Savrs 1,000,000 1,000,000 500 1,000,500
Missouri Health & Educ Savrs - MBIA 1,000,000 1,000,000 700 1,000,700
No Calif Transmission Savrs MBIA 1,500,000 1,500,000 16,800 1,516,800
Rocklin USD Trans 1,000,000 1,007,200 46,800 1,054,000
San Diego Co Wtr Auth CA Stars 1,000,000 1,000,000 3,600 1,003,600
U C Regents Savrs (MBIA) 1,000,000 1,000,000 3,000 1,003,000
Corporate
Merrill Lynch & Co Coml Paper 1,000,000 981,900 1,700 983,600
Nationsbank Florida B/A 1,000,000 980,300 15,700 996,000
Republic National Bank NY B/A 1,000,000 975,600 16,800 992,400
----------- ----------- -------- -----------
Totals $16,500,000 $16,400,300 $180,900 $16,581,200
=========== =========== ======== ===========
</TABLE>
(1) Cost plus accrued interest approximates market value.
(2) Accrued interest is included in accounts receivable.
39
<PAGE> 40
EXHIBIT INDEX
Sequentially
Exhibit Numbered
Number Exhibit Page
- ------- ------- -----------
3.1 Certificate of Incorporation, as amended (incorporated by
reference to Registrant's Annual Report on Form 10-K for
the year ended July 31, 1994).
3.2 Bylaws as amended.
10.1 Lease dated as of August 20, 1990 between the Company and
Berkeley Properties, Inc. relating to premises located at
2332 Fourth Street, Berkeley, California (incorporated by
reference to Registrant's Annual Report on Form 10-K for
the fiscal year ended July 29, 1990, Exhibit 10.1).
10.2 Lease dated as of August 20, 1990 between the Company and
Fourth and Bancroft Property Account relating to premises
located at 2310 and 2314 Fourth Street, Berkeley,
California (incorporated by reference to Registrant's
Annual Report on Form 10-K for the fiscal year ended July
29, 1990, Exhibit 10.2).
*10.3 Stock Option Plan of Andros Incorporated (incorporated by
reference to Registrant's Annual Report on Form 10-K for
the fiscal year ended July 26, 1987, Exhibit 10.7).
*10.4 Stock Option Plan for Directors (incorporated by
reference to Registrant's Annual Report on Form 10-K for
the fiscal year ended July 26, 1987, Exhibit 10.8).
*10.5 Employee Stock Purchase Plan (filed as Exhibit 4 to
Andros Incorporated's Registration Statement on Form S-8
(File No. 2-75884) filed on January 30, 1982, as
supplemented by an Appendix dated as of March 11, 1987
and incorporated herein by reference).
*10.9 1989 Stock Option Plan (incorporated by reference to
Exhibit 28.2 to the Registrant's Registration Statement
on Form S-8 [File No. 33- 329888] filed on January 16,
1990).
10.11 Purchase Agreement dated August 7, 1990 between the
Company and Bear Automotive Service Equipment
(incorporated by reference to Registrant's Annual Report
on Form 10-K for the fiscal year ended July 28, 1991, as
amended, Exhibit 10.11).
10.12 Purchase Agreement dated March 2, 1992 between the
Company and OTC Division (a company of SPX Corporation)
(with certain confidential information deleted as
appropriate) (incorporated by reference to Registrant's
Annual Report on Form 10-K for the fiscal year ended July
26, 1992, as amended, Exhibit 10.12).
*10.13 1991 Stock Option Plan of Andros Incorporated, as
amended (incorporated by reference to Registrant's Annual
Report on Form 10-K for the year ended July 31, 1994).
10.16 Purchase Agreement dated July 21, 1992 between the
Company and Sun Electric Corporation (incorporated by
reference to Registrant's Annual Report on Form 10-K for
the fiscal year ended July 26, 1992).
10.17 Purchase Agreement dated August 1, 1992 between the
Company and Grundig AG (incorporated by reference to
Registrant's Annual Report on Form 10- K for the fiscal
year ended July 26, 1992).
10.18 Agreement and Plan of Reorganization between the Company,
AI Acquisition Sub, Inc. and Scitec Corporation, dated as
of December 17, 1993, with exhibits (incorporated by
reference to Registrant's Current Report on Form 8-K
filed on January 12, 1995, as amended by Amendment No. 1
to Current Report on Form 8-K/A filed on March 9, 1994).
*10.19 Employee Agreement between Scitec Corporation and
Lawrence T. Lynott, dated as of December 28, 1994
(incorporated by reference to Registrant's Current Report
on Form 8-K filed on January 12, 1994, as amended).
23.1 Consent of Independent Accountants.
24.1 Power of Attorney (reference is made to the Signature
Page).
27.1 Financial Data Schedule.
* An asterisk next to the number of an exhibit indicates that the
exhibit is a management contract or compensatory plan or arrangement.
<PAGE> 1
BYLAWS
OF
ANDROS INCORPORATED
(As amended on May 8, 1995)
ARTICLE 1 - Stockholders
1.1 Place of Meetings. All meetings of stockholders shall be held at
such place within or without the State of Delaware as may be designated from
time to time by the Board of Directors or the President or, if not so
designated, at the registered office of the corporation.
1.2 Annual Meeting. The annual meeting of stockholders for the
election of directors and for the transaction of such other business as may
properly be brought before the meeting shall be held on the first Monday in
December of each year beginning in the year 1990, at a time fixed by the Board
of Directors or the President. If this date shall fall upon a legal holiday at
the place of the meeting, then such meeting shall be held on the next
succeeding business day at the same hour. If no annual meeting is held in
accordance with the foregoing provisions, the Board of Directors shall cause
the meeting to be held as soon thereafter as convenient.
1.3 Notice of Meetings. Except as otherwise provided by law, written
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or purposes for which the meeting
is called. If mailed, notice is given when deposited in the United States
mail, postage prepaid, directed to the stockholder at his address as it appears
on the records of the corporation.
1.4 Voting List. The officer who has charge of the stock ledger of
the corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least 10 days prior to the meeting, at a place within the city
where the meeting is to be held. The list shall also be produced and kept at
the time and place of the meeting during the whole time of the meeting, and may
be inspected by any stockholder who is present.
<PAGE> 2
1.5 Quorum. Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
1.6 Adjournments. Any meeting of stockholders may be adjourned to
another time and to any other place at which a meeting of stockholders may be
held under these By-Laws by the stockholders present or represented at the
meeting and entitled to vote, although less than a quorum, or, if no
stockholder is present, by any officer entitled to preside at or to act as
Secretary of such meeting. It shall not be necessary to notify any stockholder
of any adjournment of less than 30 days if the time and place of the adjourned
meeting are announced at the meeting at which adjournment is taken, unless
after the adjournment a new record date is fixed for the adjourned meeting. At
the adjourned meeting, the corporation may transact any business which might
have been transacted at the original meeting.
1.7 Voting and Proxies. Each stockholder shall have one vote for each
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
in the Certificate of Incorporation. Each stockholder of record entitled to
vote at a meeting of stockholders, or to express consent or dissent to
corporate action in writing without a meeting, may vote or express such consent
or dissent in person or may authorize another person or persons to vote or act
for him by written proxy executed by the stockholder or his authorized agent
and delivered to the Secretary of the corporation. No such proxy shall be
voted or acted upon after three years from the date of its execution, unless
the proxy expressly provides for a longer period.
1.8 Action at Meeting. Action at Meeting. When a quorum is present
at any meeting, the holders of a majority of the stock present or represented
and voting on a matter properly before the meeting (or if there are two or more
classes of stock entitled to vote as separate classes, then in the case of each
such class, the holders of a majority of the stock of that class present or
represented and voting on a matter) shall decide any matter properly before the
meeting to be voted upon by the stockholders at such meeting, except when a
different vote is required by express provision of law, the Certificate of
Incorporation or these By-Laws. Any election by stockholders shall be
determined by a plurality of the votes cast by the stockholders entitled to
vote at the election.
2.
<PAGE> 3
1.9 New Business. At any annual meeting of the stockholders, only such
business shall be conducted as shall be properly before the meeting. To be
properly before an annual meeting, business must be (a) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the Board
of Directors, (b) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (c) otherwise properly brought before
the meeting by a stockholder. For business to be properly brought before an
annual meeting by a stockholder, the stockholder must have given timely notice
thereof in writing to the secretary. To be timely, a stockholder's notice must
be delivered to or mailed and received at the principal place of business of the
corporation not less than sixty (60) days nor more than ninety (90) days prior
to the meeting; provided, however, that in the event that less than seventy (70)
days notice or prior public disclosure of the date of the meeting is given or
made to stockholders, notice by the stockholder to be timely must be received
not later than the close of business on the tenth day following the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made; and provided further that with respect to the 1991 Annual Meeting of
Stockholders only, a stockholder's notice shall be timely if received at the
principal place of business of the corporation not later than the close of
business on November 12, 1991. A stockholder's written notice to the secretary
shall set forth as to each matter the stockholder proposes to bring before the
annual meeting (a) a description of the business desired to be brought before
the annual meeting and the reasons for conducting such business at the annual
meeting, (b) the name and address as they appear on the corporation's books of
the stockholder proposing such business, (c) the class and number of shares of
the corporation which are beneficially owned by such stockholder, and (d) any
material interest of such stockholder in such business. Notwithstanding
anything in these Bylaws to the contrary, no business shall be conducted at any
annual meeting unless properly brought before such meeting in accordance with
the procedures set forth in this Section 1.9. The chairman of the meeting
shall, if the facts warrant, determine and declare to the meeting that business
was not properly brought before the meeting in accordance with the provisions of
this Section 1.9 and if it shall be so determined, the chairman of the meeting
shall so declare this to the meeting and such business not properly brought
before the meeting shall not be transacted.
1.10 Nomination of Directors. Only persons who are nominated in
accordance with the procedures set forth in this Section 1.10 shall be eligible
for election as directors of the corporation by the stockholders. Nominations of
persons for election to the Board of Directors may be made at a meeting of
stockholders by or at the direction of the Board of Directors or
3.
<PAGE> 4
by any stockholder of the corporation entitled to vote for the election of
directors at the meeting who complies with the notice procedures set forth in
this Section 1.10. Such nominations, other than those made by or at the
direction of the Board of Directors, shall be made pursuant to timely notice in
writing to the secretary. To be timely, a stockholder's notice shall be
delivered to or mailed and received at the principal place of business of the
corporation not less than sixty (60) nor more than ninety (90) days prior to the
meeting; provided, however, that in the event that less than seventy (70) days
notice or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
less than the close of business on the tenth day following the day on which such
notice of the date of the meeting was mailed or such public disclosure was made;
and provided further that with respect to the 1991 Annual Meeting of
Stockholders only, a stockholder's notice shall be timely if received at the
principal place of business of the corporation not later than the close of
business on November 12, 1991. Such stockholder's notice shall set forth (a) as
to each person whom the stockholder proposes to nominate for election or
re-election as a director (i) the name, age, business address and residence
address of such person, (ii) the principal occupation or employment of such
person, (iii) the class and number of shares of the corporation which are
beneficially owned by such person and (iv) any other information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors or is otherwise required in each case pursuant to
Regulation 14A under the Securities and Exchange Act of 1934, as amended
(including without limitation such person's written consent to being named in
the proxy statement as a nominee and to serving as a director if elected); and
(b) as to the stockholder giving the notice (i) the name and address, as they
appear on the corporation's books of such stockholder, (ii) the class and number
of shares of the corporation which are beneficially owned by such stockholder,
and (iii) any material relationship of the stockholder to the person the
stockholder proposes to nominate. At the request of the Board of Directors any
person nominated by the Board of Directors for election as a director shall
furnish to the secretary that information required to be set forth in a
stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a director of the corporation unless nominated
in accordance with the procedures set forth in this Section 1.10. The chairman
of the meeting shall, if the facts warrant, determine and declare to the meeting
that a nomination was not made in accordance with the provisions of this Section
1.10 and if it shall be so determined, the chairman shall so declare this to the
meeting and the defective nomination shall be disregarded.
4.
<PAGE> 5
ARTICLE 2 - Directors
2.1 General Powers. The business and affairs of the corporation shall
be managed by or under the direction of a Board of Directors, who may exercise
all of the powers of the corporation except as otherwise provided by law, the
Certificate of Incorporation or these By-Laws. In the event of a vacancy in
the Board of Directors, the remaining directors, except as otherwise provided
by law, may exercise the powers of the full Board until the vacancy is filled.
2.2 Number; Election; Tenure and Qualification. The number of
directors which shall constitute the whole Board shall be fixed by resolution
of the Board of Directors, the number to be not fewer than five (5) nor more
than nine (9), with the number currently fixed at five (5). Each director
shall be elected by the stockholders at the annual meeting and shall hold
office until the next annual meeting and until his successor is elected and
qualified, or until his earlier death, resignation or removal. Directors need
not be stockholders of the corporation.
2.3 Vacancies. Unless and until filled by the stockholders, any
vacancy in the Board of Directors, however occurring, including a vacancy
resulting from an enlargement of the Board, may be filled by vote of a majority
of the directors then in office, although less than a quorum, or by a sole
remaining director. A director elected to fill a vacancy shall be elected for
the unexpired term of his predecessor in office, or a director chosen to fill a
position resulting from an increase in the number of directors shall hold
office until the next annual meeting of stockholders and until his successor is
elected and qualified; or until his earlier death, resignation or removal.
2.4 Resignation. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some
other event.
2.5 Regular Meetings. Regular meetings of the Board of Directors may
be held without notice at such time and place, within or without the State of
Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made
shall be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.
2.6 Special Meetings. Special meetings of the Board of Directors may
be held at any time and place, within or without the State of Delaware,
designated in a call by the Chairman of
5.
<PAGE> 6
the Board, President, two or more directors, or by one director in the event
that there is only a single director in office.
2.7 Notice of Special Meetings. Notice of any special meeting of
directors shall be given to each director by the Secretary or by the officer or
one of the directors calling the meeting. Notice shall be given to each director
in person, by telephone or by telegram sent to his business or home address at
least 48 hours in advance of the meeting, or by written notice mailed to his
business or home address at least 72 hours in advance of the meeting. A notice
or waiver of notice of a meeting of the Board of Directors need not specify the
purposes of the meeting.
2.8 Meetings by Telephone Conference Calls. Directors or any members
of any committee designated by the directors may participate in a meeting of
the Board of Directors or such committee by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation by such means shall
constitute presence in person at such meeting.
2.9 Quorum. A majority of the number of directors fixed pursuant to
Section 2.2 shall constitute a quorum at all meetings of the Board of
Directors. In the event one or more of the directors shall be disqualified to
vote at any meeting, then the required quorum shall be reduced by one for each
such director so disqualified; provided, however, that in no case shall less
than one-third (1/3) of the number so fixed constitute a quorum. In the absence
of a quorum at any such meeting, a majority of the directors present may
adjourn the meeting from time to time without further notice other than
announcement at the meeting, until a quorum shall be present.
2.10 Action at Meeting. At any meeting of the Board of Directors at
which quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law, the
Certificate of Incorporation or these By-Laws.
2.11 Action by Consent. Any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing, and the
written consents are filed with the minutes of proceedings of the Board or
committee.
2.12 Committees. The Board of Directors may, by resolution passed by a
majority of the Whole Board, designate one or more committees, each committee to
consist of one or more of the
6.
<PAGE> 7
directors of the corporation. The Board may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of
a member of a committee, the member or members of the committee present at any
meeting and not disqualified from voting, whether or not he or they constitute
a quorum, may unanimously appoint another member of the Board of Directors to
act at the meeting in the place of any such absent or disqualified member. Any
such committee, to the extent provided in the resolution of the Board of
Directors and subject to the provisions of the General Corporation Law of the
State of Delaware, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
corporation and may authorize the seal of the corporation to be affixed to all
papers which may require it. Each such committee shall keep minutes and make
such reports as the Board of Directors may from time to time request. Except
as the Board of Directors may otherwise determine, any committee may make rules
for the conduct of its business, but unless otherwise provided by the directors
or in such rules, its business shall be conducted as nearly as possible in the
same manner as is provided in these By-Laws for the Board of Directors.
2.13 Compensation of Directors. Directors may be paid such
compensation for their services and such reimbursement for expenses of
attendance at meetings as the Board of Directors may from time to time
determine. No such payment shall preclude any director from serving the
corporation or any of its parent or subsidiary corporations in any other
capacity and receiving compensation for such service.
ARTICLE 3 - Officers
3.1 Enumeration. The officers of the corporation shall consist of a
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice-Chairman of the Board, and one or more Vice Presidents, Assistant
Treasurers, and Assistant Secretaries. The Board of Directors may appoint such
other officers as it may deem appropriate.
3.2 Election. The President, Treasurer and Secretary shall be elected
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3.3 Qualification. The President need not be a director. No officer
need be a stockholder. Any two or more offices may be held by the same person.
7.
<PAGE> 8
3.4 Tenure. Except as otherwise provided by law, by the Certificate
of Incorporation or by these By-Laws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.
3.5 Resignation and Removal. Any officer may resign by delivering his
written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt
unless it is specified to be effective at some other time or upon the happening
of some other event.
The Board of Directors, or a committee duly authorized to do so, may
remove any officer with or without cause. Except as the Board of Directors may
otherwise determine, no officer who resigns or is removed shall have any right
to any compensation as an officer for any period following his resignation or
removal, or any right to damages on account of such removal, whether his
compensation be by the month or by the year or otherwise, unless such
compensation is expressly provided in a duly authorized written agreement with
the corporation.
3.6 Vacancies. The Board of Directors may fill any vacancy occurring
in any office for any reason and may, in its discretion, leave unfilled for
such period as it may determine any offices other than those of President,
Treasurer and Secretary. Each such successor shall hold office for the
unexpired term of his predecessor and until his successor is elected and
qualified, or until his earlier death, resignation or removal.
3.7 Chairman of the Board and Vice-Chairman of the Board. If the
Board of Directors appoints a Chairman of the Board, he shall, when present,
preside at all meetings of the Board of Directors. He shall perform such
duties and possess such powers as are usually vested in the office of the
Chairman of the Board or as may be vested in him by the Board of Directors. If
the Board of Directors appoints a Vice-Chairman of the Board, he shall, in the
absence or disability of the Chairman of the Board, perform the duties and
exercise the powers of the Chairman of the Board and shall perform such other
duties and possess such other powers as may from time to time be vested in him
by the Board of Directors.
3.8 President. The President shall be the chief operating officer of
the corporation. He shall also be the chief executive officer of the
corporation unless such title is assigned to a Chairman of the Board. The
President shall, subject to the direction of the Board of Directors, have
general supervision and control of the business of the corporation. Unless
otherwise
8.
<PAGE> 9
provided by the directors, he shall preside at all meetings of the stockholders
and of the Board of Directors (except as provided in Section 3.7 above). The
President shall perform such other duties and shall have such other powers as
the Board of Directors may from time to time prescribe.
3.9 Vice Presidents. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of
the President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and when so performing shall have all the powers of and
be subject to all the restrictions upon the President. The Board of Directors
may assign to any Vice President the title of Executive Vice President, Senior
Vice President or any other title selected by the Board of Directors.
3.10 Secretary and Assistant Secretaries. The Secretary shall perform
such duties and shall have such powers as the Board of Directors or the
President may from time to time prescribe. In addition, the Secretary shall
perform such duties and have such powers as are incident to the office of the
secretary, including without limitation the duty and power to give notices of
all meetings of stockholders and special meetings of the Board of Directors, to
attend all meetings of stockholders and the Board of Directors and keep a record
of the proceedings, to maintain a stock ledger and prepare lists of stockholders
and their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess
such powers as the Board of Directors, the President or the Secretary may from
time to time prescribe. In the event of the absence, inability or refusal to
act of the Secretary, the Assistant Secretary, (or if there shall be more than
one, the Assistant Secretaries in the order determined by the Board of
Directors) shall perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any
meeting of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
3.11 Treasurer and Assistant Treasurers. The Treasurer shall perform
such duties and shall have such powers as may from time to time be assigned to
him by the Board of Directors or the President. In addition, the Treasurer
shall perform such duties and have such powers as are incident to the office of
treasurer,
9.
<PAGE> 10
including without limitation the duty and power to keep and be responsible for
all funds and securities of the corporation, to deposit funds of the corporation
in depositories selected in accordance with these By-Laws, to disburse such
funds as ordered by the Board of Directors, to make proper accounts of such
funds, and to render as required by the Board of Directors statements of all
such transactions and of the financial condition of the corporation.
The Assistant Treasurers shall perform such duties and possess such
powers as the Board of Directors, the President or the Treasurer may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Treasurer, the Assistant Treasurer, (or if there shall be more than one,
the Assistant Treasurers in the order determined by the Board of Directors)
shall perform the duties and exercise the powers of the Treasurer.
3.12 Bonded Officers. The Board of Directors may require any officer
to give the corporation a bond in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors upon such terms and conditions
as the Board of Directors may specify, including without limitation a bond for
the faithful performance of his duties and for the restoration to the
corporation of all property in his possession or under his control belonging to
the corporation.
3.13 Salaries. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
ARTICLE 4 - Capital Stock
4.1 Issuance of Stock. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital
stock of the corporation held in its treasury may be issued, sold, transferred
or otherwise disposed of by vote of the Board of Directors in such manner, for
such consideration and on such terms as the Board of Directors may determine.
4.2 Certificates of Stock. Every holder of stock of the corporation
shall be entitled to have a certificate, in such form as may be prescribed by
law and by the Board of Directors, certifying the number and class of shares
owned by him in the corporation. Each such certificate shall be signed by, or
in the name of the corporation by, the Chairman or Vice-Chairman, if any, of
the Board of Directors, or the President or a Vice President, and the Treasurer
or an Assistant Treasurer, or the
10.
<PAGE> 11
Secretary or an Assistant Secretary of the corporation. Any or all of the
signatures on the certificate may be a facsimile.
Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, the
By-Laws, applicable securities laws or any agreement among any number of
shareholders or among such holders and the corporation shall have conspicuously
noted on the face or back of the certificate either the full text of the
restriction or a statement of the existence of such restriction.
4.3 Transfers. Subject to the restrictions, if any, stated or noted
on the stock certificates, shares of stock may be transferred on the books of
the corporation by the surrender to the corporation or its transfer agent of
the certificate representing such shares properly endorsed or accompanied by a
written assignment or power of attorney properly executed, and with such proof
of authority or the authenticity of signature as the corporation or its
transfer agent may reasonably require. Except as may be otherwise required by
law, by the Certificate of Incorporation or by these By-Laws, the corporation
shall be entitled to treat the record holder of stock as shown on its books as
the owner of such stock for all purposes, including the payment of dividends
and the right to vote with respect to such stock, regardless of any transfer,
pledge or other disposition of such stock until the shares have been
transferred on the books of the corporation in accordance with the requirements
of these By-Laws.
4.4 Lost, Stolen or Destroyed Certificates. The corporation may issue
a new certificate of stock in place of any previously issued certificate
alleged to have been lost, stolen, or destroyed, upon such terms and conditions
as the Board of Directors may prescribe, including the presentation of
reasonable evidence of such loss, theft or destruction and the giving of such
indemnity as the Board of Directors may require for the protection of the
corporation or any transfer agent or registrar.
4.5 Record Date. The Board of Directors may fix in advance a date as
a record date for the determination of the stockholders entitled to notice of
or to vote at any meeting of stockholders or to express consent (or dissent) to
corporate action in writing without a meeting, or entitled to receive payment
of any dividend or other distribution or allotment of any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action. Such record date shall not be more than 60 nor less than 10
days before the date of such meeting, nor more than 60 days prior to any other
action to which such record date relates.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of
11.
<PAGE> 12
stockholders shall be at the close of business on the day before the day on
which notice is given, or, if notice is waived, at the close of business on the
day before the day on which the meeting is held. The record date for
determining stockholders entitled to express consent to corporate action in
writing without a meeting, when no prior action by the Board of Directors is
necessary, shall be the day on which the first written consent is expressed. The
record date for determining stockholders for any other purpose shall be at the
close of business on the day on which the Board of Directors adopts the
resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
ARTICLE 5 -- Indemnification
The corporation shall, to the fullest extent permitted by Section 145 of
the General Corporation Law of Delaware, as that Section may be amended and
supplemented from time to time, indemnify any director, officer or trustee which
it shall have power to indemnify under the Section against any expenses,
liabilities or other matters referred to in or covered by that Section. The
indemnification provided for in this Article (i) shall not be deemed exclusive
of any other rights to which those indemnified may be entitled under any by-law,
agreement or vote of stockholders or disinterested directors or otherwise, both
as to action in their official capacities and as to action in another capacity
while holding such office, (ii) shall continue as to a person who has ceased to
be a director, officer or trustee and (iii) shall inure to the benefit of the
heirs, executors and administrators of such a person. The corporation's
obligation to provide indemnification under this Article shall be offset to the
extent of any other source of indemnification or any otherwise applicable
coverage under a policy maintained by the corporation or any other person.
Expenses incurred by a director of the Corporation in defending a civil or
criminal action, suit or proceeding by reason of the fact that he is or was a
director of the Corporation (or was serving at the Company's request as a
director or officer of another corporation) shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director to repay such amount if it
shall ultimately be determined that he is not entitled to be indemnified by the
Corporation as authorized by relevant sections of the General Corporation Law of
Delaware.
12.
<PAGE> 13
To assure indemnification under this Article of all such persons who
are determined by the corporation or otherwise to be or to have been
"fiduciaries" of any employee benefit plan of the corporation which may exist
from time to time, such Section 145 shall, for the purposes of this Article,
be interpreted as follows: an "other enterprise" shall be deemed to include
such an employee benefit plan, including, without limitation, any plan of the
corporation which is governed by the Act of Congress entitled "Employee
Retirement Income Security Act of 1974," as amended from time to time; the
corporation shall be deemed to have requested a person to serve an employee
benefit plan where the performance by such person of his duties to the
corporation also imposes duties on, or otherwise involves services by, such
person to the plan or participants or beneficiaries of the plan; excise taxes
assessed on a person with respect to an employee benefit plan pursuant to such
Act of Congress shall be deemed "fines"; and action taken or omitted by a
person with respect to an employee benefit plan in the performance of such
person's duties for a purpose reasonably believed by such person to be in the
interest of the participants and beneficiaries of the plan shall be deemed to
be for a purpose which is not opposed to the best interests of the corporation.
ARTICLE 6 - General Provisions
6.1 Fiscal Year. Except as from time to time otherwise designated by
the Board of Directors, the fiscal year of the corporation shall end on the
last Sunday of July in each year.
6.2 Corporate Seal. The corporate seal shall be in such form as shall
be approved by the Board of Directors.
6.3 Execution of Instruments. The President or the Treasurer shall
have power to execute and deliver on behalf and in the name of the corporation
any instrument requiring the signature of an officer of the corporation, except
as otherwise provided in these By-Laws, or where the execution and delivery of
such an instrument shall be expressly delegated by the Board of Directors to
some other officer or agent of the corporation.
6.4 Waiver of Notice. Whenever any notice whatsoever is required to be
given by law, by the Certificate of Incorporation or by these By-Laws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telegraph, cable or any other
available method, whether before, at or after the time stated in such waiver, or
the appearance of such person or persons at such meeting in person or by proxy,
shall be deemed equivalent to such notice.
6.5 Voting of Securities. Except as the directors may otherwise
designate, the President or Treasurer may waive notice
13.
<PAGE> 14
of, and act as, or appoint any person or persons to act as, proxy or
attorney-in-fact for this corporation (with or without power of substitution)
at, any meeting of stockholders or shareholders of any other corporation or
organization, the securities of which may be held by this corporation.
6.6 Evidence of Authority. A certificate by the Secretary,
or an Assistant Secretary, or a temporary Secretary, as to any action taken
by the stockholders, directors, a committee or any officer or representative
of the corporation shall as to all persons who rely on the certificate in good
faith be conclusive evidence of such action.
6.7 Certificate of Incorporation. All references in these By-Laws
to the Certificate of Incorporation shall be deemed to refer to the Certificate
of Incorporation of the corporation, as amended and in effect from time to time.
6.8 Transactions with Interested Parties. No contract or
transaction between the corporation and one or more of the directors or
officers, or between the corporation and any other corporation, partnership,
association, or other organization in which one or more of the directors or
officers are directors or officers, or have a financial interest, shall be void
or voidable solely for this reason, or solely because the director or officer
is present at or participates in the meeting of the Board of Directors or a
committee of the Board of Directors which authorizes the contract or
transaction or solely because his or their votes are counted for such purpose,
if:
(1) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors or
the committee, and the Board or committee in good faith authorizes the contract
or transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum;
(2) The material facts as to his relationship or interest and as
to the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a
committee which authorizes the contract or transaction.
14.
<PAGE> 15
6.9 Severability. Any determination that any provision of these
By-Laws is for any reason inapplicable, illegal or ineffective shall not
affect or invalidate any other provision of these By-Laws.
6.10 Pronouns. All pronouns used in these By-Laws shall be deemed
to refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person or persons may require.
ARTICLE 7 - Amendments
7.1 By the Board of Directors. These By-Laws may be altered, amended
or repealed or new by-laws may be adopted by the affirmative vote of a
majority of the directors present at any regular or special meeting of the Board
of Directors at which a quorum is present, except when a different vote is
required by express provision of law, the Certificate of Incorporation or these
By-laws.
7.2 By the Stockholders. These By-Laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of the holders
of a majority of the shares of the capital stock of the corporation issued and
outstanding and entitled to vote at any regular meeting of stockholders, or
at any special meeting of stockholders, except when a different vote is required
by express provision of law, the Certificate of Incorporation or these By-laws,
provided notice of such alteration, amendment, repeal or adoption of new
by-laws shall have been stated in the notice of such special meeting.
15.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statements on Form S-3 (No. 33-46754) and
Form S-8 (Nos. 33-58554, 33-38615, 33-32988, 33-11961, 33-74820, 2-95771,
2-92142, 2-75884, 2-75859) of Andros Incorporated of our report dated September
11, 1995 appearing on page 27 of this Form 10-K.
PRICE WATERHOUSE LLP
San Francisco, California
October 27, 1995
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<OTHER-SE> 24,421,500
<TOTAL-LIABILITY-AND-EQUITY> 63,870,500
<SALES> 42,753,400
<TOTAL-REVENUES> 42,753,400
<CGS> 25,427,700
<TOTAL-COSTS> 25,427,700
<OTHER-EXPENSES> 13,947,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,377,700
<INCOME-TAX> 512,400
<INCOME-CONTINUING> 2,865,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,865,500
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
