U.S. Securities and Exchange Commission
Washington D.C. 20549
Form 10-QSB
(Mark One)
[ X ]QUARTERLY REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
[ ] TRANSITION REPORT UNDER
SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from to
Commission file number 0-12183
AN-CON GENETICS, INC.
(Exact name of small business issuer as
specified in its charter)
Delaware 11-2644611
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
One Huntington Quadrangle, Melville,
New York 11747
(Address of principal
executive offices)
(516) 694-8470
(Issuer's telephone number)
N/A
(Former name, former address and former fiscal year,
if changes since last report)
Check whether the issuer (1) filed all reports required to be
filed by Section or 15(d) of the Exchange Act during the past 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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports
required to be filed by Section 12,13 or 15(d) of the Exchange
Act after the distribution of securities under a plan confirmed
by court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the
issuers's class of common equity, as of the latest
practicable date: 4,683,118
AN-CON GENETICS, INC.
FORM 10-QSB
QUARTERLY REPORT
SEPTEMBER 30, 1996
<PAGE>
AN-CON GENETICS, INC.
INDEX TO FORM 10-QSB
Page
Part I. Financial Information
Item 1: Consolidated Financial Statements:
Consolidated Balance Sheet -
September 30, 1996 F1
Consolidated Statement of Operations
for the Nine Months Ended September 30,
1996 and 1995 F3
Consolidated Statement of Cash Flows
for the Nine Months Ended September 30,
1996 and 1995 F4
Notes to Financial Statements F7
Item 2: Management's Discussion and
Analysis or Plan of Operation 1
Part II. Other Information 7
Item 1: Legal Proceedings 7
Item 2: Changes in Securities 7
Item 3: Defaults Upon Senior Securities 7
Item 4: Submission of Matters to Vote
of Security Holders 7
Item 5: Exhibits and Reports on Form 8-K 7
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS
AN-CON GENETICS, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
ASSETS
Current assets:
Cash $ 54,300
Trade accounts receivable 792,800
Inventories 783,300
Prepaid expenses 24,300
Deferred tax asset 50,100
Total current assets 1,704,800
Property and equipment, net 1,443,800
Other assets:
Goodwill, net 81,400
Deferred charges, net 174,700
Patent rights, net 332,700
Unamortized debt issue costs, net 1,900
Deposits 7,700
598,400
$3,747,000
The accompanying notes are an integral part of the financial
statements.
<PAGE>
AN-CON GENETICS, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30,1996
(CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 813,700
Accrued interest 201,600
Notes payable - current portion 186,600
Due to Aaron shareholders - recission offer 1,331,800
Obligations under capital leases -
current portion 30,200
Total current liabilities 2,563,900
Long-term debt, net 484,300
Stockholders' equity:
Common stock par value $.015; 15,000,000
shares authorized, issued and outstanding
4,683,118 shares on September 30, 1996 70,200
Additional paid in capital 11,724,200
Accumulated deficit (11,095,600)
Total stockholders' equity 698,800
$ 3,747,000
The accompanying notes are an integral part of the financial
statements.
<PAGE>
AN-CON GENETICS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
1996 1995
Sales $ 5,254,200$4,108,600
Costs and expenses:
Cost of sales 2,767,200 2,465,200
Research and development 31,000 --
Professional services 221,700 288,600
Salaries and related costs 824,200 556,600
Selling, general and
administration 902,600 853,100
4,746,700 4,163,500
Gain(Loss)from operations 507,500( 54,900)
Other income (expense):
Interest, net ( 104,700) ( 10,400)
Gain (Loss) before
extraordinary item 402,800 ( 65,300)
Extraordinary item:
Gain from settlement of debt,
net of taxes -- 76,800
Income 402,800 11,500
Provision for income tax ( 132,300) --
Net income (loss) $ 270,500$ 11,500
Per share:
Gain(Loss) before
extraordinary item $ .04 $ (.01)
Extraordinary item -- .01
Net income (loss) $ .04 $ --
Weighted average number of shares
outstanding - Fully Diluted6,980,718 6,898,040
The accompanying notes are an integral part of the financial
statements.<PAGE>
AN-CON GENETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
1996 1995
Cash Flows from operating activities
Net income (loss) $ 270,500 $ 11,500
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 198,900 74,600
Common stock issued for professional fees 5,7007,900
Gain from forgiveness of debt -- (76,800)
Employee stock option granted 16,900 --
Changes in current assets and liabilities:
(Decrease) in receivables (140,500) (373,800)
(Increase) decrease in inventories (177,100) 3,000
(Increase) decrease in prepaid expenses 49,600 32,000
(Decrease) in accounts payable (73,600) (3,300)
Increase (decrease) in accrued interest 43,800 ( 3,900)
Decrease in deferred tax 133,200 --
Total adjustments 56,900 (340,300)
Net cash provided by (used in) 327,400 (328,800)
operating activities
Cash flows from investing activities
(Increase)in deferred cost (79,700) --
(Increase)in fixed assets (314,700)( 175,800)
(Increase)in patents ( 111,000) --
Net cash used in investing activities ( 505,400)( 175,800)
Cash flows from financing activities
Decrease in oblig. under capital lease (5,900) (5,900)
Decrease in notes payable - officers -- ( 90,800)
(Increase)decrease in long term debt ( 104,200) ( 22,500)
Common shares issued for cash 166,000 1,000
Decrease in subscriptions receivable 10,600 87,900
Net cash provided by (used in) financing
activities 66,500( 30,300)
Net increase (decrease) in cash and
cash equivalents ( 111,500)( 534,900)
Cash and cash equivalents,
beginning of period 165,800 550,700
Cash and cash equivalents, end of period $ 54,300$ 15,800
The accompanying notes are an integral part of the financial
statements.
AN-CON GENETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Cash paid during nine months ended September 30:
1996 1995
Interest $12,500 $7,500
Income Taxes -0- -0-
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
On February 15, 1996 the Company set up an employee stock option
plan issuing 337,000 warrants to key employees valued at $.05
per share. The Company utilized a loss carryforward of $240,600
as an offset against its estimated taxable income of equal
amount. For the period ended the Company wrote off warrants
previously issued for $5,700.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
The Company issued 35,000 restricted post-split shares to
convertible noteholders to redeem $70,000 in notes payable and
$26,900 of related accrued interest. The shares were valued at
$14,000, 50% of the market price of the Company s unrestricted
shares at the time of issuance. The issuance cost of the redeemed
bonds, in the amount of $6,100 was written off.
The Company issued 27,500 post split shares for services valued at
$11,000, 50% of the market price of the Company s unrestricted
shares at the time of issuance.
On January 11, 1995, An-Con acquired all of the outstanding
capital stock of Aaron Medical Industries, Inc.(Aaron), in
exchange for issuing 3,399,096 shares of the Company to an escrow
agent. The total acquisition price of Aaron shares was valued at
$1,331,800.
According to the agreement An-Con will register the shares that
are placed in escrow. The former shareholders of Aaron have the
right to accept the registered shares of An-Con or elect to
receive the value of their shares in cash. Since (a) the vote was
previously taken by Aaron s shareholders and shares were already
delivered by them, and (b) An-Con shares were already issued prior
to filing and effectiveness of a registration statement under the
Securities Act of 1933, and (c) since the Company has already been
acquired since January, 1995, the shareholders of Aaron are to be
provided with an effective registration statement by An-Con and
are being requested to choose either to accept delivery of the An-
Con shares pursuant to the Acquisition Agreement, as amended, or,
in the alternative, to receive cash for their shares of Aaron.
The amount of $1,331,800, value of the consideration due to the
former Aaron shareholders, is recorded as a current liability of
An-Con, as of March 31, 1995.
AN-CON GENETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
The acquisition of Aaron was accounted for using the purchase
method. Accordingly, $2,012,800 was allocated to assets acquired
based on their estimated fair values. This treatment resulted in
$335,800 of cost in excess of net assets acquired.
Such excess (which has increased for additional acquisition costs)
is being amortized on a straight line basis over 5 years. In
connection with the acquisition the Company assumed $681,600 net
liabilities of Aaron.
On June 26, 1995 the company's subsidiary, Aaron Medical,
purchased a building for $625,000 by issuing 60,000 An-Con shares
valued at $78,000 and by issuing a purchase money mortgage of
$500,000. A security deposit given to the seller of $12,200 was
applied to the purchase and $34,800 was paid in cash.
<PAGE>
AN-CON GENETICS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the interim financial statements
reflect all adjustments, consisting of only normal recurring
items, which are necessary for a fair presentation of the results
for the interim periods presented. The results for interim
periods are not necessarily indicative of results for the full
year. These financial statements should be read in conjunction
with the significant accounting policies and the other notes to
the financial statements included in the Corporation's 1995 Annual
Report to the SEC on Form 10-KSB.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
(A) Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company
considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
(B) Accounts Receivable
Accounts receivable are presented net of the allowance for
doubtful accounts.
(C) Inventories
Inventories are stated at the lower of cost, determined by the
FIFO method or market.
(D) Property, Plant and Equipment
Property and other equipment are recorded at cost. Depreciation
is computed using the straight-line method over the estimated
useful lives of the assets as follows: leasehold improvements-
term of lease: furniture, fixtures and equipment 5 years.
(E) Bond Issue Costs
Costs related to a bond issue are classified as deferred charges
and amortized using the straight line method, over the life of the
bonds.
(F) Investments
The equity method is used to account for investments in corporate
joint ventures and other investments in common stock if the
Company has the ability to exercise significant influence over
operating and financial policies of the investee enterprise. That
ability is presumed to exist for investments of 20% or more and is
presumed not to exist for investments of less than 20%; both
presumptions may be overcome by predominant evidence to the
contrary.
The Company initially records an investment at cost.
Subsequently, the carrying amount of the investment is increased
to reflect the Company's share of income of the investee and is
reduced to reflect the Company's share of losses of the investee
or dividends received from the investee. The Company's share of
the income or losses of the investee is included in the Company's
net income as the investee reports them.
AN-CON GENETICS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(f) Investments (continued)
Adjustments similar to those made in preparing
consolidated financial statements, such as elimination
of intercompany gains and losses and amortization of the
difference between cost and underlying equity in net
assets, also are applicable to the equity method. Under
the equity method, an investment in common stock is
shown in the balance sheet of the Company as a single
amount. Likewise, an investor's share of earnings or
losses from its investment is ordinarily shown in its
income statement as a single amount.
The cost method is used when ownership of securities in an
affiliated company represents less than 20% of the total
outstanding shares of that Company. Under this method the Company
records an investment in the stock of an investee at cost, and
recognizes as income dividends received that are distributed from
net accumulated earnings of the investee since the date of
acquisition by the Company. The net accumulated earnings of an
investee subsequent to the date of investment are recognized by
the Company only to the extent distributed by the investee as
dividends. Dividends received in excess of earnings subsequent to
the date of investment are considered a return of investment and
are recorded as a reduction of cost of the investment.
A loss in value of an investment that is other than a temporary
decline shall be recognized the same as a loss in value of other
long-term assets. Evidence of a loss in value might include, but
would not necessarily limited to, absence of the ability to
recover the carrying amount of the investment or inability of the
investee to sustain aa earnings capacity that would justify the
carrying amount of the investment. A current fair market value of
an investment that is less than its carrying amount may indicate
a loss in the value of the investment.
(G) Research and Development Costs
Research and development costs are charged to expense when
incurred. Disclosure in the financial statements is made for the
total research and development costs charged to expense in each
period for which an income statement is presented. Only the
research and development costs that are purchased from another
enterprise and have alternative future use are capitalized and are
amortized over five years.
(H) Research and Development Arrangements
The company accounts for its obligations under an arrangement for
the funding of research and development by others by determining
whether the company is contractually obligated to pay for research
not yet performed. If so determined, to extent that the company
development is obligated to pay, the company records a liability
and charges research and development costs to expense.
(I) Patents, Franchises, Licenses and Operating Rights
The cost of franchises, license options to acquire technology
and operating rights acquired are amortized using the straight-
line method over their useful lives, 5 years.
AN-CON GENETICS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(J) Stock Issue Costs
Stock issue costs are treated as a reduction of the amount
received from the sale of the related capital stock.
(K) Net Earning (Loss) Per Share
Net earnings (loss) per share are computed based upon the
weighted average number of outstanding common shares during the
period considered.
(L) Income Recognition
Income is recognized on the accrual basis, i.e., revenues
are recognized and reported in the income statement when
the amount and timing of revenues are reasonably
determinable and the earning process is complete or
virtually complete.
(M) Accounting for Income Taxes
In 1992, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income
taxes." This statement requires that deferred taxes be
established for all temporary differences between the book and
tax bases of assets and liabilities, including those which have
not been previously recognized. In addition, deferred tax
balances must be adjusted to reflect tax rates that will be in
effect in the years in which the temporary differences are
expected to reverse.
(N) Non-monetary Transactions
The accounting for non-monetary assets is based on the
fair values of the assets involved. Cost of a non-
monetary asset acquired in exchange for another non-
monetary asset is recorded at the fair value of the
asset surrendered to obtain it. The difference in the
costs of the assets exchanged is recognized as a gain
or loss. The fair value of the asset received is used
to measure the cost if it is more clearly evident than
the fair value of asset surrendered.
(O) Stock-Based Compensation
The company has adopted Accounting Principles Board Opinion 25
for its accounting for stock based compensation. Under this
policy:
Compensation cost are recognized as an expense over the period
of employment attributable to the employee stock options.
Stocks issued in accordance with a plan for past or future
services of an employee is allocated between the expired costs
and future costs. Future costs are charged to the periods in
which the services are performed.
AN-CON GENETICS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(P) Principles of Consolidation
The consolidated financial statements include the accounts of An-
Con Genetics, Inc. and its wholly-owned subsidiary Aaron Medical
Industries, Inc., after elimination of material intercompany
accounts and transactions.
NOTE 3. DESCRIPTION OF BUSINESS
An-Con Genetics, Inc. ("the Company") was incorporated in 1982,
under the laws of the State of Delaware and has its principal
executive office at 1 Huntington Quadrangle, Melville, New York
11747.
NOTE 4. STOCK-BASED COMPENSATION
In the first quarter of 1996, the Company issued warrants to
purchase 337,000 restricted shares of the Company
stocks to various employees, in exchange for their services.
Under the terms of the stock warrant plan, warrants are granted a
price of $1.125 per share. The warrants may be exercised at any
time during the period commencing February 16, 1996 and ending
February 15, 2001.
The Company applies APB opinion 25, Accounting for Stock Issued to
Employees, and related interpretations in accounting for its
plans. Accordingly, based on a stock price of $1.175 per share
when the warrants were issued, a compensation cost of $.05 per
warrant was recognized. Had the compensation cost for the
Company's warrants been determined based on the fair value at the
grant date of the awards under the warrants plan consistent with
the method of FASB Statement 123 Accounting for Stock Based
Compensation, the cost per warrant would have been $.11 and
Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below:
Net Income As reported $ 270,500
Net Income Pro forma 250,300
Net Income Per Share:
Primary and fully
Dilluted As reported .04
Primary and fully
Dilluted Pro forma .04
AN-CON GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
NOTE 5. EARNINGS PER SHARE
Primary earnings per share is equal to net income divided by
the weighted average number of shares outstanding including
dilutive convertible securities. In the first nine months
of 1996, the dilutive securities included the outstanding
shares of Xenetics Biomedical, Inc. and Automated
Diagnostics Inc., the two inactive and defunct subsidiaries
of the Company. The shares of these Companies
were convertible to 153,333 shares of
An-Con common stock. Also, approximately
70% of former shareholders of Aaron Medical Industries, Inc.
had indicated their decision to accept 2,379,367
shares of An- Con. The Company's fully diluted and primary
earnings per share are the same and are computed assuming
the conversion of these securities.
AN-CON GENETICS, INC.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
The results of operations over the nine months ended September 30,
1996 show increased sales and profitability, as compared to the
first nine months of 1995. The Company's sales revenues increased
by 28%, from $4,108,600 to $5,254,200. The smaller rise of 12% in
the cost of goods sold , relative to sales, changed the Company's
gross profit from $1,643,400 to $2,487,000, raising the gross
profit margin on sales from 40% to 47%. The expanded marketing
activities and shift in product sales mix of the Company and
improved purchasing and manufacturing efficiency were the
principal reasons for the change in gross profits.
Salaries and related expenses increased by 48% from $556,600 to
$824,200, in the nine months ended September 30, 1996 as compared
to the same period in 1995. The increase in cost of salaries was
related to the new management of human resource utilization
policies and a change in accounting for indirect labor.
Expenses for professional services decreased by 23% to $221,700 in
the nine months ended September 30, 1996, as compared to $288,600
in the same period of the previous year. A substantial part of
the professional fees in 1995 were related to financing activities
which the Company did not have in 1996.
The increased marketing activities was accompanied by a 6%
increase in selling, general and administrative expenses. These
expenses were $902,600, in the nine months period ended September
30, 1996 as compared to $853,100 for the nine months ended
September 30, 1995.
The Company had net income of $270,500 for the nine months ended
September 30, 1996 as compared to $11,500 for the same period in
1995. The gain, in 1996, was due to 28% increase in revenues in
contrast to 12% rise in cost of sales, and a 22% rise in operating
expenses. The operating income was $507,500, in the first nine
months of 1996 as compared to $(54,900) in 1995. The 1995
operating loss was offset only by $76,800 in income from the
settlement of debt.
The Company sells its products through distributors both
internationally and domestically. Distributors are found mainly
through responses to Company advertising in international medical
journals or contacts made at domestic and international trade
shows. The Company began attending trade shows in foreign
countries for the first time in 1993. Since that time,
international sales have more than doubled, from $381,900 to
$1,031,600 for the nine months ended September 30, 1993 and 1996,
respectively. The main focus for export sales has been Western
Europe. The Company has distributors in all major markets there.
1
AN-CON GENETICS, INC.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION (Continued)
Results of Operations (Continued)
The Company intends to continue similar marketing of its products,
targeting different regions of the world, while returning to major
markets for increased market exposure and to introduce new
products. In 1996, the Company will exhibit for the first time in
the United Kingdom.
During the first nine months of 1996, international sales of the
Aaron Medical product line increased to $1,031,600 which
represented 19% of total sales. This compares favorably to the
first nine months of 1995 when total international sales were
$815,100, or representing 20% of total sales. The increase from
1995 to 1996 represents a 28% increase in sales volume. To
minimize credit risk, new international distributors in most
instances pay cash in advance, or by an irrevocable letter of
credit. This form of credit policy is customary and is not
considered detrimental to further increased international sales.
In the first nine months of 1996, fixed costs increased because of
the introduction of new products, new sales personnel, and an
improved quality control system to assure good manufacturing
practices as required by the Food and Drug Administration. At the
same time, variable costs were reduced by discontinuing
commissions paid to domestic sales representatives.
Variable material and labor costs were reduced through improved
purchasing strategies and product design. Additionally, the
Company has begun purchasing certain labor intensive items off
shore, effectively reducing the cost of materials, leading to
improved margins.
The Company began new product development and improved its
facilities, as required by regulatory agencies, in the fourth
quarter of 1995. This activity has continued in 1996. The
allocation of working capital to these projects caused the
Company's normally prompt payment record with trade vendors to
decline slightly in the first nine months of 1996. In order to
provide additional working capital, in the first quarter of 1996
the Company secured a three month $100,000 credit line with a
local commercial bank and additionally raised $166,000 through a
private placement of shares. The loan was paid off in the second
quarter of 1996.
Subsequent to the close of the first quarter, the Company
commenced production of its new Omnifix 2000 tissue fixative for
purposes of marketing through specialty laboratory distributors.
Management believes Omnifix 2000 is a safer alternative to
Formalin, a chemical which OSHA has identified to be carcinogenic.
The product will be marketed to hospitals and private pathology
laboratories and to research institutions in both the university
and industrial sectors. A patent application has been filed for
Omnifix 2000.
2
AN-CON GENETICS, INC.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION (Continued)
Financial Condition and Liquidity
Working capital of the Company was ($859,100) on September 30,
1996 as compared to ($699,700) on September 30, 1995 and
($858,900) as of December 31, 1995. The deficit in working
capital is attributable to the current cash recission offer made
to the former Aaron shareholders of $1,331,800 which is shown as
a current liability.
On September 30, 1996, total assets were $3,747,000 as compared to
$2,682,800 on September 30, 1995 and $3,417,200 of December 31,
1995.
The Company's cash decreased by $111,500 as compared to a
decrease of $534,900 over the nine months ended September 30, 1996
and 1995 respectively. The net cash provided by operations was
$327,400 and ($328,800), (deficit) in the nine months ended
September 30, 1996 and 1995 respectively. In the first three
quarters of 1996 the Company received $66,500 from financing
activities. The sale of common shares provided $166,000 in the
nine months ended September 30 1996, of the cash from financing.
The amount of cash used in investing activities was $505,400.
The expenditures for the acquisition of additional fixed assets
was 62% of the total cash outflows for investing. In the nine
months ended September 30, 1995, the Company utilized $90,800 to
reduce official outstanding notes and $175,800 to acquire fixed
assets.
The Company has not paid interest on long term obligations which
have been due since November, 1990. The total amount of interest
payable on long term obligations was $40,800. As of September 30,
1996, the bondholders had made no declaration that the principal
was due and payable. Additional interest has been accrued on the
outstanding debt to the Aaron shareholders of $32,800, for the
first nine months of 1996.
Liquidity and Future Plans
Since the acquisition of Aaron Medical Industries, Inc. the
Company has changed its direction from acquiring ownership
interest in companies to acquiring new product technology and
expanding manufacturing capabilities through Aaron. The Aaron 800
is a prime example of this new direction. Other products and
technologies are being evaluated for future development. Continued
strong international sales growth is expected by management.
3
AN-CON GENETICS, INC.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(Continued)
Liquidity and Future Plans (continued)
The Company's future results of operations and the other forward-
looking statements contained in the Company Outlook, in particular
the statements regarding growth in the medical products industry,
capital spending, research and development, and marketing and
general and administrative expenses, involve a number of risks and
uncertainties. In addition to the factors discussed above, among
the other factors that could cause actual results to differ
materially are the following: business conditions and the general
economy; competitive factors such as rival manufacturers
availability of products at reasonable prices; risk of nonpayment
of accounts receivable; risks associated with foreign operations;
and litigation involving intellectual property and consumer
issues.
An-Con believes that it has the product mix, facilities,
personnel, and competitive and financial resources for continued
business success. However, future revenues, costs, margins,
product mix and profits are all influenced by a number of factors,
as discussed above.
The Company's effective income tax rate would have been 35% except
that both An-Con and Aaron have loss carryovers. For the first
nine months of 1996 Aaron used $132,200 of its loss carryover.
Aaron's past five years have been progressively more profitable
and it is the Company's belief that it will be able to use the
remaining carryover losses to offset gains in 1996 and 1997. The
Company expects to spend approximately $375,000 for capital
additions in 1996 of which $150,000 was committed for the
construction and renovation of the St. Petersburg facility.
The Company's ten largest customers accounted for approximately
48% of revenues for the nine months ended September 30, 1996.
The Company believes that it has the financial resources needed to
meet business requirements in the foreseeable future, including
capital expenditures for the expansion of its manufacturing site,
working capital requirements, and product development programs.
Outlook
The statements contained in this Outlook are based on current
expectations. These statements are forward looking, and actual
results may differ materially.
4
AN-CON GENETICS, INC.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION (Continued)
Outlook (continued)
The Company believes that the world market for disposable medical
products, such as the Company's battery-operated cauteries, has
significant growth potential. Since products of this type have
not been affordable or effectively marketed outside the U.S. due
to these factors, the Company has designed certain disposable
products to be reusable. The Company will expand its marketing
thrust internationally by attending more foreign shows than it did
in 1995. The Company presently has a significant portion of the
U.S. cautery market and does not expect a dramatic growth in sales
of cautery-related products domestically.
The Company, over the past two years has chosen to expand its
product line of electrosurgical products. Electrosurgical
products sold by the Company are the standard electrodes, the
patented Multi-Function Cautery, the patent pending Resistick line
of reduced stick electrodes and the Aaron 800 high frequency
desiccator.
The Company had sales of $1,076,200 and $303,700 in the
electrosurgical product area for the first nine months of 1996 and
1995 respectively. The electrosurgical product line is a larger
market than the Company has normally sold into and is dominated by
two main competitors, Valley Lab a division of Pfizer and Conmed,
based in Utica, New York. In the area of reduced stick
electrodes, the main competitor is MegaDyne. The combined markets
for the Company's electrosurgical products exceeds $100 million
annually. Management believes that electrosurgical product sales
will move from fifth place to second in total Company sales by
product line in 1996, and will constitute the largest single
product line by 1997.
Non-Medical Products
The Company sold $777,800 and $1,025,700 of its flexible lighting
products used primarily in the automotive and locksmith industries
in the first nine months of 1996 and 1995 respectively. The
Company is intending to expand this market with the addition of a
higher quality flexible light unit. The higher quality version of
the Bend-A-Light will be sold into the markets in which it sells
its less expensive unit.
The Company is manufacturing a fiber optic flexible scope to
compete in the automotive, aircraft and quality maintenance
markets and shipped its first scopes at the end of the second
quarter. The product will compete with much more expensive units
built by companies such as Olympus. As the Company successfully
markets the industrial fiber optic flexible scope, it intends also
to redesign, manufacture and market a medical scope.
See Form 10-KSB for the year ended December 31, 1995. Part I,
Item 3.
5
AN-CON GENETICS, INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Form 10-KSB for the year ended December 31, 1995. Part I,
Item 3.
ITEM 2. CHANGES IN SECURITIES
There have been no changes in the instruments defining the
rights or rights evidenced by any class of registered
securities.
There have been no dividends declared.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Interest on senior debt of $78,000, 8% convertible debentures
has not been paid since November of 1990. To date, no action
has been taken against the Company by any holder of the senior
debt.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
There has not been a meeting of shareholders and therefore, no
matters have been submitted to a vote of security holders.
ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K
A) Exhibits
28 None
6
SIGNATURES:
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
An-Con Genetics, Inc.
(Registrant)
Date: _________________
_________________________
Andrew Makrides,
President
Robert Saron,
Chief Executive officer
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