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 March 31, 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: 4,405,340
AN-CON GENETICS, INC.
FORM 10-QSB
QUARTERLY REPORT
MARCH 31, 1996
<PAGE>
AN-CON GENETICS, INC.
INDEX TO FORM 10-QSB
Page
Part I. Financial Information
Item 1: Consolidated Financial Statements:
Consolidated Balance Sheet -
March 31, 1996 F1
Consolidated Statement of Operations
for the Three Months Ended March 31,
1996 and 1995 F3
Consolidated Statement of Cash Flows
for the Three Months Ended March 31,
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 8
Item 1: Legal Proceedings 8
Item 2: Changes in Securities 8
Item 3: Defaults Upon Senior Securities 8
Item 4: Submission of Matters to Vote
of Security Holders 8
Item 5: Exhibits and Reports on Form 8-K 8
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS
AN-CON GENETICS, INC.
CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
ASSETS
Current assets:
Cash $ 80,400
Trade accounts receivable 806,100
Inventories 595,900
Prepaid expenses 26,500
Deferred tax asset 148,300
Total current assets 1,657,200
Property and equipment, net 1,287,300
Other assets:
Goodwill, net 265,400
Deferred charges 115,000
Patent rights, net 266,200
Unamortized debt issue costs, net 3,300
Deposits 7,700
657,600
$ 3,602,100
The accompanying notes are an integral part of the financial statements.
<PAGE>
AN-CON GENETICS, INC.
CONSOLIDATED BALANCE SHEET
MARCH 31,1996
(CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 681,600
Accrued interest 169,900
Notes payable - current portion 183,700
Due to Aaron shareholders 1,331,800
Obligations under capital leases -
current portion 31,400
Total current liabilities 2,398,400
Long-term debt, net 599,700
Obligations under capital leases,net 2,800
Stockholders' equity:
Common stock par value $.015; 15,000,000
shares authorized, issued and outstanding
4,405,340 shares on March 31, 1996 66,200
Additional paid in capital 11,656,500
Accumulated deficit (11,121,500)
Total stockholders' equity 601,200
$ 3,602,100
The accompanying notes are an integral part of the financial statements.
<PAGE>
AN-CON GENETICS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
1996 1995
Sales $ 1,546,600 $ 1,232,300
Costs and expenses:
Cost of sales 872,300 733,300
Research and development 19,800 1,100
Professional services 32,900 48,300
Salaries and related costs 181,700 211,400
Selling, general and administration 316,600 301,400
1,423,300 1,295,500
Gain(Loss) from operations 123,300 ( 63,200)
Other income (expense):
Interest, net ( 26,900) (10,600)
Miscellaneous -- 5,900
( 26,900) ( 4,700)
Gain (Loss) before extraordinary item 96,400 ( 67,900)
Extraordinary item:
Gain from settlement of debt,
net of taxes -- 68,600
Income 96,400 700
Provision for income tax ( 35,000) (300)
Realized benefit of loss
carryforward -- 300
Net income (loss) $ 61,400 $ 700
Per share, Primary and fully diluted:
Gain(Loss) before extraordinary item$ .01 $(.02)
Extraordinary item -- .02
Net income (loss) $ .01 $ .00
Weighted average number of shares
outstanding 6,804,707 4,110,340
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 THREE MONTHS ENDED MARCH 31, 1996 AND 1995
1996 1995
Cash Flows from operating activities
Net income (loss) $ 61,400 $ 700
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 53,400 24,300
Common stock issued for professional fees -- 11,000
Gain from forgiveness of debt (76,800)
Employee stock option granted 16,900 --
Changes in current assets and liabilities:
Increase in receivables (153,800) (108,500)
(Increase) decrease in inventories 10,300 3,700
(Increase) decrease in prepaid expenses 47,300 200
(Decrease) in accounts payable (205,700) (107,600)
Increase in accrued interest 12,000 1,500
Decrease in deferred tax 35,000 --
Total adjustments (184,600) (252,200)
Net cash used in operating activities (123,200) (251,500)
Cash flows from investing activities
(Increase)in deferred cost (20,000) ( 10,000)
(Increase)in fixed assets (48,300) ( 30,000)
(Increase)in patents (10,900) --
Net cash used in investing activities(79,200) ( 40,000)
Cash flows from financing activities
Decrease in obligations under capital lease (1,900)( 1,600)
Decrease in notes payable - officers --( 83,500)
(Increase)decrease in long term debt 8,300( 7,300)
Common shares issued for cash 100,000 --
Decrease in subscriptions receivable 10,600 --
Net cash provided by (used in) financing
activities 117,000( 92,400)
Net increase (decrease) in cash and
cash equivalents (85,400) (383,900)
Cash and cash equivalents,
beginning of period 165,800 550,700
Cash and cash equivalents, end of period $ 80,400$ 166,800
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 THREE MONTHS ENDED MARCH 31, 1996 AND 1995
Cash paid during the three months ended March 31:
1996 1995
Interest $ 13,500 $1,200
Income Taxes -0- -0-
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
FOR THE QUARTER ENDED MARCH 31, 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
$96,400 as an offset against its estimated taxable income
of equal amount.
FOR THE QUARTER ENDED MARCH 31, 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.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
FOR THE QUARTER ENDED MARCH 31, 1995 (CONTINUED)
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.
The company utilized a loss carryforward of $700 as an offset
against its estimated taxable income of equal amount.
AN-CON GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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.<PAGE>
AN-CON GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
(F) Investments (Continued)
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. 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 be
limited to, absence of the ability to recover the
carrying amount of the investment or inability of the
investee to sustain an 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.
AN-CON GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(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 the extent that the
Company 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.
(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.
AN-CON GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
(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) Nonmonetary 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 costs 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.
(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.
AN-CON GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
NOTE 2. 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 3. 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 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$61,400
Pro forma 41,200
Primary and fully As reported .009
diluted earnings Pro forma .006
per share
NOTE 4. EARNINGS PER SHARE
Primary earnings per share is equal net income divided
by the weighted average number of shares outstanding
including dilutive convertible securities. In the first
quarter of 1996, the dilutive securities included the
outstanding shares of Xenetics Biomedical, Inc. and
Automated Diagnostics Inc., the two inactive subsidiaries
of the Company. The shares of these companies were
convertible to 153,333 share of An-Con common stock.
Also, the 70% of former shareholders of Aaron 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 three months
ended March 31, 1996 show improved sales and
profitability, as compared to the first three months of
1995. The Company's sales revenues increased by 25.5%,
from $1,232,300 to $1,546,600. The smaller rise in the
cost of goods sold (19%), relative to sales, changed the
Company's gross profit from $499,000 to $673,300, raising
the gross profit margin on sales from 40.5% to 43.6%.
The expanded marketing activities of the Company and
improved purchasing and manufacturing were the principal
reasons for the change in gross profits.
Salaries and related expenses decreased by 14% from
$211,400 to $181,700, in the three months ended March 31,
1996 as compared to the same period in 1995. The
reduction in cost of salaries was related to the new
management and human resource utilization policies.
Expenses for professional services decreased by
31.9% to $32,900 in the three months ended March 31,
1996, as compared to $48,300 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 5% increase in selling, general and administrative
expenses. These expenses were $316,600, in the three
month period ended March 31, 1996 as compared to $301,400
for the three months ended March 31, 1995.
The Company had net income of $61,400 for the three
months ended March 31, 1996 as compared to $700 in 1995.
The gain, in 1996, was due to 25.5% increase in revenues
in contrast to 19% rise in cost of sales and 9.9% in
operating expenses. The operating income was $123,300,
in the first quarter of 1996 as compared to a loss of
$63,200 in 1995. The 1995 operating loss was offset only
by $68,600 in income from the settlement of debt.
AN-CON GENETICS, INC.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
The Company sells its products in a similar fashion
in the international market as it does in the USA,
through distributors. These distributors are found
mainly through response to company advertising in
international medical journals or contacts made at
domestic or 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. The main focus for export sales has
been Western Europe. The Company has distributors in all
major markets there. The Company exhibited for the first
time in South America, Sao Paulo, Brazil in 1995.
The Company intends to continue marketing their
products via this manner, 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, the United Arab Emirates (Middle East) and
Bangkok, Thailand (Far East).
During the first quarter of 1996, international
sales of the Aaron Medical product line continued to
increase. These sales were $348,000 which represented
23% of total sales. This compares favorably to 1995 when
total international sales were $313,100 representing 28%
of total sales. The increase from 1995 to 1996
represents a 11% increase in sales volume. To minimize
credit risk, new international distributors in most
instances pay cash in advance or by irrevocable letter of
credit. This form of credit policy is customary and is
not considered a detriment to further increased
international sales.
In the first quarter of 1996, fixed costs increased
to allow the introduction of new products, new sales
personnel, and to improve the Company's 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.
AN-CON GENETICS, INC.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
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 cost of materials, and improving margins.
The Company began new product development and
improvement of facilities, as required by regulatory
agencies, in the fourth quarter of 1995. This activity
has continued in 1996. The cost of the improvements is
estimated to be $150,000 and will be funded primarily
through internal cash flow. 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 quarter of 1996. In order to
provide additional working capital, in the first quarter
of 1996 the Company secured a three month $100,000 credit
facility with a local commercial bank and raised $100,000
through a private placement of shares.
Subsequent to the close of the first, 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 carcenogenic. The product will
be marketed to hospital and private pathology
laboratories and research institutions in both the
University and industrial sectors. A patent application
has been filed for Omnifix 2000.
Financial Condition and Liquidity
Working capital of the Company was $(741,100) on
March 31, 1996 as compared to $(634,800) on March 31,
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.
On March 31, 1996, total assets were $3,602,100 as
compared to $1,928,200 on March 31, 1995 and $3,600,500
of December 31, 1995.
AN-CON GENETICS, INC.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
The Company's cash decreased by $85,400 (51%) as
compared to $383,900 (70%) over the three months ended
March 31, 1996 and 1995 respectively. The net cash used
in operations was $123,200 and $251,500, in the three
months ended March 31, 1996 and 1995 respectively. In
the first quarter of 1996 the Company received $117,000
from financing activities. The issuance of common shares
provided $110,600 (95%) of the cash from financing. The
amount of cash used in investing activities was $79,200.
The expenditures for the acquisition of additional
fixed assets was 75% of the total cash outflows for
investing. In the three month ended March 31, 1995, the
Company utilized $92,400 to reduce notes payable and
$40,000 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 $37,800. As of March 31, 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 $10,400, for the first quarter 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.
AN-CON GENETICS, INC.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
The Company's future results of operations and the
other forward-looking statements contained in the
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, but 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 quarter of 1996 Aaron used
$35,000 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
approximately $150,000 was committed for the construction
and renovation of the St. Petersburg facility.
The Company's ten largest customers accounted for
approximately 44% of net revenues for the quarter ended
March 31 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.
AN-CON GENETICS, INC.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
Outlook
The statements contained in this Outlook are based
on current expectations. These statements are forward
looking, and actual results may differ materially.
The Company believes that the world market for
disposable medical products, such as the Company's
battery-operated cauteries, has significant growth
potential because these type of products have not been
affordable or effectively marketed outside the U.S.
Because of 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 $224,000 and $90,000 in
the electrosurgical product area for the first quarter 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 be the largest single
product line by 1997.
Non-Medical Products
The Company sold $199,000 and $275,700 of its
flexible lighting products used primarily in the
automotive and locksmith industries in the first quarter
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 same markets as
the Company presently sells its less expensive unit.
AN-CON GENETICS, INC.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
The Company intends to manufacture a fiber optic
flexible scope to compete in the automotive, aircraft and
quality maintenance markets. The product will compete
with much more expensive units built by companies such as
Olympus. After the Company has successfully marketed the
industrial fiber optic flexible scope, it intends to
redesign, manufacture and market a medical scope.
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
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
