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 June 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: 4,425,340
AN-CON GENETICS, INC.
FORM 10-QSB
QUARTERLY REPORT
JUNE 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 -
June 30, 1996 F1
Consolidated Statement of Operations
for the Six Months Ended June 30,
1996 and 1995 F3
Consolidated Statement of Cash Flows
for the Six Months Ended June 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
JUNE 30, 1996
ASSETS
Current assets:
Cash $ 75,400
Trade accounts receivable 581,700
Inventories 727,400
Prepaid expenses 28,400
Deferred tax asset 99,100
Total current assets 1,512,000
Property and equipment, net 1,429,800
Other assets:
Goodwill, net 243,700
Deferred charges, net 195,000
Patent rights, net 297,600
Unamortized debt issue costs, net 3,100
Deposits 7,700
747,100
$ 3,688,900
The accompanying notes are an integral part of the financial
statements.
<PAGE>
AN-CON GENETICS, INC.
CONSOLIDATED BALANCE SHEET
JUNE 30,1996
(CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 738,500
Accrued interest 189,100
Notes payable - current portion 183,700
Due to Aaron shareholders 1,331,800
Obligations under capital leases -
current portion 31,300
Total current liabilities 2,474,400
Long-term debt, net 514,600
Obligations under capital leases,net 600
Stockholders' equity:
Common stock par value $.015; 15,000,000
shares authorized, issued and outstanding
4,425,340 shares on June 30, 1996 66,500
Additional paid in capital 11,659,300
Accumulated deficit (11,026,500)
Total stockholders' equity 699,300
$ 3,688,900
The accompanying notes are an integral part of the financial
statements.
<PAGE>
AN-CON GENETICS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
1996 1995
Sales $ 3,214,200$2,592,300
Costs and expenses:
Cost of sales 1,599,600 1,501,300
Research and development26,300 --
Professional services 125,600 219,400
Salaries and related costs 493,100 291,100
Selling, general and
administration 664,500 696,700
2,909,100 2,708,500
Gain(Loss)from operations 305,100 ( 116,200)
Other income (expense):
Interest, net ( 64,500) ( 3,900)
Miscellaneous -- 2,500
( 64,500) ( 1,400)
Gain (Loss) before
extraordinary item 240,600 ( 117,600)
Extraordinary item:
Gain from settlement of debt,
net of taxes -- 76,800
Income 240,600( 40,800)
Provision for income tax ( 84,200) --
Realized benefit of loss
carryforward -- --
Net income (loss) $ 156,400$ ( 40,800)
Per share, Primary and fully diluted:
Gain(Loss) before extraordinary item $ .02$(.02)
Extraordinary item -- .01
Net income (loss) $ .02 $(.01)
Weighted average number of shares
outstanding - Fully Diluted 6,898,040 6,643,040
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 SIX MONTHS ENDED JUNE 30, 1996 AND 1995
1996 1995
Cash Flows from operating activities
Net income (loss) $ 156,400$( 40,800 )
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 116,40045,900
Common stock issued for
professional fees 5,700 7,900
Gain from forgiveness of debt -- (76,800)
Employee stock option granted 16,900 --
Changes in current assets and liabilities:
Increase (decrease)in receivables 70,600 (267,200)
(Increase) decrease in inventories (121,200) ( 97,100)
(Increase) decrease in prepaid expenses 45,500 ( 2,300)
(Decrease) in accounts payable (171,400) 100,400
Increase in accrued interest 31,200 ( 600)
Decrease in deferred tax 84,200 --
Total adjustments 77,900 (289,800)
Net cash provided by (used in)
operating activities 234,300 (330,600)
Cash flows from investing activities
(Increase)in deferred cost (100,000) --
(Increase)in fixed assets (204,800)( 108,300)
(Increase)in patents ( 69,500) --
Net cash used in investing activities (374,300)( 108,300)
Cash flows from financing activities
Decrease in obligations under
capital lease ( 4,200)( 3,700)
Decrease in notes payable - officers --( 90,800)
(Increase)decrease in long term debt ( 76,800)( 7,300)
Common shares issued for cash 120,000 1,000
Decrease in subscriptions receivable 10,600 49,000
Net cash provided by (used in)
financing activities 49,600( 51,800)
Net increase (decrease) in cash and
cash equivalents ( 90,400) (490,700)
Cash and cash equivalents,
beginning of period 165,800 550,700
Cash and cash equivalents,
end of period $ 75,400$ 60,000
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 SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Cash paid during six months ended June 30:
1996 1995
Interest $ 18,900 $9,300
Income Taxes -0- -0-
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
FOR THE SIX MONTHS ENDED JUNE 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 SIX MONTHS ENDED JUNE 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.
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1996 (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
JUNE 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.
AN-CON GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS
(continued)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(F) Investments
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.
(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.
AN-CON GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(G) Research and Development (continued)
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.
(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
AN-CON GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS
(continued)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(M) Accounting for Income Taxes (continued)
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.
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.
AN-CON GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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 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 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 six months 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 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 six months ended June 30,
1996 show increased sales and profitability, as compared to the
first six months of 1995. The Company's sales revenues
increased by 24%, from $2,592,300 to $3,214,200. The smaller
rise in the cost of goods sold (7%), relative to sales, changed
the Company's gross profit from $1,091,000 to $1,614,600,
raising the gross profit margin on sales from 42.1% to 50.2%.
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 69% from $291,100 to
$493,100, in the six months ended June 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 42.8% to
$125,600 in the six months ended June 30, 1996, as compared to
$219,400 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 $664,500, in the six month period ended
June 30, 1996 as compared to $696,700 for the six months ended
June 30, 1995.
The Company had net income of $156,400 for the six months ended
June 30, 1996 as compared to a loss of $(40,800) for the same
period in 1995. The gain, in 1996, was due to 24% increase in
revenues in contrast to 6% rise in cost of sales and 9% in
operating expenses. The operating income was $305,100, in the
first six months of 1996 as compared to a loss of $(116,200) in
1995. The 1995 operating loss was offset only by $76,800 in
income from the settlement of debt.
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
responses 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.
AN-CON GENETICS, INC.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION (CONTINUED)
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.
During the first six months of 1996, international sales of the
Aaron Medical product line continued to increase. These sales
were $678,900 which represented 21% of total sales. This
compares favorably to 1995 when total international sales were
$533,300 representing 20% of total sales. The increase from
1995 to 1996 represents a 27% 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 six months 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.
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 $150,000 and will be funded
primarily through internal cash flow with the balance of
$15,000 being paid in the third quarter of 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 six 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 facility
with a local commercial bank and raised $100,000 through a
private placement of shares, the loan was paid off in the
second quarter of 1996.
AN-CON GENETICS, INC.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION (CONTINUED)
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 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 $(933,800) on June 30, 1996
as compared to $632,900 on June 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.
On June 30, 1996, total assets were $3,688,900 as compared to
$2,716,000 on June 30, 1995 and $3,600,500 of December 31,
1995.
The Company's cash decreased by $90,400 as compared to
$(490,700) over the six months ended June 30, 1996 and 1995
respectively. The net cash provided by operations was $234,300
and $(251,500), (deficit) in the six months ended June 30, 1996
and 1995 respectively. In the first quarter of 1996 the
Company received $49,600 from financing activities. The
issuance of common shares provided $120,000 of the cash from
financing. The amount of cash used in investing activities was
$374,300.
The expenditures for the acquisition of additional fixed assets
was 55% of the total cash outflows for investing. In the six
months ended June 30, 1995, the Company utilized $101,800 to
reduce notes payable and $108,300 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 $39,700. As of
June 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
$20,800, for the first six 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.
AN-CON GENETICS, INC.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION (CONTINUED)
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.
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 six months of 1996 Aaron used $84,200 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
44% of net revenues for the six months ended June 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.
AN-CON GENETICS, INC.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION (CONTINUED)
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 $608,300 and $205,300 in the
electrosurgical product area for the first six 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
be the largest single product line by 1997.
Non-Medical Products
The Company sold $397,600 and $563,200 of its flexible lighting
products used primarily in the automotive and locksmith
industries in the first six 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 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 (CONTINUED)
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. 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
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
AN-CON GENETICS, INC.
APPENDIX A TO ITEM 601(c) OF REGULATION S-B
COMMERCIAL AND INDUSTRIAL COMPANIES
ARTICLE 5 OF REGULATION S-X
FINANCIAL DATA SCHEDULE FOR THE SIX
MONTHS ENDED JUNE 30, 1996
<PAGE>
EXHIBIT 27
AN-CON GENETICS, INC.
APPENDIX A TO ITEM 601(c) OF REGULATION S-B
COMMERCIAL AND INDUSTRIAL COMPANIES
ARTICLE 5 OF REGULATION S-X
FINANCIAL DATA SCHEDULE FOR THE SIX
MONTHS JUNE 30, 1996
June 30,
ITEM NUMBER ITEM DESCRIPTION 1996
5-02 (1) Cash and cash items 75,400
5-02 (2) Marketable securities --
5-02 (3) (a) (1) Notes and accounts
receivable-trade 581,700
5-02 (4) Allowances for doubtful accounts --
5-02 (6) Inventory 727,400
5-02 (9) Total current assets 1,512,000
5-02 (13) Property, plant and equipment 2,243,100
5-02 (14) Accumulated depreciation 813,300
5-02 (18) Total assets 3,688,900
5-02 (21) Total current liabilities 2,541,800
5-02 (22) Bonds, mortgages and similar debt 698,300
5-02 (28) Preferred stock-mandatory redemption --
5-02 (29) Preferred stock-no mandatory redemption --
5-02 (30) Common stock 66,500
5-02 (31) Other stockholders' equity 655,400
5-02 (32) Total liabilities and stockholders' equity3,688,900
5-03 (b) (a) Net sales of tangible products 3,214,200
5-03 (b) 1 Total revenues 3,214,200
5-03 (b) 2 (a) Cost of tangible goods sold 1,599,600
5-03 (b) 2 Total costs and expenses applicable to
sales and revenue 1,599,600
5-03 (b) 3 Other costs and expenses 1,309,500
5-03 (b) 5 Provision for doubtful accounts and notes --
5-03 (b) (8) Interest and amortization of debt discount 64,500
5-03 (b) (10) Income before taxes and other items( 240,600)
5-03 (b) (11) Income tax expense 84,200
5-03 (b) (14) Income/loss continuing operations 156,400
5-03 (b) (15) Discontinued operations --
5-03 (b) (17) Extraordinary items --
5-03 (b) (18) Cumulative effect-changes in accounting
principles --
5-03 (b) (19) Net income or loss 156,400
5-03 (b) (20) Earnings per share - primary .02
5-03 (b) (20) Earnings per share - fully diluted .02
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