ALFRED V. GRECO, P.C.
A Professional Corporation
666 Fifth Avenue (14th Floor)
New York, NY 10103
June 21, 1996
Securities and Exchange Commission
450 5th Street N.W.
Washington, DC 20549
Attn: Section of Filings and Reports
Re: An-Con Genetics, Inc.
Amendment No. 1 to Form S-4 filed on Form SB-2
SEC File No. 33-80763
Gentlemen:
I enclose herewith one manually signed and ten conformed copies
of Amendment No. 1 to Form S-4 filed on Form SB-2 of An-Con
Genetics, Inc. inclusive of exhibits. There are also enclosed
as supplemental information, proposed cover letter to Aaron
shareholders (Exhibit I annexed), Acceptance or Rejection of
Rescission Offer (Exhibit II annexed) and Acknowledgment of
Indebtedness (Exhibit III annexed) forms referred to in
Amendment No. 1.
In as much as this Amendment No. 1 is on a different form than
previously, we have not addressed comments which are deemed no
longer applicable.
Reference is made to the staff's comment letter dated January
26, 1996 which contains numbered comments. There follows a
recitation of our numbered responses which correspond to the
staff's numbered comments.
Comment Response
1 We have already responded.
2 Although we originally believed the
transaction was to be private we later
learned of the number of shareholders
of Aaron. Hence, the offer of
Rescission.
3 We have complied.
4 We have complied.
5 We have complied. See "Material
Contacts Between Aaron and An-Con
During Acquisition page 24.
6 We have complied. See Management (page
43), Certain Transaction (page 50),
Material Contacts Between An-Con and
Aaron During Acquisition (page 24).
7 No longer applicable.
8 No longer applicable.
9 We have complied. See "Material
Contacts etc" page 24.
10 Yes. The former Aaron shareholders are
to be the Rescission Offerees.
Securities and Exchange Commission Page 2 of 4
11 No formal opinion has been received as of the
date of filing.
12 No longer applicable.
13 We have complied. The Aaron products are
presently the principal products of the
Company, on a consolidated basis. References
have been included that "the Company, through
its subsidiary etc..."
14 We have complied.
15 We have complied.
16 We have complied.
17 We have complied.
18 We have complied.
19 We have complied.
20 We have complied. The $1,000,000 commitment
was deleted.
21 We have complied.
22 We have complied.
23 We have complied.
24 The 10 employees have already been hired.
See Sale of Common Stock page 51.
25 We have complied.
26 We have complied.
27 The amount of organization cost was not
material. The organization cost was written
off in the first quarter of 1995, (Pages F-1:
10QSB/A2 for first, second, and third
quarters of 1995 and Page F-3: 10KSB 1995.
28 The carrying value of Intelliscan is zero.
29 The balance sheet caption for intangible
assets was changed to Patent rights (Pages F-
1: 10QSB/A2 for first, second, and third
quarter of 1995 and Page F-3: 10KSB 1995).
30 This caption no longer applies in the 10KSB
1995.
31 Due to consolidation this caption was
eliminated in the 10KSB 1995.
32 A total column was added (Page F6-F9: 10KSB
for 1995.)
33 The Company has consistently followed the
policy of valuing the restricted stocks
issued for non-cash consideration at 1/2 of
the market price of the common shares at the
time of issuance of such stock. (See Exhibit
IV annexed).
34 Significant accounting policies were revised.
Accordingly, see 10KSB 1995- at Note I.
35 The Company disclosed the accounting policy
for stock based compensation (Page F-22, Note
I, 10KSB for 1995) SFAS 121, accounting for
impaired assets, does not apply to the
Company.
Securities and Exchange Commission Page 3 of 4
36 Rental expenses are disclosed in the NOTE 4
(Page F-24: 10KSB for 1995).
37 Note I was revised to indicate that only
purchased R&D with alternative uses are
capitalized (Page F-20; 10KSB for 1995.)
38 There was no standing to the knowledge of the
Company with respect to the FDA at the time
of the acquisition of the patent in 1994.
The Form 5-10K (pre-marking approval) filing
with the FDA was made by the Company on
January 25, 1995. A finding of substantial
equivalence by the FDA was on April 13, 1995.
39 FASB 109 disclosures are provided (Page F-31
10KSB for 1995.)
41 and 42 Since the acquisition of Aaron is treated in
the current financials as a purchase rather
than a pooling of interests, the pro forma
information submitted in conjunction with
10KSB/A no longer applies.
43 The computation of the average number of
shares has been revised in all 10QSBs for
1995. The amount of $1,331,800, fair value
of the shares of Aaron acquired by An-Con is
recorded as a current liability of the
Company to the former shareholders of Aaron.
The liability is assumed to bear a legal
interest of up to 12% which is accrued on a
monthly basis. Due to high rate of interest
on the liability to the former Aaron
shareholders, in comparison to the
consolidated net income of $700 in the first
quarter of 1995, the conversion of Aaron
shares are assumed to be anti-dillutive. For
the quarter ended March 31, 1995, the average
number of shares were increased by 153,333
shares, the number of shares which may be
issued if the shareholders of Xenetics
Biomedical Inc., and Automated Diagnostics,
Inc., inactive subsidiaries of the Company,
are awarded additional shares.
The average number of shares for the interim
periods in 1995 are only those of An-Con, and
do not include the shares to be issued to the
former shareholders of Aaron.
44 The acquisition of Aaron is explained in the
Supplemental Schedule of Non-cash investing
and Financing Activities (Pages F-5: 10QSB/A2
for first, second, and third quarter of 1995
and Page F-15 10KSB 1995).
45 The statements were amended in accordance
with SFAS 109. Provision for income taxes
and realization of benefits of tax loss
carryforwards were included (Page F-3:
10QSB/A2 for first, second and third quarters
of 1995.)
46-47 The description of the significant accounting
policies regarding accounting for income
taxes was changed. It was stated that the
Company has adopted SFAS 109, and has been
using it since 1992. (Page F- : 10KSB for
1995; and Page F-8, F-9 and F-9 first, second
and third quarters of 1995, respectively.
48 There has been no change in the status of
ISO.
Securities and Exchange Commission Page 4 of 4
49 This condition was deleted in the final
acquisition agreement.
51 We have complied.
52 We have complied.
53 We have complied.
54 We have complied.
55 Since several footnotes apply to most
financial statement captions cross references
have been omitted.
56 We have complied.
57 .57031 is the agreed upon exchange ratio
An-Con Shares for each share of Aaron. The
.5953 ratio was in error.
58 No longer applicable.
59 No longer applicable.
If I can be of further assistance please do not hesitate to
contact the undersigned.
Very truly yours,
Alfred V. Greco
c: ANCN-9SECltr.
AN-CON GENETICS, INC.
7100 30th Avenue North
St. Petersburg, FL 33710
PROPOSAL TO AARON SHAREHOLDERS
TO ACCEPT OR REJECT RESCISSION OFFER
ACCEPTANCE MEANS YOU MUST RE-SELL YOUR AN-CON SHARES BACK TO
THE COMPANY.
REJECTION MEANS YOU KEEP YOUR AN-CON SHARES.
To Former Shareholders of Aaron Medical Industries, Inc.
As you recall, in January, 1995, you submitted your
shares of Aaron Medical Industries, Inc. ("Aaron") in exchange
for shares of An-Con Genetics, Inc. ("An-Con" or the
"Company"). Your shares of An-Con were placed in escrow
subject to An-Con filing and making effective a registration
statement with the Securities and Exchange Commission
pertaining to your An-Con shares pursuant to the requirements
of the Securities Act of 1933, as amended, (the "Act") and the
rules and regulations promulgated thereunder. The enclosed
prospectus represents the Company's registration of the shares
to satisfy that requirement. However, due to An-Con's
premature offer of its shares to Aaron shareholders, a
technical violation of the Act may have occurred. In this
connection, the Company has included in this prospectus a
voluntary offer by An-Con to give each former Aaron shareholder
an option to either accept the offer and sell his(her) An-Con
shares back to the Company at a price of $.392 per share, or
reject such offer and keep the An-Con shares acquired pursuant
to the Acquisition. Accordingly, the Company is voluntarily
undertaking this Rescission Offer to all former Aaron
shareholders to pay the sum of $.392 per share for each share
of An-Con received, plus interest from January 11, 1995, the
date of closing of the acquisition of Aaron Medical Industries,
Inc. If a shareholder accepts the Rescission Offer, such
shareholder must sell his shares back to the Company for $.392
per share plus interest by following the procedures outlined
below. If a shareholder rejects the "Rescission Offer" such
shareholder retains his (her) An-Con shares and needs to do
nothing further.
The federal securities laws and most state laws provide
for rights of redress (in the form of rescission, or damages if
the security has been sold) for purchasers of securities sold
in violation of the applicable registration provisions of such
laws. In certain instances a rejection of, or failure to
accept or reject the Rescission Offer as set forth below may
not terminate your rights of rescission, or damages (if you no
longer own the security) under applicable federal or state laws
(see "Rescission Offer" in prospectus.)
IF A SHAREHOLDER FAILS TO RESPOND TO THE RESCISSION
OFFER, FOR PURPOSES HEREOF THE COMPANY SHALL CONSTRUE SUCH
FAILURE TO RESPOND AS THE SHAREHOLDER'S CHOICE TO REJECT THE
RESCISSION OFFER AND TO KEEP HIS AN-CON SHARES.
Procedure for Accepting or Rejecting this Rescission Offer:
After you have reviewed the enclosure, kindly review the
annexed form which relates to your shares. Kindly (a) fill in
your name as it appears on your stock certificate, (b) indicate
your choice as to "rejection" or "acceptance" of the Company's
Rescission Offer and (c) execute and return the executed form
to the Company within the 30-day period specified together with
your stock certificate duly endorsed designating it "For
Rescission" on the back.
COVER LETTER EXHIBIT I
PAGE 1
If you reject the Company's offer, you keep your An-Con
shares and need to do nothing further. If the Company has
sufficient funds on hand at the termination of the offering by
the Company, stockholders who have accepted Rescission will be
contacted and promptly paid inclusive of interest. No cash
will be paid until the rescinded certificates have been
received by the Company. However, if sufficient funds are not
readily available, the procedure to effectuate Rescission of
shares of those accepting the Rescission Offer will not begin
prior to the termination of the offering of 500,000 shares of
Common Stock by the Company (which, if necessary, shall
commence as soon as practicable following the Rescission
Offer).
Notwithstanding the foregoing, if the Company does not
have or otherwise obtain sufficient funds to repurchase the
rescinded shares within 180 days of the date of the prospectus,
rescinded certificates will be returned to each rescinding
shareholder by the Company and each shall be instructed to hold
such certificates until the Company has the necessary cash for
the repurchase of such shares to be tendered. Those
stockholders may have to wait an undetermined period of time
before receiving payment. See "Rescission Offer" in the
Prospectus for information concerning options available to
shareholders who elect to rescind but do not receive payment
within 180 days. In addition, offerees who accept rescission
will receive accumulated interest from the date of purchase to
the date of actual payment by the Company for the rescinded
shares. The mandated annual interest rate varies between 6%
and 12% depending upon the respective state of residence of
each rescinding shareholder. We have indicated below the rate
of interest the Company will pay. If you choose to rescind,
the precise amount of interest at the rate required will be
added to the amount paid to you, computed from January 11,
1995.
Since you are a resident, interest is
mandated at the rate of % per annum.
By order of the Board
J. Robert Saron, CEO
COVER LETTER EXHIBIT I
PAGE 2
RESCISSION OFFER
TO BE FILLED IN BY FORMER AARON SHAREHOLDERS
1. I (we), as stockholders of the Company, have been
provided with a Prospectus dated ,
1996.
2. I (we) understand that if I (we) accept rescission
I am (we are) entitled to receive payment of $.392 per share
for the shares plus interest from the date of purchase. I (we)
also understand that the Company may not possess the necessary
funds to repurchase the shares tendered for rescission with
either funds on hand and/or with the proceeds of the Company's
offering. I (we) further understand that I (we) may have to
wait for the Company to obtain additional funds from other
sources (of which there can be no assurance), and I (we)
ultimately may pursue my (our) rights to seek actions against
the Company for the amount due with applicable interest
thereon.
3. I (we) further: understand that the Rescission
Offer will remain open for 30 days, and is being made because
of a possible violation of the Securities Act of 1933 and/or
the state securities laws with respect to the shares issued to
me (us) in connection with the Company's acquisition of Aaron.
I (we),
(Joint Ownership Please Print Both Names)
(Address)
(Please indicate your selection of one of the following
options)
[ ] DO NOT ACCEPT THE RESCISSION OFFER AND WILL
KEEP THE AN-CON GENETICS, INC. SHARES.
[ ] ACCEPT THE OFFER TO RESCIND THE PURCHASE OF
ALL OF THE AN-CON GENETICS, INC. SHARES ISSUED TO ME (US) IN
THE EXCHANGE PURSUANT TO THE ACQUISITION AGREEMENT WITH AARON
MEDICAL INDUSTRIES, INC. AND HEREBY RETURN THE AN-CON SHARES
DULY COUNTERSIGNED AND MARKED "FOR RESCISSION" IN EXCHANGE FOR
THE PAYMENT OF $.392 PER SHARE TOGETHER WITH APPLICABLE
INTEREST THEREON.
Signature(s) Date
COVER LETTER EXHIBIT II
An-Con Genetics, Inc.
Acknowledgment of Indebtedness
Whereas An-Con Genetic,s Inc. (the "Company") has offered
to repurchase certain shares of its common Stock from investors
pursuant to Rescission Offer by prospectus dated ,
1996; and
Whereas has accepted the Rescission Offer of the
Company but has not yet been paid by the Company due to lack of
availability of sufficient funds;
NOW THEREFORE
An-Con Genetics, Inc. does hereby acknowledge
indebtedness to of $ plus interest at the rate
of % per annum from , 199 .
In the event you, as a rescinding shareholder, are not
paid in full by the Company within 180 days of ,
1996, the Company will return your shares and you may choose to
cancel your Acceptance of Rescission and keep the shares (a)
utilize any exemption under the federal securities law, if
available, to sell the shares you are holding as a form of
security (or balance of shares remaining) and if the proceeds
thereof are less than the amount payable pursuant to the
Rescission Offer, you shall remain a creditor of the Company
and will receive a replacement Acknowledgment of Indebtedness
for the balance remaining; and/or (b) you may choose to
commence suit for the amount of indebtedness in order to hasten
payment and to preserve rights before the expiration of any
relevant statute of limitations. Upon sale of any shares
pursuant to (a) above, you will be required to deliver this
Acknowledgment of Indebtedness pending such sale, and, if the
proceeds of sale are less than full payment of the amount due
under the Rescission Offer, a new Acknowledgment of
Indebtedness will be issued for the balance and delivered to
you. In addition, as a condition to payment in full by the
Company, the Acknowledgment of Indebtedness must be
relinquished to the Company prior to such payment in full.
This acknowledgement is not transferable or negotiable
but constitutes a valid and binding obligation of the company
enforceable in a court of law.
By order of the Board of Directors.
An-Con Genetics, Inc.
by
J. Robert Saron, CEO
COVER LETTER EXHIBIT III
Shares issued Date Market Value Book
Value
In exchange for shares
of Best Resources 3/12/93 .125 .0625
For Settlement of Lawsuit 9/17/93 .20 .10
To purchase technology 6/30/94 1.30 .65
As bonus to officers 5/19/94 .60 .30
For consulting
and legal service 5/19/94 .60 .30
For legal services 8/30/94 1.80 .90
COVER LETTER EXHIBIT IV
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
AMENDMENT NO. 1 TO FORM S-4
on
FORM SB-2
Registration Statement
Under the
Securities Act of 1933
AN-CON GENETICS, INC.
(Name of Small Business Issuer in Its Charter)
Delaware 3841 112644611
(State or other (Primary (I.R.S.Employer
Jurisdiction of Standard Identification No.)
Incorporation or Industrial
organization) classification
code Number)
7100 30th Avenue North, St. Petersburg, FL 33710 1-800-537-2790
(Address and Telephone Number of Principal Executive Offices)
7100 30th Avenue North, St. Petersburg, FL 33710
(Address of Principal Place of Business or Intended Principal
Place of Business)
Andrew Makrides 1 Huntington Quadrangle (1N11) Melville, NY
11747 516-694-8470
(Name, Address and Telephone Number of Agent for Service)
Approximate Date of Proposed Sale to the Public As Soon As
Practicable
If this Form is filed to register additional securities
for an offering pursuant to Rule 462(b) under the Securities
Act, please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant
to Rule 462(c) under the Securities Act, check the following box
and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
If delivery of the prospectus is expected to be made
pursuant to Rule 434, please check the following box.
CALCULATION OF REGISTRATION FEE
Title of Each
Class of
Securities to
be
Registered
Amount to
be
Registered
Proposed
Maximum
Offering
Price
Per
Unit(1)
Proposed
Maximum
Aggregate
Offering
Price
Amount of
Registrati
on
Fee(2)
Common Stock
Common Stock
3,399,096
500,000
$.392(3)
$1.50
$1,331,800
$750,000
$459.25
$258.62
Total 3,899,096 -- 2,081,800 $717.87
(1)Estimated to calculate fee.
(2)The original fee for this filing was calculated to be
$1,785.15 which has already been paid with the original filing
on Form S-4.
(3)This represents the price to be paid for the shares by An-
Con Genetics, Inc pursuant to "Recission Offer."
The registrant hereby amends this registration statement
on such date or dates as may be necessary to delay its
effective date until the registrant shall file a further
amendment which specifically states that this registration
statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the
registration statement shall become effective on such date as
the Commission, acting pursuant to said Section 8(a), may
determine.
<PAGE>
Table of Contents
Page
Prospectus Cover Page. . . . . . . . . . . . . . . . .1
Available Information. . . . . . . . . . . . . . . . .3
Prospectus Summary . . . . . . . . . . . . . . . . . .4
Management's Discussion and Analysis . . . . . . . . .5
Risk Factors . . . . . . . . . . . . . . . . . . . . 10
Business . . . . . . . . . . . . . . . . . . . . . . 16
The Company . . . . . . . . . . . . . . . . . . . 16
Battery Operated Cauteries. . . . . . . . . . . . 16
Battery Operated Medical and Industrial Lights. . 16
Electro-Surgical Products . . . . . . . . . . . . 17
Multi-Function Cautery. . . . . . . . . . . . . . 17
Resistick . . . . . . . . . . . . . . . . . . . . 17
Aaron 800 . . . . . . . . . . . . . . . . . . . . 18
Nerve Locator Stimulators . . . . . . . . . . . . 18
OmniFix II. . . . . . . . . . . . . . . . . . . . 18
Other Products. . . . . . . . . . . . . . . . . . 19
Manufacturing, Marketing and Distribution . . . . 19
Competition . . . . . . . . . . . . . . . . . . . 19
Regulation. . . . . . . . . . . . . . . . . . . . 20
Patents and Trademarks. . . . . . . . . . . . . . 21
Research and Development. . . . . . . . . . . . . 21
Employees . . . . . . . . . . . . . . . . . . . . 21
Significant Subsidiary - Aaron Medical Industries, Inc.21
Property . . . . . . . . . . . . . . . . . . . . . . 22
Material Contacts Between An-Con and Aaron During
Acquisition . . . . . . . . . . . . . . . . . . . . 23
The Rescission Offer . . . . . . . . . . . . . . . . 26
Valuation of Aaron For Rescission Purposes. . . . 27
State Blue Sky Laws . . . . . . . . . . . . . . . 29
California. . . . . . . . . . . . . . . . . . 29
Connecticut . . . . . . . . . . . . . . . . . 31
Florida . . . . . . . . . . . . . . . . . . . 31
Hawaii. . . . . . . . . . . . . . . . . . . . 32
Illinois. . . . . . . . . . . . . . . . . . . 32
Indiana . . . . . . . . . . . . . . . . . . . 33
Massachusetts . . . . . . . . . . . . . . . . 34
Nevada. . . . . . . . . . . . . . . . . . . . 34
New Jersey. . . . . . . . . . . . . . . . . . 35
New York. . . . . . . . . . . . . . . . . . . 36
North Carolina. . . . . . . . . . . . . . . . 36
Pennsylvania. . . . . . . . . . . . . . . . . 36
South Carolina. . . . . . . . . . . . . . . . 37
Method of Rescission. . . . . . . . . . . . . . . 38
Rescission Tender Procedure . . . . . . . . . . . 39
Federal Income Tax Consequences . . . . . . . . . 41
Management . . . . . . . . . . . . . . . . . . . . . 42
Remuneration . . . . . . . . . . . . . . . . . . . . 44
Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . 47
Certain Transactions . . . . . . . . . . . . . . . . 49
Legal Proceedings. . . . . . . . . . . . . . . . . . 52
Description of An-Con Securities . . . . . . . . . . 53
Transfer Agent . . . . . . . . . . . . . . . . . . . 55
Legal Matters. . . . . . . . . . . . . . . . . . . . 56
Experts. . . . . . . . . . . . . . . . . . . . . . . 56
Information as to Unaudited Interim
Financial Statements . . . . . . . . . . . . . . . 56
Other Matters. . . . . . . . . . . . . . . . . . . . 56
(i)
Table of Contents
AN-CON GENETICS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Report . . . . . . . . . . . .F-2
Consolidated Balance Sheet at December 31, 1995. . .F-3
Consolidated Statements of Operations for the years
ended December 31, 1995 and 1994. . . . . . . . .F-5
Consolidated Statement of Shareholders' Equity for the
years ended December 31, 1995 and 1994. . . . . .F-6
Consolidated Statements of Cash Flows for the years
ended December 31, 1995 and 1994. . . . . . . . F-13
Notes to Financial Statements. . . . . . . . . . . F-18
UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
Page
Consolidated Balance Sheet March 31, 1996. . . . . F-39
Consolidated Statement of Operations for the
Three Months Ended March 31, 1996 and 1995 . . . F-41
Consolidated Statement of Cash Flows for the
Three Months Ended March 31, 1996 and 1995. . . F-42
Notes to Financial Statements. . . . . . . . . . . F-45
(ii)
Preliminary Prospectus dated
June 21, 1996 Subject to
Completion
An-Con Genetics, Inc.
3,399,096 Shares of Common Stock
This prospectus relates to (a) a registration of
3,399,096 shares of An-Con Genetics, Inc. ("An-Con" or the
"Company") issued in escrow in January 1995 to shareholders of
Aaron Medical Industries, Inc. ("Aaron") in exchange for their
Aaron shares, (the "Acquisition"), (b) an offer of rescission
("Rescission Offer") by An-Con to such shareholders to
repurchase such An-Con shares from former Aaron shareholders
due to the possible violation of the Securities Act of 1933 in
connection with such Acquisition by An-Con, and (c) an offer of
up to 500,000 shares of Common Stock by the Company on a best-
efforts basis solely in the event additional funds are
necessary to effectuate the Rescission Offer. Each former
Aaron shareholder ("Aaron Shareholder") has the right to
either, reject An-Con's Rescission Offer and keep his (her)
shares of An-Con issued pursuant to the Acquisition, or accept
the Rescission Offer whereby such shareholder must sell his
(her) An-Con shares back to An-Con. The Company has valued the
Aaron shares at a value of $.22 per share or a total of
$1,331,800 as of January 11, 1995 (the date of closing of the
"Acquisition"). The An-Con shares (which were exchanged for
Aaron shares) have been valued by the Company at $.392 per
share as of that date and the Company is offering the sum of
$.392 per share for each share of An-Con deliverable to Aaron
Shareholders (presently held in escrow for their benefit
pursuant to the exchange). The foregoing amount aggregates
approximately $1,331,800 (the value of Aaron on January 11,
1995) plus interest. Interest will be paid only to those who
sell their An-Con shares by accepting the Rescission Offer.
The amount of interest payable to each offeree who accepts the
Company's offer is mandated by statute of the state of
residence of each Rescission Offeree and estimated accrued
interest totaled approximately $60,000 as of March 31, 1996
(computed at varying rates mandated by the respective states of
residence of the Rescission Offerees). The estimated accrued
interest payable on Rescission increases approximately $4,000
per month. See "The Rescission Offer" and "The Rescission
Offer - Valuation of Aaron For Rescission Purposes".
THIS PROSPECTUS DEALS WITH A RESCISSION OFFER TO FORMER AARON
SHAREHOLDERS (HEREINAFTER SOMETIMES REFERRED TO AS "RESCISSION
OFFEREES"). RESCISSION OFFEREES WHO REJECT THE OFFER AND
CHOOSE TO KEEP THEIR SHARES OF THE COMPANY MAY STILL HAVE
RIGHTS AVAILABLE TO THEM UNDER FEDERAL LAW AND MAY CONTINUE TO
HAVE RIGHTS UNDER STATE LAW. SEE "RESCISSION OFFER".
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE COMPANY IS OFFERING TO REPURCHASE AN AGGREGATE OF UP TO
3,399,096 SHARES OF COMMON STOCK OF THE COMPANY FROM THE FORMER
SHAREHOLDERS OF AARON AT A PURCHASE PRICE OF $.392 PER SHARE
AGGREGATING $1,331,800, PLUS THE PAYMENT OF ESTIMATED INTEREST
AGGREGATING APPROXIMATELY $60,000 AS OF MARCH 31, 1996.
DEPENDING UPON THE NUMBER OF RESCISSION OFFEREES WHO ACCEPT THE
COMPANY'S RESCISSION OFFER, THE COMPANY MAY NOT POSSESS THE
NECESSARY FUNDS TO REPURCHASE THE SHARES FOR CASH AND
SHAREHOLDERS ACCEPTING THE COMPANY'S OFFER MAY HAVE TO WAIT AN
UNDETERMINED AMOUNT OF TIME BEFORE RECEIVING PAYMENT. IF THE
RESCISSION OFFER IS REJECTED BY AN AARON SHAREHOLDER, SUCH
SHAREHOLDER SHALL KEEP THE AN-CON SHARES WHICH ARE THE SUBJECT
OF AND DELIVERED PURSUANT TO THIS PROSPECTUS. IF THE
RESCISSION OFFER IS ACCEPTED BY AARON SHAREHOLDER, THE COMPANY
WILL BE OBLIGATED TO REPURCHASE SUCH SHAREHOLDER'S AN-CON
SHARES AT $.392 PER SHARE. HOWEVER, IN THE EVENT THERE ARE
INSUFFICIENT FUNDS, THE COMPANY MAY BE UNABLE TO MAKE THE
REQUIRED PAYMENT WITHOUT SEEKING TO OBTAIN ADDITIONAL FUNDS
FROM THE SALE OF OTHER AN-CON SHARES TO BE OFFERED TO THE
PUBLIC ON A BEST-EFFORTS BASIS (WHICH, IF NECESSARY, WILL OCCUR
IMMEDIATELY FOLLOWING THE 30-DAY RESCISSION OFFER PERIOD) OR
OBTAINING FUNDS FROM OTHER SOURCES OR DERIVING ADDITIONAL FUNDS
FROM OPERATIONS. IN THE EVENT SHAREHOLDERS WHO CHOOSE TO
RESCIND ARE NOT PAID IN FULL BY THE COMPANY WITHIN 180 DAYS OF
THE DATE OF THIS PROSPECTUS, THEN, SUCH SHAREHOLDERS MAY
UTILIZE ANY EXEMPTION UNDER THE FEDERAL SECURITIES LAW, IF
AVAILABLE, TO SELL THEIR SHARES (OR BALANCE OF SHARES
REMAINING); AND TO THE EXTENT THE PROCEEDS FROM SUCH SALE ARE
LESS THAN THE AMOUNT PAYABLE PURSUANT TO THE RESCISSION OFFER,
SUCH SHAREHOLDERS SHALL REMAIN CREDITORS OF THE COMPANY.
FURTHERMORE, IN THE EVENT OF NON-PAYMENT OR INSUFFICIENT
PAYMENT BY THE COMPANY WITHIN 180 DAYS OF THE DATE HEREOF, A
RESCISSION OFFEREE MAY THEN ALSO REVOKE HIS ACCEPTANCE OF THE
RESCISSION OFFER AND MAY CHOOSE TO COMMENCE SUIT FOR THE
BALANCE IN ORDER TO HASTEN PAYMENT AND TO PRESERVE HIS RIGHTS
BEFORE THE EXPIRATION OF ANY RELEVANT STATUTE OF LIMITATIONS.
AS OF MARCH 31, 1996, THE COMPANY HAD $80,400 IN CASH. THE
COMPANY IS VOLUNTARILY UNDERTAKING THIS RESCISSION OFFER IN AN
ATTEMPT TO RECTIFY THE EFFECT OF POSSIBLE SECURITIES LAW
VIOLATIONS RESULTING FROM CERTAIN PREMATURE OFFERS OF COMMON
STOCK BY THE COMPANY TO THE FORMER SHAREHOLDERS OF AARON.
SHAREHOLDERS WHO ACCEPT THE RESCISSION OFFER WILL HAVE NO
FURTHER REDRESS CONCERNING THEIR INITIAL EXCHANGE AND
ACQUISITION OF THE COMPANY'S SECURITIES UPON THEIR RECEIPT OF
PAYMENT BY THE COMPANY. See "Rescission Offer".
On June 12, 1996, the high bid for the Company's Common
Stock as reported by the National Quotation Bureau, Inc.
"Bulletin Board" Price Report was $1.25 and the low bid was
$1.25 per share.
The Date of this Prospectus is , 1996.
<PAGE>
AVAILABLE INFORMATION
An-Con Genetics, Inc., the Company, is a reporting
company and is registered under Section 12(g) of the Securities
Exchange Act of 1934. Reports and other information filed by
the company may be inspected and copied at the public reference
facilities of the Securities and Exchange Commission in
Washington, D.C. and at the New York Regional Office of the
Securities and Exchange Commission in New York at 7 World Trade
Center, Suite 1300, New York, NY 10048 and the Florida Regional
Office of the Securities and Exchange Commission at 1401
Brickell Avenue, Suite 200, Miami, Florida 33131. Copies of
the material can also be obtained from the public reference
section of the Securities and Exchange Commission Washington,
D.C. 20549 at prescribed rates.
The company shall furnish annual reports to shareholders
which shall contain financial information, audited, and
reported upon by an independent certified public accountant and
shall file all other current information and quarterly reports
with the Securities and Exchange Commission.
Until , 199 all dealers effecting
transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver
a prospectus. This is in addition to the obligation of dealers
to deliver a prospectus when acting as underwriters with
respect to their unsold allotments or subscriptions.<PAGE>
PROSPECTUS SUMMARY
The Company
An-Con Genetics, Inc. (the "Company") was incorporated in
1982 under the laws of the State of Delaware to engage in
research and development relating to certain genetic devices.
The Company had changed its direction and operations from
genetic devices to the development and marketing of a line of
tissue fixatives, under the OmniFix tradename. In addition,
the Company has recently acquired (as of January 11, 1995) all
of the outstanding shares of Aaron Medical Industries, Inc., a
Florida Corporation, principally engaged in the business of
manufacturing and selling battery operated cauteries, specialty
medical and commercial lighting instruments and electro-
surgical devices to distributors that serve physicians and
hospitals. See "Significant subsidiary - Aaron Medical
Industries, Inc.". An-Con maintains New York offices at One
Huntington Quadrangle, Melville, NY 11747 and principal
executive offices at 7100 30th Avenue North, St. Petersburg,
Florida 33710-2902, at which latter location Aaron Medical
Industries, Inc. also maintains its executive offices and
manufacturing facilities. (See- "Business-The Company" and
"Significant Subsidiary".
Securities Outstanding
As of March 31, 1996 there were 4,405,340 shares
outstanding (excluding 3,399,096 shares held in escrow for the
benefit of former Aaron Shareholders).
Rescission Offer
In order to rectify the effects of possible securities
law violations in connection with the offer and sale of the
Company's shares in exchange for the shares of Aaron without an
effective registration statement in possible violation of the
registration provisions of the Securities Act of 1933, as
amended, the Company is offering to repurchase such shares at a
price of $.392 per share. This value was determined by Aaron
management's evaluation of the shares of Aaron which were
exchanged on January 11, 1995 for shares of the Company which
value was determined to be $1,331,800, plus accrued interest of
$60,000 since January 11, 1995. Interest is mandated by State
law of the state of residence of each Rescission Offeree
(former Aaron shareholder). The total amount payable increases
$4,000 per month as estimated additional interest. Unless the
Company fails to make payment within 180 days, when a
shareholder makes his choice to accept or reject the Rescission
Offer, and returns the form to the Company, such decision will
be deemed effective and irrevocable after receipt and
acceptance by the Company. See "Rescission Offer - Method of
Rescission".
Risk Factors
The shareholders of Aaron should review the prospectus
carefully because it sets forth the facts concerning the
transactions between An-Con and Aaron. The history of An-Con
Genetics, Inc. reflects certain risk factors which include,
among other things, a history of unprofitable operations and
non-payment of dividends. See "Risk Factors".<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Quarterly Period Ended 3/31/96 as compared to 3/31/95
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 $674,300, 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.
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.
Annual period ended 12/31/95 as compared to 12/31/94
An-Con's net revenues for 1995 increased to $5.5 million
from $4.2 million in 1994 on a pro forma basis. The purchase
of Aaron Medical accounted for $5.45 million of 1995 sales.
For 1995 there was a 31% increase in sales. The increase in
sales of $1.3 million was attributable to a 5% increase in
selling prices, an increase of 50% in Bend-A-Light sales and
50% increase in foreign sales of various company products.
Gross profit percentage on a proforma basis increased by 7%
from 1994 to 1995 principally due to a reduction in material
cost, new designs to reduce waste and production efficiency.
Proforma cost of goods sold increased by 20% from 1994 to
1995 due to broad-level product volume growth. During 1995 and
1994, Aaron's family of cauteries accounted for 50% of sales
and 28% of cost of goods sold.
Research and development spending grew on a proforma
basis by 476% from 1994 to 1995 as the Company continued to
invest in the development of OmniFix 2000, the MFC (multi-
function cautery) and other Aaron products.
The proforma increase in net interest of $34,000 was
attributable to the Aaron building purchased in June 1995 of
$25,000 and the interest on the Aaron shareholders' cash
rescission rights of $48,000. There was a decrease in interest
mainly attributed to bonds exchanged for shares and by the
payment of officers' loans.
The Company's effective income tax rate would have been
35.7% except that both An-Con and Aaron have loss carryovers.
For 1995 Aaron recognized $183,300 in tax benefit for the years
1996 and 1997. 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.
Other expenses for selling, general and administrative
increased on a proforma basis by 9% which is attributable to
the increase in sales.
Professional services increased by 11% on a proforma
basis from 1994 to 1995. These services are mainly
attributable to legal and auditing associated with the Aaron
acquisition and the preparation of securities filings in 1994
and 1995.
Positive net income was achieved for the first time in
1995. The Company's management expects this trend to continue.
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 from the 1993 sales
figure of $553,000. 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 1995, international sales of the Aaron Medical
product line continued to increase. These sales were $1.25
million which represented 22% of total sales. This compares
favorably to 1994 where total international sales on a proforma
basis were $775,000 representing 19% of total sales. The
increase from 1994 to 1995 represents a 62% 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.
Fixed costs remained materially unchanged when comparing
1995 to 1994 on a proforma basis. However, 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.
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.
New product development and improvements to the Company's
facility required by regulatory agencies in the fourth quarter
of 1995 and projected in 1996 in the amount of $550,000 were
and will be funded primarily through internal cash flow, thus
restricting the amount of working capital available in the
first 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 order to
provide additional working capital, the Company secured a three
month $100,000 credit facility with a local commercial bank in
the first quarter of 1996 and raised $180,000 through a private
placement of shares during the last quarter of 1995 and the
first quarter of 1996.
Financial Condition
Quarterly Period Ended 3/31/96 as compared to 3/31/95
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 rescission 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.
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.
Annual Period Ended 12/31/95 as compared to 12/31/94
With the acquisition of Aaron, the Company's financial
condition has stabilized. As of December 31, 1995, cash totaled
$165,800 down from $550,700 at December 31, 1994 on a proforma
basis. Cash generated from operating activities rose to
$12,500 in 1995 compared to cash applied on a proforma basis in
1994 of $222,000. Working capital of the company on December
31, 1995 was a negative $858,900 which is attributable to the
liability due Aaron shareholders of $1,331,800.
Investing activities contributed $381,100 in cash during
1995, compared to $71,000 in 1994. Capital expenditures
increased substantially in 1995 as the Company continued to
invest in property, plant and equipment needed for future
business requirements, including manufacturing capacity. 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 53% of net revenues for 1995. At December 31,
1995, the same ten customers accounted for approximately 33% of
outstanding accounts receivable.
The Company used $16,300 and received $998,800 from
financing activities in 1995 and 1994 on a proforma basis,
respectively. The most significant items of financing activity
in 1995 were the reduction of officers' loans of $90,700 and
the $75,000 cost of the underwriting associated with the Aaron
purchase. Sources of funds were the receipt of subscriptions
receivable of $64,900 and issuance of 80,000 common shares for
$80,000.
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 herein 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 electro-surgical products. Electro-
surgical 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.
In 1995, the Company had sales of $200,000 in the
electro-surgical product area. The electro-surgical 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 electro-surgical products
exceeds $100 million annually. Management believes that
electro-surgical 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 for 1995 sold $1.2 million of its flexible
lighting products used primarily in the automotive and
locksmith industries. Approximately $1.0 million was sold to
one customer. 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.
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.
Liquidity and Future Plans
The Company's effective income tax rate would have been
35.7% 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.
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.
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.
RISK FACTORS
The Company's securities to which the Rescission Offer
pertains involve a high degree of risk due to, among other
things, the Rescission Offer, certain new unproven technology,
and intense competition in the industry in which the Company
competes. See "Risk Factors".
The Securities being offered by this Proxy
Statement/Prospectus are subject to certain risks. In
analyzing the Acquisition, stockholders should carefully
consider, among other things, the following factors:
1. Rescission Offer. This prospectus relates to an
offer of rescission ("Rescission Offer") by An-Con Genetics,
Inc. (the "Company") pursuant to written notice for a period of
30-days from the date of receipt, to purchase an aggregate of
3,399,096 shares of common stock of the Company ("Common
Stock") which was exchanged for 5,960,042 shares of Aaron
Medical Industries, Inc ("Aaron") in connection with the
Company's acquisition of Aaron on January 11, 1995. The Aaron
shares (exchanged for Company shares) have been valued by the
Company at $.22 per share and the Company is offering the
former Aaron shareholders ("Aaron Shareholders") the sum of
$.392 per share for each share of An-Con (presently held in
escrow for the benefit of Aaron shareholders) pursuant to the
exchange. The foregoing amount aggregates approximately
$1,331,800 if all the former Aaron shareholders ("Rescission
Offerees") elect to rescind and waive their right to accept
delivery of the shares of the Company pursuant to the exchange,
plus interest. Interest is mandated by statute of the state of
residence of each Rescission Offeree and estimated accrued
interest totaled approximately $60,000 as of March 31, 1996
(computed at varying rates mandated by the respective states of
residence of the Rescission Offerees). The aggregate estimated
accrued interest payable on Rescission increases approximately
$4,000 per month. The Company does not possess the necessary
funds to repurchase the shares for cash and shareholders
accepting the Company's offer may have to wait an undetermined
amount of time before receiving payment. If the rescission
offer is accepted by a significant number of rescission
offerees, the Company may be unable to make payment therefor
without additional funds derivable from securities offered by
the Company on a best-efforts basis (which will occur
immediately following the 30-day rescission offer period), or
obtain funds from other third party sources, or otherwise
obtain funds from operations. In the event shareholders who
choose to rescind are not paid in full by the Company within
180 days of the date of this prospectus, then, such
shareholders may utilize any exemption under the federal
securities law, if available, to sell their shares (or balance
of shares remaining); and to the extent the proceeds from such
sale are less than the amount payable pursuant to the
rescission offer, such shareholders shall remain creditors of
the Company. Furthermore, in the event of non-payment or
insufficient payment by the Company within 180 days of the date
hereof, a rescission offeree may then also revoke his
acceptance of the rescission offer and may choose to commence
suit for the balance in order to hasten payment and to preserve
his rights before the expiration of any relevant statute of
limitations. As of March 31, 1996, the Company had $80,400 in
cash. If any rescission offeree elects not to accept the
Company's Rescission Offer, he may retain his shares of the
Company. However, such shareholders who waive rescission will
not lose whatever rights they may have before the expiration of
applicable state and federal statutes of limitation. See
"Rescission Offer- Method of Rescission".
2. History of Unprofitable Operations. The Company
was formed in December, 1982 and it has had a history of
unprofitable operations. Originally, the Company's operations
consisted of research and development relating to the Company's
genetic related products, none of which were commercially
viable. In addition, prior to 1995, the Company's other non-
genetic related products had not provided sufficient sales for
the Company to operate profitably. Accordingly, prior to the
implementation of the Acquisition in January, 1995, the Company
had sustained losses since its inception aggregating
$11,212,100 as of December 31, 1994 and its revenues to that
date had not been substantial. For the year ended December 31,
1994, the Company had a loss from operations of $1,031,500 or
$(.40) per share. For the year ended December 31, 1995, the
Company had a consolidated loss from operations of $219,500 or
($.05) per share. (See "Business-Products").
3. Recent Losses from Operations. Giving effect to
the Acquisition on January 11, 1995, for the year ended
December 31, 1995, the Company had consolidated revenues of
$5,521,000 and a consolidated net income of $29,200 or $.007
per share. Giving retroactive effect to the Acquisition, for
the year ended December 31, 1994 the Company had Pro-Forma
consolidated revenues of $4,155,100 and a Pro-Forma
consolidated net loss of $673,900 ($.10 per share). No
assurance can be given that the Company will be able to
generate net income from operations in the near future. (See
"Consolidated Statements of Operations", "Management's
Discussion and Analysis of the Consolidated Statements of
Operations", and "Business" and "Certain Transactions").
4. Non-Payment of Cash Dividends. The Company has
not paid any cash dividends on its common stock since
inception, and for the foreseeable future, does not expect to
pay any such dividends. (See "Description of Common Stock -
Dividend Rights").
5. Outstanding Debentures. As of March 31, 1995,
the Company had outstanding an aggregate of $78,000 principal
amount of Debentures. The Debentures were not issued pursuant
to the Federal Trust Indenture Act, and are unsecured and
subordinate to senior debt (indebtedness for borrowed money to
any bank or lending institution). There is no sinking fund
provision provided for in the indenture and the Company is
dependent upon revenues in order to pay interest as it accrues
and for the ultimate repayment of principal. Interest has not
been paid by the Company on such debentures since November,
1990, and amounted to $37,800 as of March 31, 1996. There is
no assurance that the Company will achieve a level of business
sufficient to generate such required cash flow and revenues.
(See "Certain Relationships and Related Transactions".)
6. Lack of Research and Development Capabilities. In
the past and currently An-Con conducts its research and
development activities essentially through arrangements with
university laboratories or hospitals. (Aaron conducts its
principal research and development activities at its premises
in St. Petersburg, Florida).
7. Potential Risk of Product Liability. The Company
and Aaron maintain product liability insurance on all products
being marketed for up to $3,000,000 each. Although management
believes such insurance coverage to be sufficient for its
needs, there can be no assurance that the Company may in the
future, be subjected to a lawsuit and judgment in an amount
exceeding the insurance coverage.
8. Current Prospectus Required. This Prospectus
relates to the shares to be delivered to the Aaron
shareholders. However, under the terms of the agreement, such
shares are to be considered restricted securities upon the
distribution to the Aaron shareholders. Future sales of the
shares will require subsequent registration, or sale thereof
pursuant to an exemption from registration.
9. High Degree of Competition. The Company and Aaron
are not significant factors in the medical industry. The
Company and Aaron are subject to competition from larger
companies with greater financial and manufacturing resources,
which manufacture devices and products that purport to perform
functions similar to the functions of their respective
products. Other companies which make medical products have a
substantially greater sales volume, financial resources,
facilities and organizations than the Company. No assurance
can be given that the Company will be able to compete
effectively against such companies.
10. Control by Officers and Directors. As of March
31, 1996 (giving effect to the Acquisition) the officers and
directors of the Company own and/or control approximately 22%
of the presently outstanding shares through which they may be
able to exercise effective control over the Company.
11. Government Regulation. Many medical products are
subject to guidelines, regulations and testing requirements by
federal and state authorities including the Food and Drug
Administration ("the FDA"), the Department of Agriculture and
the National Institute of Health. In the United States, the
FDA imposes standards which may affect the clinical testing,
manufacture and marketing of certain products. Compliance with
the standards and requirements involving product safety,
efficacy and labeling may prove to be very expensive and time
consuming. No assurance can be given that the regulatory
authorities will render the requisite approval of the marketing
of some of the products that the Company hopes to sell. In
addition, in the manufacture of certain products, the FDA
requires compliance with good manufacturing practices before
the marketing of the product can be undertaken; these
requirements could delay or prevent such products from reaching
the market place. Other countries usually impose regulatory
requirements concerning the development, testing, marketing and
manufacture of certain products which influence the overseas
sales potential of these products. (See "Business -Government
Regulation").
12. Possibility of Obsolescence and Unproven
Technology. The medical industry has been characterized by the
frequent introduction of new products and systems. Some of the
Company's products incorporate new technologies, the commercial
feasibility of which has not been proven and no assurance can
be given that the Company's products can be continually
marketed at a profit. Furthermore, the Company may be
adversely effected by competitive technologies developed by
others. (See "Business - Competition").
13. Agreements with Officers. The Company currently has
employment agreements with Robert Saron and Andrew Makrides,
officers and directors of the Company, which provide, among
other things, for a 5-year employment, executive salary and a
bonus package. See "Management" and Remuneration".
14. Possible Rule 144 Sales. As of March 31, 1996, the
Company estimates that there were outstanding approximately
5,900,000 "restricted shares" (giving effect to shares issued
in Escrow and deliverable to Aaron shareholders pursuant to the
Acquisition), as that term is defined under the Securities Act
of 1933, as amended. A substantial portion of these securities
may be sold in compliance with Rule 144 adopted under the
Securities Act of 1933, as amended. Rule 144 provides, in
essence, that, to be filed with the Securities and Exchange
Commissions (quarterly and annual reports) a person who is
either an affiliate or non-affiliate, after holding restricted
securities for a period of two years, may sell them in an
unsolicited brokerage transaction in an amount equal to l% of
the Company's outstanding Common Stock or an amount equal to
the average trading volume for the four week period immediately
preceding the sale, every three months. Other persons, who are
unaffiliated with the Company, may sell restricted shares after
holding them for three years without any regard to the 1% or
four week trading average limitation. Sales under Rule 144,
in the future, may have an adverse effect on the price of the
Company's Common Stock in the public market.
MARKETS AND MARKET PRICES
An-Con's Common Stock is traded in the over-the-counter
market on the National Associations of Securities Dealers, Inc.
Bulletin Board ("NASD Bulletin Board"). The table shows the
reported high and low bid prices for the Common Stock during
each quarter of the last eight quarters as reported by the NASD
Bulletin Board (symbol "AGNT"). These prices do not represent
actual transactions and do not include retail mark-ups, mark-
downs or commissions.
High Low
1994
2nd Quarter 3 1 1/2
3rd Quarter 3 3/8 1 5/8
4th Quarter 2 5/8 1
High Low
1995
1st Quarter 1 7/8 1
2nd Quarter 2 7/16 1 3/4
3rd Quarter 2 3/8 1 3/4
4th Quarter 2 1/8 1 1/2
High Low
1996
1st Quarter 1 15/16 1 1/8
On May 21, 1996, the Closing bid for An-Con's Common
Stock as reported by the NASD Bulletin Board was $1 3/8 per
share. As of May 21, 1996, the total number of shareholders of
An-Con's Common Stock was approximately 850 exclusive of
shareholders whose shares are held in the name of their broker
or stock depositories or the escrow agent holding shares for
the benefit of An-Con shareholders which are estimated to be
1,000 additional shareholders.<PAGE>
BUSINESS
The Company
An-Con Genetics, Inc. (the "Company") was incorporated
in 1982 under the laws of the State of Delaware to engage in
research and development relating to certain genetic devices.
The Company has changed its direction and operations from
genetic devices to the development and marketing of a line of
tissue fixatives, under the OmniFix tradename. In addition,
the Company has recently acquired (as of January 11, 1995) all
of the outstanding shares of Aaron Medical Industries, Inc., a
Florida Corporation, principally engaged in the business of
manufacturing and selling battery operated cauteries, specialty
medical and commercial lighting instruments and electro-
surgical devices to distributors that serve physicians and
hospitals. See "Significant subsidiary - Aaron Medical
Industries, Inc.". An-Con maintains New York offices at One
Huntington Quadrangle, Melville, NY 11747 and principal
executive offices at 7100 30th Avenue North, St. Petersburg,
Florida 33710-2902, at which latter location Aaron Medical
Industries, Inc. also maintains its executive offices and
manufacturing facilities. (See "Properties").
Company Products
Battery Operated Cauteries
The Company's subsidiary, Aaron, is principally engaged
in the business of manufacturing and selling battery operated
cauteries, specialty medical and commercial lighting
instruments and electro-surgical devices. Aaron's largest
current product line is battery operated cauteries. Cauteries
were originally designed for precise hemostasis (to stop
bleeding) in ophthalmology. The current use of cauteries has
been substantially expanded to include sculpting woven grafts
in bypass surgery, vasectomies, evacuation of subungual
hematoma (smashed fingernail) and for stopping bleeding in many
types of surgery. Battery operated cauteries were originally
designed, and are still primarily delivered, as a sterile one
time use product in the USA. The Company manufactures more
types of cauteries than any other company in the world at its
facility in St. Petersburg. The Company also manufactures a
line of replaceable battery and tip cauteries. This design
allows the doctor to use one of many different sterile tips
which also includes a sterile drape cover for the handle and to
replace the batteries when they are depleted. This was
originally designed for use in international sales, but has
enjoyed growing success in the USA at the doctor's office and
clinic level. The sterile disposable cauteries are still far
more popular in the hospital operating room domestically.
Battery operated Medical and Industrial Lights
The Company, through its subsidiary Aaron, manufactures
a variety of specialty lighting instruments for use in
ophthalmology as well as patented flexible lighting instruments
for general surgery, hip replacement surgery and for the
placement of endotracheal tubes in emergency situations and
prior to surgery. The lighting instruments have also been
adapted for commercial and industrial use, such as for
automotive mechanics through retail tool sellers such as Snap
On Tools, Mac and Matco, for the locksmiths through retailers
such as HPC and others. In 1995 the Company enjoyed a first
time opportunity for retail sales with Walmart and Sears. This
resulted in approximately $350,000 in additional sales to make
total sales through this distributor $1,000,000. In the first
quarter of 1996 sales through the same distributor to this
market sector were $125,000. The Company is currently
evaluating several markets and marketing techniques to expand
the sales of Bend-A-Lights both domestically and
internationally.
Electro-surgical Products
The Company's subsidiary, Aaron, over the past two
years, has continued to expand its product line of electro-
surgical products. Electro-surgical products are the
electrodes (blade, ball, needle and loop) used in conjunction
with an electro-surgical pencil(the handle that the electrode
is attached to) which plugs into a generator. The generator
plugs into a wall outlet and provides the radio frequency which
when combined with the electrode and pencil, cut and/or
coagulate during surgery.
The electrode has traditionally been made of stainless
steel and is supplied sterile for a one time use. Aaron has
evaluated the electro-surgical market and has its electrodes
manufactured to its specifications domestically and overseas.
Multi-Function Cautery
The Multi-Function Cautery Pencil (MFC) was introduced
at the American College of Surgeons meeting in the fourth
quarter of 1995 for comment from surgeons before final release.
Pre-marketing approval has been obtained from the Food and Drug
Administration ("FDA") and the product is now being
manufactured for formal release during the second quarter of
1996. The MFC is a patented device, developed by a group of
California surgeons, and acquired by An-Con for Aaron. The
device combines, in one instrument, the ability for the surgeon
to cut and or coagulate, while simultaneously evacuating the
smoke associated with electrosurgery and to remove fluids from
the surgical site, all with one hand and without assistance.
Resistick
The patent pending Resistick, reduced stick electrodes,
are a coated blade, ball or needle, which is also used in
electrosurgery. The advantage of these electrodes over the
standard stainless steel electrode is that due to the
proprietary coating, they clean easier during surgery thus
speeding up the surgical procedure. All standard electrodes
develop a build-up of a residue of blood and tissue during
surgery which insulates the electrode making it cut and/or
coagulate less efficiently. Therefore, the surgeon must stop
and scrape the electrode before continuing. This stopping and
starting wastes both time and money. The Resistick electrode
was designed to correct this situation.
The reduced stick electrode market is dominated by
MegaDyne Medical Products, Inc. which is believed by management
to virtually control the entire existing market. Unlike the
MegaDyne product, which relies essentially on capacitive
coupling to cause hemostasis during surgery, the Company's
product Resistick, relies entirely on the coating's resistive
characteristics MegaDyne has recently instituted an action
against Aaron for patent infringement. See "Legal
Proceedings".
The Company has obtained pre-marketing approval from the
FDA for this device.
Aaron 800
The Aaron 800 is a low powered office based generator
designed primarily for dermatology. The unit is a 30 watt high
frequency desiccator used mainly for removing small skin
lesions and growth in the doctor's office. This unit was
designed with sufficient base technology to permit the
manufacture of more powerful office based generators without
requiring the additional time consuming expense of total
redesign. The Company has obtained pre-marketing approval from
the FDA for this device and has signed a distribution agreement
with a non-affiliated distributor in the first quarter of 1996.
The agreement which included a significant purchase order for
1000 units plus accessories.
Nerve Locator Stimulators
The Company manufactures three different nerve locator
stimulators which are primarily used for identifying motor
nerves in hand and facial reconstructive surgery. These nerve
locator stimulators are self contained, battery operated units,
which are for one surgical procedure. The Company has a patent
on the Neuro Pulse III which has a pulsing variable design.
The Company has obtained pre-marketing approval for the
aforesaid devices from the FDA.
OmniFix II
The Company is the holder of a U.S. license to
manufacture and market OmniFix II which is formulated to
replace formaldehyde in hospital and clinical pathology
laboratories. Management believes that FDA approval for this
product is not required.
Omnifix 2000.
The Company intends to substantially replace Omnifix II with
Omnifix 2000, which, in addition to preserving thin tissue
specimens, also provides preservation of thicker/larger
tissues. Pathologists have a need for a safe fixative for use
in preserving large sections/tissue block specimens. To meet
this requirement, the Company has developed a new patent
pending formulation. The Company is presently initiating test
marketing of this new product. This formulation is comprised
of certain proprietary ingredients which includes trace amounts
of formaldehyde (well below OSHA safety standards and not
requiring special handling). The formulation is deemed by
management to be a safer alternative to formalin (a
formaldehyde based product requiring special handling under
OSHA guidelines), is non-flammable, provides sharp and clear
cellular detail, rapid staining, is compatible with all
processors and, unlike formalin, is routinely disposable.
Although no assurance can be given, Management believes, that
since Omnifix 2000 (like formalin) preserves both thin and
thick tissue, the product has reasonable expectation of
penetrating a percentage of formalin's market niche. (See
"Competition").
The Company is currently marketing OmniFix II to
clinical laboratories, hospitals and pharmaceutical companies
nationwide through distributors. The present customer base
covers many states, including Hawaii.
Other Products
The Company has patent rights for an auto-focusing bar
code reader, the "Intelliscan Reader", the development of which
is presently suspended. The Company has no present plans to
complete development for commercialization.
Manufacturing, Marketing and Distribution
The Company manufactures the majority of its products on
its premises in St. Petersburg, Florida. Some products are
out-sourced to the Company's specification offshore. The
Company markets its products through national trade journal
advertising and by attending approximately fifteen trade shows
per year. These shows are mainly aimed at the actual users of
the product (surgeons, doctors or nurses); however the Company
also attends distributor meetings. These are the distributors
who actually sell the product to the end users. The Company
sells under the Aaron label through general and specialty
distributors across the country and also private labels its
products for major distributors such as Baxter, General
Medical, and Durr Medical.
Competition
The medical industry is highly competitive and it is
generally known that it will become more so in the future. The
industry is characterized by the frequent introduction of new
products and services. The Company's competitors in this field
are well established, do a substantial amount of business, and
have greater financial resources and facilities than the
Company.
One of the Company's major competitors is Xomed/Treace.
Xomed/Treace carries products that are similar to those of the
Company and has the advantage of early market entry. Over
time, Xomed's market share has decreased to approximately 50%
of the total market. Other line competitors are Alcon, Valley
Lab and Conmed. Aaron's products are competitively priced and
its new cautery line has a longer shelf life (four years) as
compared to a shelf life of one or two years for competing
products.
Aaron introduced eight new products for a variety of
specialties at the Health Industry Distributors Association
Annual Meeting in October, 1995. The products are two new
nerve locator stimulators for hand and face reconstructive
surgery. Two ophthalmic power handles for corneal rust ring
removal and two new diamond burrs for polishing the pterygium
bed after surgical removal and for lid margin lesions. The
last two products are for the emergency room or walk-in
clinic. The nail drill and replacement bits are for relief of
a subungual hematoma (smashed fingernail)
Seven of the Company's eight new products compete with
Xomed/Treace products. Management believes, based upon past
performance that the Company has the ability to aggressively
compete in this market.
Regulation
Since many of the products manufactured by the Company
are medical devices, it is necessary for the Company to obtain
Federal Food and Drug Administration ("FDA") permission prior
to their marketing. Applying for permission can sometimes
delay entry of certain products into the market place to the
detriment of the Company.
In June, 1995, pursuant to an inspection of the
facilities of the Company's subsidiary Aaron, the FDA issued a
warning letter advising of federal good manufacturing practices
("GMP") deficiencies. The letter cited, among other things,
the Company's failure (a) to follow its own complaint handling
procedure to immediately review, evaluate investigate and
document complaint; (b) to evaluate significant equipment
changes in manufacturing processes and quality assurance tests;
(c) to have and implement documented formal change control
procedures for changes made to devices or manufacturing
processes; (d) to have, follow and document conformance with
appropriate written finished device test procedures assuring
devices meet all finished specifications prior to distribution;
(e) to have, follow and document conformance with written
procedures for acceptance of components; (f) to conduct plan in
periodic orders of the quality insurance and good manufacturing
practice programs in accordance with written procedures; (g) to
establish and implement adequate record keeping procedures.
Until such deficiencies were removed the FDA indicated it was
in no position to restore GMP standing to the Company or permit
approval of any pending pre-market submissions by the Company.
On July 12, 1995, the FDA indicated that while the
Company's response appeared adequate, further verification was
needed before the FDA would be in a position to support the
approval of any pending pre-market submissions, or related
Export Certificates for the Company's products. After
follow-up correspondence, on December 15, 1995, the FDA
acknowledged that the Company's corrective action plan dated
November 27, 1995, appeared adequate. However the FDA
determined that it was necessary to set another evaluation date
for May, 1996 to ascertain whether the Company was meeting GMP
guidelines. This date has now been extended to August 30,
1996. Until the Company achieves GMP compliance, all new
product development is being concentrated on products which do
not require FDA approval. No assurance can be given that the
Company will meet the federal GMP guidelines at the next
evaluation date. If the Company fails to meet the guidelines,
the Company may sustain adverse operational and business
consequences in bringing existing and new products to market.
Patents and Trademarks
The Company has a patent pending with respect to its new
product, Omnifix 2000. No assurance can be given that a patent
will protect the Company from duplication or infringement.
The Company owns a total of ten patents and other
patents pending covering multiple products. Though some of
these products are protected by patents, no assurance that
competitors will not infringe the Company's patent rights or
otherwise create similar competing products that are
technically patentable in there own right.
Management believes that general and product liability
exposures are adequately covered by insurance.
Research and Development
The approximate amount expended by the Company on
developing Omnifix 2000 and Aaron products during the years
1995 and 1994 inclusive of travel, professional services and
related general and administrative expenses, total $121,900 and
$47,200 on a pro forma bases, respectively. The Company has
not incurred any direct costs relating to environmental
regulations or requirements.
Employees
During most of 1994 An-Con had three employees, two
officers and one secretary. In the fourth quarter of 1994 the
company hired a chemist, and a laboratory technician, (now a
consultant to the Company) to develop and market its OmniFix
products. The Company also employs an unsalaried Vice-
President for Far Eastern affairs. In January 1995 the Company
acquired Aaron which presently has a total of 75 employees.
These consist of 4 executives, 5 administrative, 5 sales, and
61 technical or factory employees.
SIGNIFICANT SUBSIDIARY -
AARON MEDICAL INDUSTRIES, INC.
Pursuant to the Final Acquisition Agreement the
shareholders of Aaron Medical Industries, Inc., a Florida
corporation, agreed to exchange all of the outstanding shares
of Aaron for shares of An-Con and upon issuance, the shares
deliverable to Aaron shareholders would constitute 49% of an
agreed amount of outstanding shares of An-Con Genetics, Inc.
The Acquisition was consummated as of January 11, 1995 and the
shares issuable to Aaron shareholders are issued in Escrow
pending effectiveness of this Prospectus concerning the
Company's offer of rescission as to the An-Con shares
deliverable pursuant to the exchange of shares. The
transaction with Aaron is accounted for as a purchase for
financial accounting purposes and as of the date hereof, Aaron
is a 100% wholly owned subsidiary of An-Con.
Background of Aaron
Aaron Medical Industries, Inc., is a Florida corporation
with offices and manufacturing facilities in St. Petersburg,
Florida. It is principally engaged in the business of
manufacturing and selling battery operated cauteries, specialty
medical and commercial lighting instruments and electro-
surgical devices through distributors to physicians and
hospitals. Aaron is the successor to Sun-Key Medical
Manufacturing, Inc., which filed a voluntary petition on March
10, 1989, under Chapter 11 of the Bankruptcy Act. The
predecessor and an affiliate thereof, which also filed a
petition on October 31, 1988, were consolidated into a single
bankruptcy case due to the intimate and intertwined affairs of
both corporations. On July 31, 1989, pursuant to a plan of
arrangement (the "Plan") Sun-Key Medical Manufacturing, Inc.
reorganized, acquired Key Technologies, Inc., and changed its
name to Aaron Medical Industries, Inc. The Plan called for
payment of secured creditors ($10,500), priority claims
($136,000) and unsecured creditors ($1,531,900). Secured
creditors and priority creditors were paid in full and
unsecured creditors received $.1156 for each dollar owed.
Payments were to be made from operations. As of December 31,
1995, all creditors were paid in full.
The Company, through its subsidiary Aaron, manufactures
and sells its products under its own label to more than 850
distributors worldwide. The Company has private label
arrangements with health care buying groups and hospital supply
companies.
PROPERTY
The Company has moved its executive offices to the Aaron
facility located at 7100 30th Avenue N., St. Petersburg,
Florida 33710-2902, during the first quarter of 1995. The
Company's New York office is being maintained until at least
January 31, 1997 when its current lease terminates. On
February 28, 1995, a new two-year lease agreement was signed
with the landlord of the Company's executive offices in
Melville, New York requiring an annual rental payment of
$24,000. Pursuant to the new lease, unpaid past rents of
$54,200 were forgiven.
On March 8, 1993, Aaron entered into a five year
operating lease agreement with minimum future rental payments
for five years beginning on May 1, 1993 with annual rental
payments increasing each year with appropriate increased square
footage rented. The lease agreement also provided for an
option to acquire the land and building under certain terms.
The total minimum rental under the lease was $347,400 over the
five year term.
On June 26, 1995 Aaron Medical Industries, Inc.,
exercised its option to purchase the land and building it
presently occupies for $625,000. The purchase was financed as
follows:
Cash $ 47,000
Purchase Money Mortgage 500,000(a)
An-Con Shares
(60,000 X 1.30 per share) 78,000(b)
Total purchase price $ 625,000
(a) Payment of principal and interest at 10% payable monthly
at $5,373.06 until July 1, 1998 when a balloon payment of
$439,074.27 is due.
(b) The An-Con shares were provided by An-Con and are
restricted for 2 years. The shares are being held in escrow
pursuant to agreement. The agreement further restricts the
release of the shares until the seller takes such action as is
necessary to further investigate, define and remediate such
contamination that exists on the property and is referred to in
certain environmental reports pursuant to a Remedial Action
Plan approved by the State of Florida Department of
Environmental Protection (DEP) and any other appropriate
agencies.
In January 1996, the State of Florida approved a
Remediation Plan and work should begin in the 2nd Quarter of
1996.
No assessment can be made at this time as to the cost to
the Company if the Seller does not complete the work required
in the plan approved by the State of Florida.
Two years from the date of Closing, if Seller and
Guarantors have not defaulted under or been in breach of any of
their obligations to Buyer, Buyer shall obtain and deliver to
Escrow Agent additional shares of Stock if based upon the
"Closing Market Price" of the Stock on the thirtieth day prior
to such date, the escrowed shares shall have a value of not
less than $78,000.00.
MATERIAL CONTACTS BETWEEN AN-CON AND AARON CONCERNING THE
ACQUISITION
During the first quarter of 1993, discussions took place
between Robert Speiser, Chairman and CEO of An-Con and M.
Patrick O'Connell, CEO and Chairman of Aaron concerning the
feasibility of An-Con acquiring Aaron on an exchange of shares.
Mr. O'Connell was a former business acquaintance of Andrew
Makrides, President of the Company, and the acquisition
discussions resulted from prior contacts between Messrs.
O'Connell and Makrides. The discussions concerning feasibility
to combine centered on An-Con's ability to satisfy Aaron's need
for capital and provide management for its operations and
future growth and further provide future liquidity for Aaron's
shares on the one hand, and Aaron's capacity to satisfy An-
Con's need for products and operations. At the inception
discussions focused upon Aaron's desire for an equal
representation on the board of the combined entity; equal
ownership of shares by the shareholders of each respective
entity on a 50-50 basis (with the exception of shares issued by
the Company for funding purposes which shares were not to be
included in the 50-50 calculation); Aaron's name was to be
retained on its products; any An-Con shares deliverable to
Aaron shareholders were to be restricted for two years; An-Con
would reverse split its shares to enable it to complete the
acquisition and to privately raise capital to help fund Aaron.
Pursuant to agreement dated March 31, 1993, Aaron and
the Company agreed to the acquisition of Aaron by the Company.
The agreement provided for: (a) An-Con's acquisition of 100% of
the shares of Aaron pursuant to an exchange of shares resulting
in, after the acquisition, a percentage ownership of An-Con (on
a fully diluted basis) by Aaron shareholders of 49% which
acquisition would require a registration of the shares
deliverable to Aaron shareholders, plus a contemplated
registration of additional An-Con shares for sale in order to
derive $4-5 million of proceeds for Aaron and An-Con. An-Con
was to reverse split its shares in order to facilitate funding
and completion of the acquisition. Aaron would maintain its
identity, operations and corporate structure as a wholly owned
subsidiary of An-Con. The agreement was later amended on June
10, 1993 to provide that after the contemplated exchange, a
total of 4% of the shares issuable to Aaron shareholders were
to be placed in escrow subject to Aaron achieving in fiscal
1993 or 1994 a total of 10% net pre-tax earnings. Failure to
achieve such would result in Aaron shareholders forfeiting the
4% of the shares exchanged. If An-Con failed to consummate the
underwriting within 12 months from the closing of the
acquisition Aaron shareholders would be entitled to receive
additional shares of An-Con up to 80% of the outstanding shares
of An-Con on a fully diluted basis, exclusive of shares issued
by An-Con for funding purposes.
Prior to An-Con filing and/or making effective a
registration statement with the Securities and Exchange
Commission, Aaron mailed a Notice of Special Meeting and
amended proxy to Aaron shareholders for a Special Meeting to be
held on June 21, 1993 seeking approval of the terms of
acquisition agreement. Since An-Con was aware that the
shareholders of Aaron were being solicited, such may be deemed
tantamount to an offer by An-Con of its shares to Aaron
shareholders without having effected a registration statement
prior thereto and such act was possibly in violation of the
Securities Act of 1933. The shareholders solicited voted in
favor of the acquisition as set forth in the agreement of March
31, 1993, as amended June 10, 1993. At such meeting 73.18% of
the outstanding shares present in person and by proxy approved,
and one dissenting shareholder representing 36,600 shares
disapproved. The notice of special meeting, as amended, and
proxy also failed to apprise the shareholders of their rights
of appraisal under Florida law. Florida is the state of
incorporation of Aaron. (See "Rescission Offer - State Blue
Sky Laws").
On June 30, 1993 Robert Speiser, Chairman of the Board
of An-Con was elected by the Board of Directors of Aaron to be
a replacement director for M. Patrick O'Connell, the former
chairman who resigned at the request of the Aaron Board. Mr.
Speiser also filled Mr. O'Connell's position as Chairman of the
Board of Directors and CEO of Aaron.
On May 18, 1994, at a Special Meeting of Shareholders, a
change of the terms of the proposed formal agreement were
approved by shareholders to provide a condition that if An-Con
failed to provide one million dollars in cash or other funding
to Aaron it would constitute a default under the agreement. A
total of 77.2% of the outstanding shares of Aaron were voted,
and all those voting in person or by proxy, approved, and no
shares dissented.
It was later determined by management of both companies
that since An-Con could not provide the funding until
completion of the acquisition, An-Con would have 12 months
after completion of the acquisition to raise $1,000,000 for
Aaron. If it failed to do so, such default would result in
Aaron shareholders receiving a greater percentage of shares (up
to 80% of the total outstanding shares of An-Con). If An-Con
provided some but not all of the funds or funding, then the
percentage of shares deliverable to Aaron shareholders would be
reduced commensurately from the 80% figure. This condition was
approved by shareholders of Aaron at a special meeting of
shareholders on August 15, 1994 at which 83.25% of the
outstanding shares of Aaron were voted, and all of such shares
present in person or by proxy (100% of those voting), approved
of the change in terms and affirmed the acquisition.
On January 11, 1995, the formal agreement with Aaron,
containing the aforementioned changes in terms, was executed
and the exchange was concluded IN ESCROW pending the filing and
effectiveness of a registration statement covering the An-Con
shares deliverable to Aaron shareholders (3,399,096 shares).
On that date, the shares deliverable to Aaron shareholders were
issued and delivered IN ESCROW to Delton Cunningham as Escrow
Agent for the benefit of Aaron Shareholders and Aaron
shareholders' shares were delivered to the Company.
On April 15, 1995, the Acquisition Agreement was amended
and restated to delete the condition that An-Con raise
$1,000,000 for Aaron and amended to change the condition to a
covenant by An-Con to provide funding of $1,000,000 to Aaron.
In November, 1995, pursuant to the resolutions of the
respective boards of directors of An-Con and Aaron and pursuant
to the advice of counsel, the contingency requiring Aaron to
make net income of 10% of revenues in 1994 or 1995 in order to
receive 49% equity (3,399,096 shares) was removed. In addition
An-Con's covenant to provide $1,000,000 in funding for Aaron
was also deleted at that time. Accordingly, all conditions to
the agreement were removed except the stipulation that the
shares issuable to Aaron shareholders be registered with the
Securities and Exchange Commission. In November, 1995, final
amendment to the Acquisition Agreement was executed as of
January 11, 1995 and constitutes the final acquisition
agreement between the parties. See "Certain Transactions -
Material Contacts Between An-Con and Aaron.
THE RESCISSION OFFER
The Company has undertaken this Rescission Offer
voluntarily in order to attempt to rectify the effect of
possible violations resulting from the offer and sale of the
Company's shares in exchange for the shares of Aaron on January
11, 1995, without effectuating a registration statement with
the Securities and Exchange Commission prior thereto. The
Company had previously attempted to rectify the foregoing by
placing the shares in escrow for the benefit of the Aaron
shareholders until a registration statement could be
effectuated. However, it has been determined that it is in the
best interest of former Aaron shareholders that the rescission
offer to purchase all the An-Con shares (exchanged for the
Aaron shares) be made by the Company at a price of $.392 per
share (See "Valuation of Aaron for Rescission Purposes".
The Company is requesting that each shareholder offeree
either accept or reject the rescission offer by executing a
form which will be forwarded with this prospectus. Once a
shareholder makes his choice to accept or reject the Rescission
Offer and returns the form to the Company, such decision will
be deemed effective and irrevocable upon receipt and acceptance
by the Company for a period of 180 days from the date of this
prospectus; after such period, if he is not yet paid in full, a
rescission offeree may revoke his acceptance of the rescission
offer and take such steps including commencing suit for the
amount due in order to hasten payment and to preserve his
rights before the expiration of any relevant statute of
limitations. If a shareholder fails to exercise his choice and
does not return the form within 30-days after receipt, the
Company will deem it a non-acceptance of the Rescission Offer.
In either event, rescission offeree shareholders may still have
rights under federal and/or state laws to later sue for the
consideration paid plus interest.
As of March 31, 1996, the Company had cash of $80,400,
which would not be sufficient if all shareholders were to
exercise their right to rescind for their purchase price, plus
interest (which is state mandated). Subject to availability of
funds, rescinding shareholders are expected to be paid upon
completion of the Company's offering pursuant to a Companion
Prospectus intended to take place following the Rescission
Offer. Should the number of shares rescinded be substantial
and sufficient funds do not become available to the Company to
pay rescinding shareholders in full from the sale of stock in
the Companion Prospectus, the Company will make pro-rata
payment to rescinding shareholders and may be forced to seek
alternative forms of financing in the form of private financing
or bank or institutional financing. If there are insufficient
funds available, the rescinding shareholders will be reimbursed
pro-rata to the extent of available funds, after funds required
for operations, until additional funds become available. No
assurance can be given that such alternative financing, if
required, will be available, or if available, that it will be
available on terms favorable to the Company. In the absence of
financing the Company will utilize funds from operations, if
any, to meet any remaining unfulfilled obligations to
rescinding shareholders.
Until paid in full by the Company, rescinding
shareholders will be deemed to be general creditors and shall
retain their interests in the shares of the Company as a form
of security for payment; however they will otherwise maintain
all rights as shareholders of the Company including voting
rights until such time as they are paid in full and all such
stock is redeemed. (The escrow agent will independently seek
the votes of any former Aaron shareholder in the event of a
special or annual meeting of shareholders of An-Con or annual
meeting of shareholders of An-Con in the interim.) In
addition, the Company intends to issue a non-negotiable
"Acknowledgment of Indebtedness" acknowledging the principal
amount owing to the rescinding shareholder plus statutory
interest (as mandated by the state of residence of the
rescinding shareholder) to any rescinding shareholder who is
not paid within 30 days after completion of the Rescission
Offer. This Acknowledgment of Indebtedness will then be
surrendered with the stock certificate (or stock interest of
the rescinding shareholder) at the time of payment by the
Company. In the event rescinding shareholders are not paid in
full by the Company within 180 days of the date of this
prospectus, then such shareholders may (a) utilize any
exemption under the federal securities law, if available, to
sell their shares (or balance of shares remaining) and if the
proceeds thereof are less than the amount payable pursuant to
the Rescission Offer, such shareholders shall remain creditors
of the Company and each will receive a replacement
Acknowledgment of Indebtedness for the balance remaining;
and/or (b) choose to commence suit for the amount of
indebtedness in order to hasten payment and to preserve their
rights before the expiration of any relevant statute of
limitations. Upon sale of any shares pursuant to (a) above,
each selling shareholder will be required to deliver the
Acknowledgment of Indebtedness pending such sale, and, if the
proceeds of sale are less than full payment of the amount due
under the Rescission Offer, a new Acknowledgment of
Indebtedness will be issued for the balance and delivered to
the rescinding shareholder. In addition, as a condition to
payment in full by the Company, the Acknowledgment of
Indebtedness must be relinquished to the Company prior to such
payment in full.
See "Material Contacts Between An-Con and Aaron
Concerning the Acquisition" for facts surrounding the Company's
offering which culminated in the Company's decision to make the
Rescission Offer.
Valuation of Aaron for Rescission Purposes
Former Aaron management was asked to determine for
Rescission purposes the value of the Aaron shares acquired by
the Company. Aaron management utilized the closing date as the
date of value (January 11, 1995) and by agreement, Aaron's
financial information of December 31, 1994 was used for that
valuation.
Management next determined that the market value of
Aaron as a going concern would be a more viable approach to
valuation than the value of the consideration offered in
exchange by An-Con, i.e., the market price of An-Con shares.
The extremely volatile prices of An-Con shares are determined
in a market where the volumes of monthly transactions are
insignificant compared to the total number of outstanding
shares. The estimation of value using this approach involves
applying an uncertain price to a large transaction,
approximately 44% of the Company shares.
Because of the relatively large size of Aaron's current
assets and the recent replacement of the major portion of the
Company's equipment, Aaron's management believes that the most
straightforward approach to valuing Aaron is to utilize and
adjust the information provided by the balance sheet of the
Company.
The present values of amounts to be received were
determined at the appropriate current interest rate, less
allowances for uncollectibility and collection costs. The
market values of the finished and semi-finished goods
inventories were computed at estimated selling prices less the
sum of (a) costs of completion and disposal and (b) a
reasonable profit allowance for the selling effort of the
acquiring enterprise. Raw materials were valued at current
replacement cost and the prepaid insurance at book value. The
present values of amounts on deposit were determined at the
appropriate current interest rate. The market values of the
fixed assets were based on the current replacement cost for
similar capacity. The market values of the intangible assets
that can be identified were based on their present value of
future benefits, using an appropriate discount rate.
The market value of the accounts and notes payable,
long-term debt, and other claims payable are equal to the
present values of amounts to be paid determined at appropriate
current interest rates.
Management also determined that any fair valuation of
Aaron had to include a value for goodwill. The value of
goodwill is the difference between the market value of Aaron
and the sum of the market values of individual assets. Since
the market value of Aaron can only be approximated, the amount
of goodwill is estimated indirectly, by comparison with public
companies in the same industry.
Goodwill was determined by averaging the results of the
following methods: (a) market to book value whereby the ratio
of the market price to book value of public companies in the
same industry was obtained and multiplied by the book value of
Aaron; (b) capitalization of weighted earnings (for the last
five years); (c) capitalization of 1994 earnings; (d) price
earnings ratio of comparable companies was multiplied by
weighted earnings ratio of comparable companies was multiplied
by weighted earnings of Aaron; and (e) market price earnings
ratio of comparable companies was multiplied by 1994 Aaron per
share earnings. The results of these methods, when averaged,
indicated a value of goodwill of $335,800.
Utilizing appropriate adjustments, the fair market value
of the assets less liabilities of Aaron was estimated to be
$995,900 on the value date.
Accordingly, by adding the estimated market value of the
assets as determined above ($995,900) to the goodwill
($335,900), the value assigned the Aaron purchase was
$1,331,800. This value when divided by the total number of An-
Con shares issued in the exchange (3,399,096 shares) amounts to
$.392 per share.
State Blue Sky Laws
The Company did not make any filings for registration or
for exemption from registration of the shares exchanged in any
states in which Aaron shareholders resided. For purposes
hereof, and as a result of the possible non-applicability of
the federal exemption, exemptions in the following states
(except as otherwise indicated) are deemed not to exist with
respect to the Aaron Shareholders who exchanged their shares
for the Company shares.
An analysis of the shareholders list of the former
shareholders of Aaron indicates that the former shareholders
reside in a total of thirteen states: California, Connecticut,
Florida, Hawaii, Illinois, Indiana, Massachusetts, Nevada, New
York, New Jersey, North Carolina, South Carolina, Pennsylvania.
There follows a recitation of the relevant statutes and laws of
each of the states in which the offeree shareholders reside and
the remedies to which they are entitled under the laws of their
respective states, including the rate of interest mandated by
statute of the state of residence of each rescission offeree.
Generally, the remedies available consist of a right to
institute an action at law for an amount equal to the
consideration paid plus interest. The various states have
varying statutes concerning the period during which such an
action may be instituted ("statute of limitations"). Unless
otherwise specifically stated in the respective state statute,
no assurance can be given that the statutes of limitations will
permit additional actions by shareholders notwithstanding their
refusal to accept the Rescission Offer. However, if a
shareholder accepts the Rescission Offer and receives payment
by the Company, the accepting shareholder will have then
received the full remedy available under both state and federal
law insofar as it relates to their acquisition of the Company's
shares.
The Company currently intends to make this Rescission
Offer to all applicable former Aaron shareholders. The
requirements for this Rescission Offer vary from state to
state, and the Company may not be able to comply or may find it
is not practicable or advisable to comply with the requirements
of each and every such state. The Company reserves the right
not to make this Rescission Offer in any state where the
Company in its sole discretion determines it is not legally
possible or it is not practical or advisable for the Company to
make this Rescission Offer in that state.
California
Sec. 25110 of the California Corporate Securities Law provides
generally that it is unlawful for any person to offer or sell a
security in the State of California in an issuer transaction
unless such sale has been qualified . . . or unless such
security or transaction is exempted under the Act.
Sec. 25503 of the California Corporate Securities Law 25503 -
states, in pertinent part:
"Any person who violates 25110, . . . shall be liable to
any person acquiring from him the security sold in
violation of such section, who may sue to recover the
consideration he paid for such security with interest
thereon at the legal rate, less the amount of any income
received therefrom, upon the tender of such security, or
for damages, if the plaintiff no longer owns the security,
or if the consideration given for the security is not
capable of being returned. Damages, if he no longer owns
the security shall be equal to the difference between (a)
his purchase price plus interest at the legal rate from the
date of purchase and (b) the value of the security at the
time it was disposed of by the plaintiff plus the amount of
any income received by plaintiff.
Damages, if the consideration given for the security is not
capable of being returned, shall be equal to the value of that
consideration plus interest at the legal [7% per annum] rate
from the date of purchase, provided the security is tendered;
and if the plaintiff no longer owns the security, damages in
such case shall be equal to the difference between (a) value
of the consideration given for the security plus interest at
the legal rate on the date of purchase; and (b) value of the
security at the time it was disposed of by the plaintiff plus
the amount of any income received therefrom by the plaintiff. .
."
Sec. 25507. Time limit on action- Qualification violations.
Section 25507 states in pertinent part ...
(b) No buyer may commence an action under Section 25503
... if, before suit is commenced, such buyer shall have
received a written offer approved as to form by the
commissioner (1) stating the respect in which liability under
such section may have arisen, (2) offering to repurchase the
security for a cash price payable upon delivery of the security
or offering to pay the buyer an amount in cash equal in either
case to the amount recoverable by the buyer in accordance with
Section 25503, or, offering to rescind the transaction by
putting the parties back in the same position as before the
transaction, (3) providing that such offer may be accepted by
the buyer at any time within a specified period of not less
than 30 days after the date of receipt thereof unless rejected
earlier during such period by the buyer, (4) setting forth the
provisions of this subdivision (b), and (5) containing such
other information as the commissioner may require by rule or
order, and such buyer shall have failed to accept such offer in
writing within the specified prior after receipt thereof.
(c) The commissioner may by rule or order impose as a
condition to approval of an offer under subdivision (b) of this
section, if the commissioner finds such action is necessary and
appropriate for the protection of investors.
Connecticut
The Connecticut Uniform Securities Act states in pertinent
part:
Sec. 36-b-16. Registration of security prior to offer or sale
required-Exemption. No person shall offer or sell any security
in this state unless (1) it is registered under sections 36b-2
to 36b-33, inclusive, or (2) the security or transaction is
exempted under section 36b-21.
Sec. 36-b-29. Buyer's Remedies. (a) Any person who: (1) Offers
or sells a security in violation of ... section ... 36b-16 ...
is liable to the person buying the security, who may sue either
at law or in equity to recover the consideration paid for the
security, together with interest at eight per cent per year
from the date of payment, costs and reasonable attorneys' fees,
less the amount of any income received on the security, upon
the tender of the security, or for damages if he no longer owns
the security.
"(a) Any person who: Offers or sells a security in violation
of 36-b-29. . . is liable to the person buying the security
from him, who may sue either at law or in equity to recover the
consideration paid for the security, together with interest at
eight percent per year from the date of payment, . . .upon the
tender of the security, or for damages if he no longer owns the
security."
(g) No person may bring an action under subsection (a) of this
section: (1) If the buyer received a written offer, before suit
and at a time when he owned the security, to refund the
consideration paid together with interest at six per cent per
year from the date of payment, less the amount of any income
received on the security, and he failed to accept the offer
within thirty days of its receipt,...
Florida
The Florida Securities and Investor Protection Act states, in
pertinent part:
Sec. 517.07 generally provides that no securities except exempt
securities or exempt transactions as defined under the Act
shall be sold or offered for sale within the state of Florida
unless such securities have been registered under the Act.
Sec. 517.211.
"Every sale made in violation of . . . 517.07 . . . may be
rescinded at the election of the purchaser; and the person
making the sale and every director, officer, partner, or agent
who personally participated or aided in making the sale, is
jointly and severally liable to the purchaser in an action for
rescission, if the purchaser still owns the security, or for
damages if the purchaser has sold the security. No purchaser
otherwise entitled will have the benefit of this subsection who
has refused or failed, within 30 days of receipt, to accept an
offer made in writing by the seller, if the purchaser has not
sold the security, to take back the security in question and to
refund the full amount paid by the purchaser; or, if the
purchaser has sold the security, to pay the purchaser an amount
equal to the difference between the amount paid for the
security and the amount received by the purchaser on the sale
of the security, together, in either case, with interest on the
full amount paid for the security by the purchaser at the legal
rate [12% per annum] . . . for the period from the date of
payment by the purchaser to the date of repayment, less the
amount of any income received by the purchaser on the
security."
Hawaii
The Hawaii Uniform Securities Act states in pertinent part,
Sec. 485-8. Registration of Securities. It shall be unlawful
for any person to sell or offer to sell any security ... unless
sold or offered in any transaction exempt ... in the State
unless the security has been registered by notification or by
qualification....
Sec. 485-20. Remedies. (a) ... Every sale made in violation of
this chapter shall be voidable at the election of the
purchaser; and the person making the sale and every director,
officer, or agent has personally participated or aided in any
way in making the sale, shall be jointly and severally liable
to the purchaser in an action at law in any court of competent
jurisdiction upon tender of the securities sold or of the
contract made for the full amount paid by the purchaser, with
interest, together with all taxable court costs (and reasonable
attorney's fees);... provided that no purchaser otherwise
entitled shall claim or have the benefit of this section who
has refused or failed within thirty days from the date thereof
to accept an offer in writing of the seller to take back the
security in question and to refund the full amount paid by the
purchaser, together with interest (at the rate of 10% per
annum) on the amount for the period from the date of payment by
the purchaser down to the date of repayment....
Illinois
The Illinois Securities Law states in pertinent part, the
following:
Sec. 13. Private and other Civil Remedies; Securities.
A.Every sale of a security made in violation of the
provisions of this Act shall be voidable at the election of the
purchaser exercised as provided in subsection B of this
Section; and the issuer...liable to such purchaser...
...for the full amount paid, together with interest from the
date of payment for the securities sold at the rate of the
interest or dividend stipulated in the securities sold (or if
no rate is stipulated, then at the rate of 10% per annum) less
any income or other amounts received by such purchaser on such
securities, upon offer to tender to the seller or tender into
court of the securities sold or, where the securities were not
received, of any contract made in respect of such sale, or
(2) if the purchaser no longer owns the securities, for
the amounts set forth in clause (1) of this subsection A less
any amounts received by the purchaser for or on account of the
disposition of such securities.
...
C. No purchaser shall have any right or remedy under
this Section who shall fail, within 15 days from the date of
receipt thereof, to accept an offer to repurchase the
securities purchased by him or her for a price equal to the
full amount paid therefor plus interest thereon and less any
income thereon as set forth in subsection A of this Section.
Every offer of repurchase provided for in this subsection shall
be in writing, shall be delivered to the purchaser or sent by
registered mail or certified mail, return receipt requested,
addressed to the purchaser at his or her last known address,
and shall offer to repurchase the securities sold for a price
equal to the full amount paid therefor plus interest thereon
and less any income thereon as set forth in subsection A of
this Section. Such offer shall continue in force for 15 days
from the date on which it was received by the purchaser, shall
advise the purchaser of his or her rights and the period of
time limited for acceptance thereof, and shall contain such
further information , if any, as the Secretary of State may
prescribe. Any agreement not to accept or refusing or waiving
any offer made during or prior to said 15 days shall be void.
...
Indiana
The Indiana Uniform Securities Law provides, in pertinent part:
Sec. 23-2-1-3 provides that it is unlawful for any purchaser to
offer or sell any security in the state of Indiana unless (1)
it is registered under the Act or (2) the security or
transaction is exempted under the Act.
Sec. 23-2-1-19 of the Indiana Uniform Securities Act states, in
pertinent part:
"(a) A person who offers or sells a security in violation of
this Chapter . . . is liable to any other party to the
transaction, who did not knowingly participate in the
violation, who may sue either at law or in equity to rescind
the transaction or to recover the consideration paid together,
in either case, with interest as computed in subsection
(g)(1)[8% per annum], plus costs and reasonable attorneys fees,
less the amount of any cash or other property received on the
security upon tender of the security by the person bringing the
action or for damages if the person no longer owns the
security. Damages are the amount that would be recoverable
upon a tender less:
(g)...No person may sue under this section: (1) if that person
received a written order, before suit and at a time when the
person owned the security, to refund the consideration paid
together with interest (at 8% on that amount from the date of
payment to the date of repayment,...
(1) the value of the security when the buyer disposed of the
security; and
(2) the interest as computed in subsection (g)(1) [8% per
annum] on the value of the security from the date of disposition."
Massachusetts
The Uniform Massachusetts Securities Act states, in pertinent
part:
Section 301. Registration Requirement. It is unlawful for any
person to offer or sell any security in the Commonwealth unless
(1) it is registered under this chapter or (2) the security or
transaction is exempted under section 402.
Sec. 410. Civil Liabilities. (a) Any person who (1) offers or
sells a security in violation of section ... 301 ... is liable
to the person buying the security from him, who may sue either
at law or in equity to recover the consideration paid for the
security, together with interest at six per cent per year from
the date of payment, costs, and reasonable attorney's fees,
less the amount of any income received on the security, upon
the tender of the security, or for damages if he no longer owns
the security. Damages are the amount that would be recoverable
upon a tender less the value of the security when the buyer
disposed of it and interest at six per cent per year from the
date of disposition.... No person may sue under this section
(1) if the buyer received a written offer, before suit and at a
time when he owned the security, to refund the consideration
paid together with interest at six per cent per year from the
date of payment, less the amount of any income received on the
security, and he failed to accept the offer within thirty day
of its receipt....
Nevada
The Nevada Uniform Securities Act states, in pertinent part:
Sec. 90.460. Registration Requirement. It is unlawful for a
person to offer to sell or sell any security in this state
unless the security is registered or the security or
transaction is exempt under this chapter.
Sec. 90.660. Civil Liability. 1. A person who offers or sells a
security in violation of any of the following provisions: ...
(b) NRS 90.460;...is liable to the person purchasing the
security. Upon tender of the security, the purchaser may
recover the consideration paid for the security and interest at
the legal rate of this state from the date of payment, costs
and reasonable attorney's fees, less the amount of income
received on the security...
Sec. 90.680. Offer of Rescission and Settlement. 1. Relief may
not be obtained under subsection 1 of NRS 90.660 if, before
suit is commenced, the purchaser:
(a) Receives a written offer:
(1) Stating the respect in which liability under NRS 90.660 may
have arisen and fairly advising the purchaser of his rights of
rescission;...
(3) Offering to repurchase the security for cash, payable on
delivery of the security, equal to the consideration paid, plus
interest at the legal rate of this state ( % per annum)
from the date of payment, less income received thereon...;
(4) Stating that the offer may be accepted by the purchaser at
any time within a specified period of not less than 30 days
after the date of its receipt by the purchaser....
(b)Fails to accept the offer in writing within the period
specified under subparagraph (4) of paragraph (a).
...
If, after acceptance, a rescission offer is not performed in
accordance with either its terms or this section, the offeree
may obtain relief under NRS 90.660 without regard to this
section.
New Jersey
The New Jersey Uniform Securities Act states, in pertinent
part:
Sec. 49:3-60 Conditions for Sales of Securities. It is
unlawful for any security to be offered or sold in this State
unless:
(a) The security or transaction is exempted under section
3[49:3-50] of this act;
(b) The security or transaction is not subject to, or is
exempted from, the registration requirements of the Securities
Act of 1933 and the rules and regulations thereunder.
Sec. 49:3-71. Civil Liability... (a) Any person who
(1) Offers or sells a security in violation of section...[49:3-
60] of this act, ... is liable to the person buying the
security from him, who may sue to recover the consideration
paid for the security, together with interest at 12% per year
from the date of payment and costs, less the amount of any
income received on the security, upon the tender of the
security and any income received on it, or for damages if he no
longer owns the security...;
No person may sue under this section (1) if the buyer received
a written offer, before suit and at a time when he owned the
security, to refund the consideration paid together with
interest at 12% per year from the date of payment, less the
amount of any income received on the security, and he failed to
accept the offer within 30 days of its receipt,...
New York
Although the New York Blue Sky Law ("Martin Act") does not
designate civil penalties for failure to comply with the
registration requirements in the State of New York with respect
to an interstate offering, New York residents that purchased
the securities of the Company are also being offered rescission
and return of their purchase price in the form of cash plus
interest at the rate of 9% per annum by virtue of the
determination that the federal registration statute may have
been violated with respect to the Company's private offering
and sale of the securities.
North Carolina
The North Carolina Securities Act states, in pertinent part:
Sec. 78A-24. Registration Requirement. It is unlawful for any
person to offer or sell any security in this State unless (i)
it is registered under this Chapter or (ii) the security or
transaction is exempted under G.S. 78A-16 or 78A-17 and such
exemption has not been denied or revoked under G.S. 78A-18....
Sec. 78A-56 Civil Liabilities. (a) Any person who:
(1) Offers or sells a security in violation of ... Section 78A-
24 is liable to the person purchasing the security from him,
who may sue either at law or in equity to recover the
consideration paid for the security, together with interest at
the legal rate 8% per annum from the date of payment, costs,
and reasonable attorneys' fees, less the amount of any income
received on the security, upon the tender of the security, or
for damages if he no longer owns the security.
...
(g)(1) No purchaser may sue under this section if, before suit
is commenced, the purchaser has received a written offer
stating the respect in which liability under this section may
have arisen and fairly advising the purchaser of his rights;
offering to repurchase the security for cash payable on
delivery of the security equal to the consideration paid,
together with interest at the legal rate (8%) as provided by
G.S. 24-1 from the date of payment, less the amount of any
income received on the security or, if the purchaser no longer
owns the security, offering to pay the purchaser upon
acceptance of the offer an amount in cash equal to the damages
computed in accordance with subsection (a); and stating that
the offer may be accepted by the purchaser at any time within
30 days of its receipt; and the purchaser has failed to accept
such offer in writing within the specified period....
Pennsylvania
The Pennsylvania Securities Act (the "Act") states, in
pertinent part:
Sec. 201 generally provides that it is unlawful for any person
to offer or sell any security in the state of Pennsylvania
unless the security is registered under the Act or the security
or transaction is exempted under the Act.
Sec. 502 of the Act states, in pertinent part:
"(a) Any person who violates 201 . . . shall be liable to the
person purchasing the security offered or sold in violation of
201 from him, who may sue either at law or in equity to recover
the consideration paid for the security, together with interest
at the legal rate [6%] from the date of payment, less the
amount of any income . . . received on the security, upon the
tender of the security, or for damages if he no longer owns the
security. Damages shall be the amount that would be
recoverable upon a tender less the value of the security when
the purchaser disposed of it and interest at the legal rate [6%
per annum] from the date disposition."
Sec. 504(d) under the Act states, in pertinent part:
"No purchaser may commence an action under Section . . . 502,
if, before suit is commenced, the purchaser has received a
written offer:
(i) stating the respect in which liability under such section
may have arisen and fairly advising the purchaser of his
rights; offering to repurchase the security for cash, payable
on delivery of the security, equal to the consideration paid,
together with interest at the legal rate from the date of
payment, less the amount of any income ... received thereon,
or, if the purchaser no longer owns the security, offering to
pay the purchaser upon acceptance of the offer an amount in
cash equal to the damages computed in accordance with 501(a);
and
(ii) stating that the offer may be accepted by the purchaser at
any time within a specified period of no less than thirty days
after the date of receipt thereof, or such shorter period as
the commission may by rule prescribe; and the purchaser has
failed to accept such offer in writing within the specified
period."
South Carolina
The Uniform Securities Act of South Carolina states, in
pertinent part:
Sec. 35-1-810. Registration or Exemption Required. It is
unlawful for any person to offer or sell any security in this
State unless (a) it is registered under this chapter or (b) the
security or transaction is exempted under Section 35-1-310 or
35-1-320.
Sec. 35-1-1490. Liability to Buyers for Illegal or Fraudulent
Sales or Offers.
Any person who:
(1) Offers or sells a security in violation of Section 35-1-
810,...
Is liable to the person buying the security from him, who may
sue either at law or in equity to recover the consideration
paid for the security, together with interest at six per cent
per year from the date of payment, costs, and reasonable
attorneys' fees, less the amount of any income received on the
security, upon the tender of the security, or for damages if he
no longer owns the security.
Sec. 35-1-1530. Limitation of Actions- Effect of Offer to
Refund Consideration with Interest. ... No person may sue under
... section (35-1-1490) if the buyer received a written offer,
before suit and at a time when he owned the security, to refund
the consideration paid together with interest at six percent
per year from the date of payment, less the amount of any
income received on the security, and he failed to accept the
offer within thirty days of its receipt...
Method of Rescission
The Company is now making an offer to repurchase the
aforementioned securities for the value per share of An-Con
which was exchanged for Aaron shares ($.392), plus legal
interest from the date of exchange, as well as offering
additional securities on behalf of the Company, a portion of
the proceeds of which may be used to reimburse rescinding
shareholders (in the event the Rescission Offer is accepted by
investors).
The Company has been advised by former principal shareholders
and management of Aaron, consisting of such principal
shareholders, management and their families which represented
approximately 61% of the outstanding shares of Aaron (prior to
the acquisition), that such shareholders have no intention of
accepting the Company's rescission offer.
The Company has estimated that as of March 31, 1996 its
liability for repurchases of the An-Con shares from former
Aaron shareholders pursuant to the Rescission Offer is
$1,331,800 plus estimated interest of approximately $60,000 as
of March 31, 1996. As of March 31, 1996 the Company's cash
position was $80,400. Accordingly, the Company does not
possess the necessary funds to repurchase all of the shares
with respect to this Rescission Offer. The Company intends to
offer to the public up to 500,000 shares of Common Stock, a
portion of the proceeds of which may be used to cover any
obligation to shareholders that may accept the Rescission
Offer. If the Rescission Offer is not accepted, as believed by
management, the Company shall de-register and not offer its
shares for sale pursuant to this Prospectus.
Within five days after the effective date of this prospectus,
the Company will distribute through the United States
Registered Mail, Return Receipt Requested, this prospectus
together with a written proposal offering a choice to Aaron
shareholders to accept or reject the Company's Rescission Offer
("Proposal to Accept or Reject Rescission Offer") pursuant to
the terms set forth in this prospectus.
The proposal and prospectus will be accompanied by instructions
indicating the purpose of the proposal, how much is being
offered for their shares, and the interest rate payable until
they are paid by the Company. The instructions accompanying
the form and prospectus shall require that shareholders fill
out and execute the form evidencing their choice to "accept" or
"reject" the Rescission Offer and return it to the Company at
its principal offices at 7100 30th Avenue North, St.
Petersburg, FL 33710.
Those stockholders who choose to waive the Rescission Offer
should check the appropriate space and sign the form sent with
the Proposal to Accept or Reject the Rescission Offer and
return it to the Company. All Rescission Offerees who reject
the Rescission Offer will not lose whatever rights they may
have before the expiration of the federal or applicable state
statute of limitations.
All stockholders choosing to rescind their purchase or
acquisition for the consideration paid (a return of the value
of their Aaron shares exchanged plus applicable interest
thereon, shall check the appropriate space on the application,
sign it and return it to the Company. Upon termination of the
thirty day rescission period and subject to any amendments to
the prospectus as a result thereof, the Company intends to
offer its securities to public investors (over a period of
thirty days following the Rescission Offer) to provide any
additional funds necessary to pay Rescission Offerees, and upon
the termination thereof, any Rescission Offerees that have
accepted rescission and have not yet been paid, if any, will be
contacted by the Company. The acceptance of the offer of
rescission shall become effective against the Company upon its
receipt of the form accompanying the "Proposal to Accept or
Reject Rescission Offer" properly executed by the rescinding
shareholder.
Rescission Tender Procedure
Upon effectiveness of this Prospectus, all former Aaron
shareholders shall receive the An-Con shares presently held in
escrow for their benefit. Those shareholders choosing to
rescind shall then follow the procedures set forth above. At
the conclusion of the Rescission Offer and subject to
availability of cash, accepting shareholders will be contacted
by the Company and instructed to tender the shares by signing
the certificates (on the back and noting thereon that the same
is for "rescission"), and sending it registered mail, return
receipt requested, to the Company for payment, including
applicable interest thereon.
In the event the Company does not have sufficient funds to
repurchase the rescinded shares, beneficial owners of such
certificates will be contacted by the Company, and shall be
instructed to hold such certificates until the Company has the
necessary cash for the purchase of such tendered shares. Those
stockholders may have to wait an undetermined period of time
before receiving payment. However, rescinding shareholders
will receive accumulated interest from the date of their
purchase to the date of the actual payment by the Company for
the rescinded shares in accordance with the state mandated
interest rate of their state of residence. Since each
rescinding shareholder owns restricted shares, until receipt of
payment from the Company, he may not otherwise sell or transfer
such shares in the open market or otherwise. The foregoing
prohibition applies notwithstanding the Company's inability to
pay the offered price at time of completion of the Rescission
Offer. Until paid in full by the Company, rescinding
shareholders will be deemed to be creditors of the Company and
shall retain their stock certificates as security for payment;
however they will maintain all rights as shareholders of the
Company including voting rights until such time as they are
paid in full and all such stock is redeemed. In addition, the
Company intends to issue a non-negotiable "Acknowledgment of
Indebtedness" acknowledging the principal amount owing to the
rescinding shareholder plus statutory interest (as mandated by
the state of residence of the rescinding shareholder) to any
rescinding shareholder who is not paid within 30 days after
completion of the Rescission Offer. This Acknowledgment of
Indebtedness will then be surrendered by the rescinding
shareholder together with the stock certificate at the time of
actual payment by the Company. However, in the event any
rescinding shareholder is not paid in full by the Company
within 180 days of the date of this prospectus, then such
shareholder may (a) utilize any exemption under the federal
securities law, if available, to sell their shares (or balance
of shares remaining) and if the proceeds thereof are less than
the amount payable pursuant to the Rescission Offer, such
shareholders shall remain creditors of the Company and each
will receive a replacement Acknowledgment of Indebtedness for
the balance remaining; and/or (b) choose to commence suit for
the amount of indebtedness in order to hasten payment and to
preserve their rights before the expiration of any relevant
statute of limitations. Upon sale of any shares pursuant to
(a) above, each selling shareholder will be required to deliver
the Acknowledgment of Indebtedness pending such sale, and, if
the proceeds of sale are less than full payment of the amount
due under the Rescission Offer, upon providing evidence of the
foregoing a new Acknowledgment of Indebtedness will be issued
for the balance and delivered to the rescinding shareholder.
In addition, as a condition to payment in full by the Company,
the Acknowledgment of Indebtedness must be relinquished to the
Company by the rescinding shareholder prior to such payment in
full.
All shareholders accepting rescission that are not paid by
the Company will not be deprived of their rights by virtue of
any state or federal statute of limitations and may pursue
other causes of action against the Company, in any court of
competent jurisdiction, for the value of the consideration paid
plus appropriate interest thereon. All shareholders who reject
this offer to rescind their shares will also not lose their
rights to pursue recovery of their investment with applicable
interest thereon before any appropriate statute of limitations
expires and may have rights to pursue other causes of action
against the Company, in any court of competent jurisdiction,
for the amount paid plus applicable interest thereon.
Under federal law, refusal or failure to accept or reject the
offer of rescission will not terminate the stockholder's rights
to seek rescission before the expiration of the applicable
federal statute of limitations. Generally, the federal statute
of limitations for enforcement of rights by a shareholder to
rescind a purchase which may have been sold in violation of the
registration requirements of the federal securities laws is
within one year from the date of the purchase. In addition,
the present stockholders may have the right to pursue other
causes of action against the Company, either at law or in
equity, in any court of competent jurisdiction on other
grounds. These actions, if any, may be subject to different
statutes of limitations.
The Company believes that few, if any, shares will be tendered
as a result of this Rescission Offer, because of the progress
made by the Company and because the price per share in the
public market is presently higher than the amount recoverable
through rescission. However, no assurance can be given
concerning the foregoing. If a majority of investors chooses
to accept the Rescission Offer and have their shares reacquired
by the Company at the designated price per share, together with
applicable interest as mandated by the state of their
residence, and a significant amount of the shares offered by
the Company in the Companion Prospectus are not sold, there
could be a material adverse effect on the Company's cash
position and operations. See "Financial Statements" and
"Management's Discussion and Analysis of Financial Condition
and Results of Operations".
Federal Income Tax Consequences of The Rescission Offer
The following are the general tax consequences of acceptance of
the Rescission Offer. We suggest that rescission offerees
contact their tax advisors to determine their respective tax
consequences.
Pursuant to IRC Section 368(a)(1)(E), an acquisition will be
tax-free if it is the acquisition by one corporation, in
exchange solely for its voting stock, of the stock of another
corporation, if immediately after the acquisition, the
acquiring corporation is in control of the acquired
corporation. The statutory language provides that for this
transaction to be tax-free, An-Con must use solely its voting
stock to acquire the voting stock of Aaron and must be in
control of Aaron after the acquisition. Based on the facts
provided An-Con has acquired 100% of Aaron's stock solely in
exchange for its voting stock and therefore the transaction
would meet the statutory tests for tax-free treatment to both
An-Con's and Aaron's shareholders.
However, if the shareholders of Aaron elect to accept
rescission from An-Con, then the tax-free nature of the
transaction shall be destroyed for those shareholders. The
additional payment could be treated as consideration and
thereby cause the transaction to no longer be an exchange of
solely voting stock of the acquiror.
An acceptance of rescission by an Aaron shareholder involves
the sale of his (her) An-Con shares back to An-Con. Generally,
the sale of a security can result in a gain or loss measured by
a comparison of the purchase price to the sales price. The
difference between a shareholder's purchase price (tax basis)
and the sales price yields a realized gain or loss. A capital
gain or loss results if the security sold is a capital asset as
defined in IRC Section 1221. The long or short term character
of the gain or loss is dependent upon the length of time the
stock was held. Stockholders accepting the Rescission Offer
who paid cash for their stock will determine their gain or loss
by a comparison of the proceeds received under the Rescission
Offer to the tax basis of the stock. Any resulting gain or
loss should be recognized by the shareholder for tax purposes.
Aaron's shareholders are encouraged to have their own personal
tax consultant review their investment in order to determine
the particular tax consequences to them.
<PAGE>
MANAGEMENT
The following table sets forth the present management of the
Company, their respective ages, positions and period they have
served as directors.
Name Age Position Director
since
J. Robert Saron* 43 Chairman of the Board
Chief Executive
Officer, Director August, 1994
Andrew Makrides 54 President, Director December,1982
Joseph F. Valenti 79 Director October, 1995
George W. Kromer 55 Director October, 1995
Delton Cunningham 31 Secretary, Treasurer
Chief Financial Officer --
Tsang Yang Tseng 48 Vice-President --
Far East Affairs
Robert Speiser, the former Chairman of the Board, resigned as
an officer and director on March 20, 1995 and became a
consultant to the Company. See "Certain Relationships and
Related Transactions".
* Replaced Robert Speiser as Chairman and CEO on March 20,
1995.
J. Robert Saron, age 43, President and Chairman of the Board
holds a Bachelors degree in Social and Behavioral Science from
the University of South Florida. From 1971 through 1979 Mr.
Saron served in various capacities with Saron Pharmaceutical
Corporation and Home Breathing Care, Inc. In 1979 Saron
Pharmaceutical Corporation and Home Breathing Care, Inc. were
acquired by Key Energy Enterprises, Inc. and were renamed Key
Medical, Inc. Mr. Saron was named Vice President of Key
Medical, Inc. and served on the Board of Directors of Key
Energy Enterprises, Inc. In 1983 Mr. Saron became President of
Key Medical, Inc. In January 1984 Mr. Saron joined Suncoast
Medical Manufacturing, Inc. In 1985 Suncoast acquired Key
Technologies, Inc. and Mr. Saron became Vice President of the
Corporation. From 1988 to present Mr. Saron has served as
President and director of Aaron Medical Industries, Inc.
(formerly Suncoast Medical Manufacturing, Inc.). In March,
1995 Mr. Saron was elected Chairman and Chief Executive Officer
of An-Con Genetics, Inc.
Andrew Makrides, age 54, President, member of the Board of
Directors, and former Chairman, received a Bachelor of Arts
degree in Psychology from Hofstra University and a JD Degree
from Brooklyn Law School. He is a member of the New York Bar
and has practiced law from 1968 until joining An-Con Genetics,
Inc. as Executive Vice President and director, in 1982. Mr.
Makrides became President of the Company in 1985 and has served
as such to date.
Delton N. Cunningham, age 31, Vice President and Chief
Financial Officer holds a Bachelor of Science in Accounting
from the University of Florida. He is a Certified Public
Accountant and is a member of the American Institute of
Certified Public Accountants and the Florida Institute of
Certified Public Accountants. Mr. Cunningham began his career
with the Miami office of Arthur Andersen & Company. In June of
1991 Mr. Cunningham joined Aaron Medical Industries, Inc., as
the Company's Chief Financial Officer. In June of 1992 Mr.
Cunningham became Vice President of Aaron Medical Industries,
Inc. and in April of 1993 he was elected Corporate Secretary of
Aaron by the Board of Directors.
Tsang Yang Tseng, age 48, is a medical doctor and the owner of
several medical clinics in Taiwan and has other business
operations in Far East Asia. Currently he also serves as the
Vice President in charge of Far Eastern affairs for the
Company.
Robert Speiser, was initially an unpaid consultant to the
Company in June of 1989, and became Chief Executive Officer
("CEO") in 1990. He was appointed Chairman of the Board of
Directors ("Chairman") in May 1992. On March 20, 1995, Mr.
Speiser resigned as the Chairman and CEO and agreed to remain
as a consultant to the Company. As of the date of this
prospectus Mr. Speiser is no longer a consultant for the
Company (See "Certain Transactions").
Joseph F. Valenti, age 79 filled a vacancy on the Board of
Directors on October 1, 1995. He is the former Vice-President
of the International Division of Aaron Medical Industries, Inc.
having retired on January 1, 1995 from that position. He
continues to be the principal shareholder and chief executive
officer of Valpex International Corporation, a company which is
wholly owned by him, engaged in the import of products. This
import company is a major supplier of the Company's light bulbs
which are used in the Company's various manufactured products.
The prices paid by the company for the products are competitive
with those from other sources. He received a Bachelor of Arts
Degree in Languages from the College of the City of New York in
1939. He has been associated with Aaron Medical Industries,
Inc. and its predecessor companies since 1980 and was charged
with developing the international sales department and
increasing exports sales on behalf of Aaron.
George W. Kromer, Jr., age 55 filled a vacancy on the Board of
Directors and became a director on October 1, 1995. Mr. Kromer
is a Senior Financial Correspondent for "Today's Investor" and
is utilized as a consultant by a number of companies whose
shares are listed on the American Stock Exchange and in the
Over-the-Counter market. An-Con has also retained Mr. Kromer
on a month-to-month basis as a consultant in addition to his
capacity as a director. He has been writing for financial
publications since 1980. He received a Master's Degree in 1976
from Long Island University in Health Administration. He was
engaged as a Senior Hospital Care Investigator for the City of
New York Health & Hospital Corporation from 1966 to 1986. He
also holds a Bachelor of Science Degree from Long Island
University's Brooklyn Campus and an Associate in Applied
Science Degree from New York City Community College, Brooklyn,
New York.
REMUNERATION
Item 10.
The following table sets forth the compensation paid to the
executive officers of the registrant for the three years
ended December 31, 1995:
Annual Compensation
A B C D E
Name and Other(a)
Principal Annual
Position Year Salary Bonus Compensation
Robert Saron
CEO(e) 1995 $116,000 $39,600 $23,700
Andrew Makrides
President(e) 1995 77,000 11,800 8,000
1994 62,500 126,500(d) 14,000
1993 3,500 -- 14,000
Moshe Citronowicz
1995 97,000 11,800 8,000
Delton Cunningham
Treasurer(e) 1995 82,900 8,800 8,000
Robert Speiser
CEO(Former)1995 12,500 -0- 8,000
1994 84,850 235,000(d) 13,100
1993 6,500 -- 6,000
(continued on page 45)
REMUNERATION (continued)
Annual Compensation Long Term Compensation
F G H I
Awards Payouts
Restricted Stock Options
LTIP All other
Year Awards SAR'S Payouts Compensation
Name and
Principal
Position
Robert Saron
CEO(e) 1995 $-- -- -- --
Andrew Makrides
President(e)1995 $-- -- -- --
1994 $-- -- -- $2,700
1993 $-- -- -- 2,700
Moshe Citronowicz
1995 $-- -- -- --
Delton Cunningham
Treasurer(e)1995 $-- -- -- --
Robert Speiser
CEO(Former) 1995 $-- $-- -- 47,000(c)
1994 -- -- -- 36,400(b)
1993 -- -- -- 22,600
(a) Other compensation includes health insurance for officers and the
personal use of an auto by each of the above named officers. The exact
amount of personal use auto benefit cannot be determined and was estimated
to be less than $10,000 in any one year.
(b) Includes $22,350 paid to Mr. Speiser in his capacity as Chairman of
the Board of Directors of Aaron.
(c) Mr. Speiser resigned on March 20, 1995, as an officer of An-Con and
Aaron and became a consultant to the Company at $4,000 per month
plus use of an auto, office space and medical insurance. He received
$47,000 in consulting, medical and auto expenses. His contract was for one year
to end March 20, 1996.
(d) Mr. Makrides and Mr. Speiser received a total of 1,205,000 shares
for services valued at $126,500 and $235,000 respectively.
(e) Refers to employment contracts discussed below.
There is no contract or arrangement for the Board of Directors
to be compensated in their capacities as Board members. The
Company Board of Directors presently consists of Robert Saron
(CEO), Andrew Makrides (President), Joseph F. Valenti and
George W. Kromer, Jr. Mr. Saron is also CEO of Aaron. Mr.
Kromer has been retained on a month-to-month basis pursuant to
a verbal agreement as a financial and public relations
consultant by An-Con for the past nine months at an average
monthly fee of $450.
Employment Contracts
On the 8th of September, 1995, the Company entered into an
employment agreement with J. Robert Saron providing for Mr.
Saron to act as an executive employee of the Company. The
agreement is for a period of 5 years and provides for
compensation in the amount of $118,335 per year plus additional
amounts for automobile allowance ($600 per month) and a bonus
equal to 10% of the Company's pre-tax profits in excess of the
first $200,000 of profit in any given year. The agreement also
provides for annual cost of living percentage increases as to
salary and automobile allowance. In addition to the foregoing,
the agreement provides for a vacation of three weeks per year,
reimbursement of business expenses, group insurance and life
insurance. The agreement may be terminated (a) upon the death
of Mr. Saron, or (b) on thirty (30) days notice by Mr. Saron to
terminate, or (c) by the Company, (i) without cause, upon the
majority approval of the Board of Directors on thirty (30) days
written notice (wherein the Company shall be obligated to pay
the employee compensation under the agreement for the balance
term of the agreement) and (ii) the employee may elect, in lieu
of (i) above, to cancel his agreement and obtain severance
payments equal to three times the annual salary and bonus in
effect during the month preceding such termination; or (d) by
the Company for cause, if during the time of employment, the
employee violates the covenant not to compete provisions of the
agreement, or is found guilty of a felony or crime of moral
turpitude. The agreement provides for a covenant not to
compete directly or indirectly against the Company for a period
of one year. Such agreement also provides for indemnification
of Mr. Saron for any liability while acting as an officer and
director of the Company except in the instances where it is
determined by a court of competent jurisdiction that (a) he has
breached his duty of loyalty to the corporation or the
shareholders, or (b) acted not in good faith or intentionally
improperly, or (c) paid unlawful dividends or made unlawful
stock purchases or redemptions, or (c) otherwise engaged in a
transaction in which he received improper personal benefit
against the interests of the corporation or its shareholders.
On September 8, 1995, the Company also entered into a similar
employment agreement with Andrew Makrides, President, for a
period of 5 years and providing for annual compensation in the
amount of $78,500, a monthly automobile allowance of $500 per
month, and bonuses equal to 3% of the Company's pre-tax profits
in excess of the first $300,000 of profits in An-Con Genetics,
Inc. and annual cost of living percentage increases. In all
other respects the agreement is similar to that of Mr. Saron
set forth above.
Effective September 8, 1995 the Company entered into a similar
3-year executive employment agreement (the "Agreement") with
Delton N. Cunningham, as Vice-President and Secretary of the
Company. Mr. Cunningham has also been appointed Treasurer and
Chief Financial Officer of the Company. The Agreement provides
for one year extensions unless written notice of termination is
provided by the Company nine months prior to the termination
date and contains termination provisions similar to those of
Messrs. Saron and Makrides. The Agreement also provides for a
salary of $75,000 per year, a monthly automobile allowance of
$500, a bonus equal to 3% of the Company's pre-tax profits in
excess of $300,000, 3-weeks paid vacation, reimbursement of
expenses, and group medical insurance. The Agreement contains
a one-year non-compete covenant commencing upon termination of
employment.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF AN-CON
The following table sets forth certain information as of March 31, 1996,
with respect to the beneficial ownership of the Company's common stock by
all persons known by the Company to be the beneficial owners of more than
5% of its outstanding shares, by directors who own common stock and by all
officers and directors as a group.
Number of Nature Percentage of
Name and Title Shares of outstanding
Address of Class Owned(i) Ownership Shares
Andrew Makrides Common Stock 441,667 Beneficial 5.4%
(v)
255 3rd St.
St. James, New York
Tsang Yang Tseng Common Stock 666,667 Beneficial 8.2%
(v)
190-1 Ming-Chun Road
Chi-Yi, Taiwan
Robert Speiser Common Stock 753,333 Beneficial 9.3%
(ii)(v)
1340 Boca Ciega
Isle Drive
St. Petersburg,
Florida 33706
Dr. Louis F.
Powell Common Stock 422,587 Beneficial 5.2%
(vi)
202 Bluffview Drive
Belleair, FL 34640
J. Robert Saron Common Stock 487,385 Beneficial 6.0%
(iii)
Ashley Drive
Seminole, FL 34642
Delton Cunningham Common Stock 74,946 Beneficial .9%
(iv)
7500 Normandy Ct.
Seminole, FL 34642
George W.
Kromer Jr. Common Stock 35,000 Beneficial .4%
5 Elm Court
Selden, NY 11784(i)
Joseph F. Valenti Common Stock 92,206 Beneficial 1.1%
5700 Mariner Street
Tampa, FL 33609(i)
All Officers Common Stock 1,797,871 Beneficial 22%
and Directors as a
Group (6 persons)
(ii)
(i) Based on 8,141,436 shares outstanding as of March 31, 1996,
which is inclusive of the shares issued and held in escrow for
the benefit of Aaron shareholder's and 337,000 shares reserved
and underlying warrants issued to employees including 30,000
warrants to Robert Saron, 20,000 warrants to Andrew Makrides,
20,000 warrants to Delton Cunningham, 35,000 warrants to Joseph
Valenti, and 35,000 warrants to George Kromer.
(ii) Mr. Robert Speiser resigned as the Company Chairman and
Chief Executive Officer on March 20, 1995.
(iii) Robert Saron, who replaced Mr. Speiser as Chairman, is
the President and a director of Aaron Medical Industries, Inc.
As a result of the exchange of shares pursuant to the
Acquisition Agreement, Mr. Saron is the beneficial owner of
432,385 additional shares of An-Con (in addition to the 25,000
shares he had received prior to the merger).
(iv) Delton Cunningham received 44,946 shares of An-Con as a
result of the exchange of shares in addition to the 10,000
shares issued to him in connection with services rendered to
An-Con.
(v) During 1994, two transactions took place that materially
changed shareholders' control of the Company:
(a) Robert Speiser, a former officer and director of the
Company and Andrew Makrides, an officer and director of the
Company, received an aggregate of 1,205,000 shares of common
stock during the second quarter of 1994 effectively giving
them, at that time, 29.887% of the outstanding shares of the
Company.
(b) During the third quarter of 1994 the Company sold 666,667
shares of common stock to a foreign investor which constituted
16.5% of the outstanding shares of the Company, at the time of
issue.
(vi) Dr. Louis F. Powell is a director of Aaron and as a
result of the exchange of shares pursuant to the Acquisition
Agreement became the beneficial owner of 422,587 of An-Con
shares.
See "Certain Transactions".
<PAGE>
CERTAIN TRANSACTIONS
Purchase of Aaron Medical Industries, Inc.
On June 10, 1993, a letter of intent was entered into whereby
all of the outstanding shares of Aaron were to be exchanged for
shares of An-Con resulting in Aaron shareholders owning 49% of
the outstanding shares of An-Con on a fully-diluted basis as of
the closing date. The agreement further provides that Aaron
shall operate as a wholly-owned subsidiary having two
directors; one designated by the present An-Con management and
one designated by the present Aaron management. The An-Con
shares issued for Aaron shares shall be held by an Escrow Agent
for the benefit of Aaron shareholders for delivery upon
effectiveness of a registration statement.
The agreement was restated and further amended on April 14,
1995 and November 20, 1995 and the former Aaron shareholders
are being asked to ratify these changes. The Acquisition
Agreement as amended deleted the 80% condition that Aaron
shareholders would receive 80% of the combined company if An-
Con could not raise the required funds and merely contained
the provision whereby An-Con covenanted to provide up to a
total of $1,000,000 in funding for Aaron, now the wholly owned
subsidiary of An-Con. Due to possible adverse tax consequences
to former Aaron shareholders, this covenant was later deleted
in the November 20, 1995 restated and amended agreement, (the
"Final Acquisition Agreement") which is the agreement that is
being presented to the former shareholders of Aaron and is the
subject of a registration statement. The Final Acquisition
Agreement is being presented to the former shareholders of
Aaron for ratification or, in the alternative, if they so
choose, to dissent and request fair value at $.22 per Aaron
share or $1,331,800 in lieu of An-Con shares pursuant to the
exchange.
For the calendar year ended December 31, 1995, An-Con had
advanced shares of its Common Stock valued at $78,000 for the
benefit of Aaron. The agreement as amended has deleted all
references to the $1,000,000. After consulting with tax
counsel it was determined that it was in the best interests of
shareholders and the Company to delete the aforementioned as
part of the acquisition and the Acquisition Agreement was so
amended in November, 1995.
Cash and Other Transactions with Aaron
During 1993 there were no cash transactions directly between
the Companies. In 1994 a total of $226,000 was contributed in
cash by An-Con to Aaron. In addition in 1995 An-Con
contributed 60,000 shares valued at $78,000 to Aaron in
connection with its purchase of its present premises. During
1994 and 1995 Aaron advanced to An-Con for operating purposes a
total of $140,100. In addition to the foregoing Aaron paid an
aggregate of $47,200 of expenses of Robert Speiser of which
$24,900 was charged by An-Con to Mr. Speiser's loan account and
$22,300 was expended by An-Con as general and administrative
expenses.
Conversion of Debt
In January 1994, the Company issued 236,066 shares and the
equivalent number of warrants to convertible promissory
noteholders in redemption of $358,900 in promissory notes. The
warrants were called by the Company and 202,001 warrants were
exercised for a total of $247,100 in cash and $44,000 in
subscriptions receivable.
Consulting Compensation Plan
On June 24, 1994, An-Con filed a registration statement on Form
S-8 covering a total of 435,000 shares of Common Stock issued
and issuable pursuant to the Company's 1994 Services and
Consulting Compensation Plan (the "Plan"). A total of 350,000
of such shares underlie and relate to 350,000 restricted
warrants to purchase a like number of shares of Common Stock of
the Company at $1.50 per share which warrants were issued for
management consulting and legal consulting services pursuant to
the Plan. The balance of 85,000 shares issued under the Plan
and registered were for corporate legal and litigation
services. Of the shares underlying the warrants, 120,500 were
issued and delivered pursuant to exercise of the warrants. In
October, 1994, the Company rescinded its consulting
arrangements with 2 of the consultants that were issued
restricted warrants and cancelled 214,500 of the restricted
warrants in connection therewith. In May, 1995, 214,500 shares
underlying such warrants were deregistered.
Purchase of Multi-Function Cautery Device
In 1994, the Company purchased the technology for a multi-
functional cautery device for 91,350 shares of restricted
common stock valued by the Company at $59,400. The Company,
through its Aaron subsidiary, has developed and test marketed
the device and will be shipping orders in the second quarter of
1996.
Sale of Common Stock
In connection with an offering of 666,667 shares of common
stock by the Company pursuant to Regulation S, an investor
purchased all the shares offered at a price equal to 75% of the
market value of the shares at the close of business on August
26, 1994. The Company received $1,000,000 and paid $150,000 in
commissions. The investor agreed that the 666,667 shares of
common stock of An-Con Genetics, Inc., subscribed for pursuant
to an agreement dated June 19, 1994, shall be held for
investment and not with a view to the unlawful distribution
thereof by the investor and shall not be sold for a minimum
period of 18 months.
The Company agreed to cooperate fully in the application and
petition of the investor for permanent U.S. status and the
issuance of a permanent green card pursuant to U.S. Immigration
and Naturalization Service ("INS") Regulation Section 204.6
relating to the Fifth Employment-Based Preference For Alien
Investors In a New Commercial Enterprise. The Company is also
obliged, over a period of two years, to create ten full-time
positions for qualified employees pursuant to a business plan.
The Company has already hired the 10 new employees and is
presently in compliance with the terms of the agreement. Any
future transactions involving the INS and the investor are not
deemed significant.
Transactions with Officers
Robert Speiser, the former Chief Executive Officer (CEO) and
Andrew Makrides the President made cash loans to the Company
during the period October 12, 1990 to December 31, 1993 of
$159,000 and $21,500, respectively. In addition to these
loans, Mr. Speiser advanced his own cash of $76,100 in the form
of loans for product development, travel and other expenses.
Interest on these loans has accrued at 9% to 12% per annum from
inception. During 1995 Mr. Speiser received $90,700 in re-
payment of principal on his loan. As of December 31, 1995, the
books of the Company reflected a principal balance due of $-0-
on loans to Mr. Speiser and Mr. Makrides. The sole balance
reflected by the Company's books is approximately $80,000 which
is currently disputed by the Company.
In 1992, in order to deter threatened action against the
Company by the landlord to file a judgment for rent arrears of
$41,700, Mr. Speiser obtained a consent judgment against the
Company in favor of himself in the Counties of Suffolk and
Westchester for $92,239 and $190,957 respectively, inclusive of
interest to December 31, 1992. On March 29, 1993 and in
subsequent letters of instruction to the Sheriff of Suffolk
County, Mr. Speiser requested that the execution of the above-
mentioned judgments be held in abeyance until August 30, 1993.
As of February 28, 1994, the execution order had expired.
Mr. Speiser has stated he does not intend to enforce this
judgment and will place it in trust for the benefit of the
Company. As of this date, the landlord has rescinded the
outstanding debt and entered into a new lease with the Company.
However, notwithstanding the removal of the threat by the
landlord and repayment of the principal amount loaned to the
Company in the past, Mr. Speiser has not yet issued
satisfactions on the judgments against the Company as of the
date hereof. The Company has requested that Mr. Speiser issue
and deliver the satisfactions in favor of the Company and is
currently in negotiation with Mr. Speiser.
In January, 1992, the Company had entered into 5-year
employment agreements as amended February, 1993, wherein the
Company had accrued $310,000 in salaries to its Chief Executive
Officer and President for $175,000 and $135,000, respectively.
The agreements, as amended, also called for incentive stock
options of 8 million and 4 million, for Messrs. Speiser and
Makrides respectively, at $.001 per share, pre reverse split of
1 for 15. The agreements were terminable upon a lump-sum
severance of an amount equal to three times the executive's
annual salary and bonus in effect the month preceding such
termination.
In 1994, the aforesaid officers voluntarily rescinded their
employment contracts and incentive stock options. Mr. Makrides
was then awarded a new employment contract for 3 years and
421,667 (post-split) shares of the Company valued at $126,500.
(This agreement was later voluntarily cancelled by Mr. Makrides
on September 5, 1995). However, Mr. Makrides was issued
421,667 shares in March, 1994 in consideration of his waiver of
prior accrued salaries due. No other employment agreement was
signed with Mr. Speiser, but in March, 1994 he had received
783,333 shares of the Company valued at $235,000 in
consideration for his waiver of prior accrued salaries due.
(See Executive Compensation.)
On March 20, 1995 Mr. Speiser, at the request of the Board of
Directors, resigned his position as chairman and CEO. The
Board determined that Mr. Speiser had allegedly taken certain
actions without the consent of, or without making full
disclosure to, the Board. Such actions consisted of, among
other things, (i) a preferential use of a significant amount of
the Company's cash funds for repayment of certain indebtedness
of the Company to himself (at a time that funds were needed for
other obligations, creditors and operational needs of the
corporation), (ii) caused issuance by Aaron to himself of
warrants to purchase shares of Aaron (prior to the acquisition)
without advising or receiving the consent of the Board of
Directors of the Company, and (iii) generally not apprising the
Board of Directors of his acts or plans concerning the Company.
At the time of resignation, Mr. Speiser signed a one-year
consulting agreement with Aaron and the Company, which provided
for, among other things, a monthly reduction of his outstanding
loan to the Company, a $1,500 per week retainer (to be reduced
to $1,250 per week during last 6 months of the agreement), a
commission on funding introduced by him to the Company pursuant
to formula. The Company has requested receipts from Mr.
Speiser for expenses submitted which were made part of the
Company's outstanding loan indebtedness to Mr. Speiser. Mr.
Speiser is presently not employed by the Company in any
capacity.
During the first quarter of 1996, pursuant to the Company's
1996 Employee Stock Incentive Plan, the Company's board of
directors authorized issuance of warrants to employees,
officers and directors. A total of 337,000 warrants for the
purchase of 337,000 shares of Common Stock of the Company were
issued and the Board reserved a total of 337,000 shares of
Common Stock issuable upon exercise of the warrants. The
warrants are exercisable at a price of $1.25 per share for a
period of five years. As of the date of this prospectus, no
warrants have been exercised.
LEGAL PROCEEDINGS
On December 29, 1992, Robert Speiser, the then Chief Executive
Officer of An-Con, obtained a Confession of Judgment in the
Supreme Court, State of New York, Counties of Suffolk and
Westchester for amounts due on loans to the Company of $92,239
and $190,957 inclusive of interest at 12% to May 27, 1992 and
9% thereafter. These loans represent amounts claimed by Mr.
Speiser to have been expended on behalf of the Company and
funds loaned to the Company. As reported to the Board of
Directors, Mr. Speiser's actions were motivated solely to deter
threatened action by the landlord to file a judgment at that
time of $41,700 in rental arrears. Mr. Speiser has indicated
that he does not intend to enforce this judgment. On March 29,
1993 and in subsequent letters of instruction to the Sheriff of
Suffolk County, Mr. Speiser requested that the execution of the
above-mentioned judgments be held in abeyance for a 60 day
period, until August 30, 1993. On February 28, 1994, the
executive order expired. As of December 31, 1995, the Company
had repaid $235,100 of the principal amount upon which the
aforesaid judgments were based. See "Certain
Relationships and Related Transactions".
A lawsuit was commenced against the Company by Frank Scura, a
non-affiliated person in the Supreme Court of the State of New
York, Suffolk County, in December 1991 alleging breach of a
financial consulting agreement and seeking damages of
$3,000,000. In 1993, a settlement had been reached between the
parties whereby the Company had agreed to issue 100,000 (pre-
split) shares to the plaintiff in full settlement of any and
all claims. Mr. Scura subsequently refused to execute the
stipulation of settlement. The Company has taken the position
that Mr. Scura's claim has no merit and does not present a
material contingent liability.
On March 14, 1996 MegaDyne Medical Products, Inc. a Utah
Corporation filed a complaint for injunctive relief and damages
for patent infringement (35 USC.S. 271) in the U.S. District
Court, District of Utah, Central Division. MegaDyne asserts
that the Company has used its process for creating an Electro-
surgical knife coated with a non-stick material. MegaDyne
states that it is entitled to an accounting from the Company
and to recover the damages allegedly sustained by MegaDyne as a
result of infringing its product. Such damages allegedly
include, but are not limited to, lost sales and profits due to
sales of the infringing products and a reasonable royalty for
use of the patented invention. MegaDyne claims it is presently
unable to ascertain the full extent of monetary damages it has
suffered by reason of Aaron's aforesaid acts of infringement.
The Megadyne complaint also seeks (i) a preliminary and
permanent injunction, (ii) accounting of all sales, (iii)
compensatory and punitive damages and (iv) legal fee
reimbursement. The Company has filed an answer denying the
allegations and pleading numerous affirmative defenses,
including, but not limited to, defenses questioning the
validity of the plaintiff's patent for failure to comply with
various sections of the U.S. Patent Law. In addition the
Company has counterclaimed for an accounting, dismissal of
plaintiff's complaint, a declaratory judgment declaring Aaron's
right to manufacture the blades in question, an injunction
prohibiting plaintiff from threatening the Company and its
customers with infringement, and for attorney's fees.
As of March 31, 1996 the Company sold approximately $90,000 of
Resistick. The Company counsel claims that scientific testing
demonstrates that the Company's electro-surgical blade does
not infringe MegaDyne's patent in that the Company's blade is
resistive in nature as opposed to Megadyne's which is allegedly
capacitive.
DESCRIPTION OF AN-CON SECURITIES
Common Stock of An-Con
General
The authorized capital stock of An-Con consists of 15,000,000
shares of common stock. The holders of the shares of common
stock (i) have equal ratable rights to dividends from funds
legally available therefor, when as and if declared by the
board of directors of An-Con; (ii) are entitled to shares
ratably in all the assets of An-Con available for distribution
of holders of common stock upon liquidation, dissolution or
winding up of the affairs of the Company, (iii) do not have
preemptive, subscription or conversion rights and there are no
redemption or sinking fund provisions applicable thereto. Such
shares are entitled to one vote per share in all matters which
the shareholders are entitled to vote upon at all meetings of
shareholders. All shares of common stock which are the subject
to this offering, when paid for, will be fully paid and non-
assessable.
Non-Cumulative Voting
The holders of shares of common stock of An-Con do not have
cumulative voting rights which means that the holders of more
than 50% of such outstanding shares can elect all of the
directors to be elected and thus the holders of the remaining
shares will not be able to elect any of An-Con's directors.
Upon the consummation of the Acquisition and effectiveness of
this Prospectus, the present shareholders of An-Con (exclusive
of the Aaron shareholders exchanging their shares) will own at
least 50% of the outstanding shares and will be in a position
to elect all of the members of the Board of Directors. (See
"Risk Factors" and "Principal Shareholders").
Dividends
An-Con has not paid any cash dividends in the past, and any
dividends to be issued in the future will rest within the
discretion of the Board of Directors and will depend, among
other things, upon An-Con's earnings, its capital requirements
and financial conditions, as well as other relevant factors.
The Company has not paid cash dividends since its inception and
presently does not intend to pay dividends in the foreseeable
future, but intends to retain all earnings, if any, for use in
its business operations.
Debentures
The Debentures have been issued under an indenture (the
"Indenture") dated as of February 17, 1987, between An-Con and
Continental Stock Transfer & Trust company, as Registrar (the
"Debenture Registrar"). The following summaries of certain
provisions of the Indenture do not purport to be complete and
are subject to and are qualified in their entirety by reference
to all of the provisions of the Indenture, including the
definitions therein of certain terms. Whenever particular
provisions or defined terms of the Indenture are referred to,
such provisions or defined terms are incorporated herein by
reference.
Over the years, pursuant to conversion and special offers to
exchange indebtedness for equity, the number of outstanding
debentures were reduced from a principal amount of $1,711,000
to $78,000 as of the date of this Prospectus.
Each Debenture consists of $1,000 principal amount (or
multiples thereof) of indebtedness, obligation of An-Con,
mature in 1997, and bear interest from the date of delivery at
the rate of 8% per annum, payable semi-annually on May and
November of each year, to the registered owner thereof, with
certain exceptions, at the close of business on the 15th day
preceding each interest payment date. Principal and interest
are payable and the Debentures are exchangeable, convertible
and transferable at offices or agencies of An-Con maintained
for such purposes in the Borough of Manhattan, City of New
York. Payment of interest by the Company may be made by check
mailed to the address of the person entitled thereto as it
appears in the Debenture register.
Conversion
The holders of the Debentures were entitled, at any time and
from time to time until and including the close of business on
February 17, 1991 to convert the Debentures or portions thereof
(which are $1,000 or integral multiples thereof) into Common
Stock of An-Con at a stated conversion price, which is subject
to adjustment in certain circumstances.
Subordination of Debentures
The payment of the principal and interest on the Debentures is
subordinated in right of payment to the extent set forth in the
Indenture to the prior payment in full of the principal of and
interest on all Senior Debt of An-Con as defined in the
Indenture.
Redemption
The Debentures are subject to redemption at the election of
An-Con, in consideration of the payment of 105% of their
principal amount of $1000 each (plus any unpaid interest to
date of redemption), upon not less than 30 days' notice by mail
at any time and from time to time after April, 1989.
Continental Stock Transfer & Trust Company, Two Broadway, New
York, New York 10004, is the Debenture Registrar under the
Indenture. The Company does not have any loans outstanding
from the Debenture Registrar.
Warrants
The Company has issued and has outstanding a total of 200,000,
2 1/2 year restricted warrants which expire in November, 1998,
each of which is exercisable to purchase one share of Common
Stock at a price of $3.00 per share. The Company has reserved
a total of 200,000 shares of common stock issuable on the
exercise of the warrants and to date no warrants have been
exercised. Each warrant does not have any voting or equity
rights but merely constitutes a right to purchase one share of
common stock of the Company. The exercise price for each
warrant is adjustable in the event the Company declares a stock
dividend, reclassification of shares, consolidation or merger.
The Company has agreed to register the shares underlying the
warrants in a new registration statement to be filed.
TRANSFER AGENT
The Registrar for An-Con's Common Stock is Continental Stock
Transfer & Trust Company, Two Broadway, New York.
("Continental"). Continental is also the Agent for the
Company's outstanding Debentures. Aaron has no transfer agent
for its shares and maintains its own transfer records.
LEGAL MATTERS
The legality of the Common Stock of An-Con to be issued in the
Acquisition will be passed upon for An-Con by its Corporate
Counsel, Alfred V. Greco, P.C., New York, N.Y. Alfred V.
Greco, P.C. is the beneficial owner of 85,000 shares of Common
Stock of An-Con.
EXPERTS
The audited consolidated financial statements incorporated in
this Proxy Statement/Prospectus have been examined by Bloom &
Company, independent Certified Public Accountants, for the
periods indicated and to the extent set forth therein, and have
been included based upon the report of such firm appearing
elsewhere herein and upon the authority of such firm as experts
in auditing and accounting.
INFORMATION AS TO UNAUDITED INTERIM FINANCIAL STATEMENTS
The unaudited financial statements of the Company for the
interim periods ended March 31, 1996 and March 31, 1995, have
been prepared by management from the books and records of the
Company and reflect, in the opinion of management, all
adjustments (consisting solely of normal recurring accruals)
necessary for a fair presentation of the financial position and
results of operations of the Company, on a consolidated basis,
as at the periods indicated therein and are of a normal
recurring nature.
OTHER MATTERS
Certain persons, because of their relationship with Aaron might
be deemed to be underwriters of the An-Con Common Stock
pursuant to Rule 145 (c) of the Securities Act of 1933. The
Acquisition Agreement, as amended, provides, however, that each
such person will furnish a letter to An-Con to the effect that:
(i) he has no present plan or intention to transfer, sell or
otherwise dispose of any shares of An-Con Common Stock he may
receive as a result of the Acquisition; (ii) that any future
disposition by him of any shares of An-Con Common Stock he
receives in the Acquisition will be accomplished in accordance
with Rule 145 (d) of the Securities Act of 1933; and (iii) he
agrees to a legend to be placed on the shares of An-Con
received in the Acquisition which references the restrictions
on such shares and describes his status as a person deemed to
be an underwriter pursuant to Rules 144 and 145. Aaron and An-
Con anticipate that this measure will comply with the
requirements of Rules 144 and 145, and all interpretations
thereof, and that as a result no person will be deemed to be an
underwriter of shares of An-Con Common Stock as the result of
the Acquisition.
An-Con Genetics, Inc.
Consolidated Financial Statements<PAGE>
BLOOM AND COMPANY
50 CLINTON STREET
HEMPSTEAD, NY 11550
Tel. (516) 486-5900
Fax (516) 486-5476
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
and Shareholders of
An-Con Genetics, Inc.
We have audited the accompanying consolidated balance sheet of
An-Con Genetics, Inc. and subsidiary as of December 31, 1995 and
the related statements of operations and shareholders' equity,
and cash flows for the years ended December 31, 1995 and 1994.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion the financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of An-Con Genetics, Inc. and subsidiary as of December
31, 1995 and the related results of its operations, and its cash
flows for the years ended December 31, 1995 and 1994 in
conformity with generally accepted accounting principles.
BLOOM AND COMPANY
April 15, 1996
<PAGE>
AN-CON GENETICS, INC.
BALANCE SHEET
DECEMBER 31, 1995
ASSETS
Current assets:
Cash $ 165,800
Trade accounts receivable 652,300
Inventories 606,200
Prepaid expenses 73,900
Deferred tax asset 183,300
Total current assets 1,681,500
Property and equipment, net 1,269,500
Other assets:
Goodwill, net 283,600
Deferred charges 95,000
Patent rights, net 259,500
Unamortized debt issue costs, net 3,700
Deposits 7,700
649,500
$3,600,500
The accompanying notes are an integral part
of the financial statements.
AN-CON GENETICS, INC.
BALANCE SHEET
DECEMBER 31, 1995
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Current liabilities:
Accounts payable $ 887,300
Accrued interest 157,900
Notes payable - current portion 132,000
Due to Aaron shareholders 1,331,800
Current portion of obligations
under capital leases 31,400
Total current liabilities 2,540,400
Long-term debt, net 643,100
Obligations under capital leases 4,700
Stockholders' equity
Common stock par value $.015;
15,000,000 shares authorized,
issued and outstanding 4,305,340
shares, on December 31, 1995 64,700
Additional paid in capital 11,541,100
Accumulated deficit (11,182,900)
422,900
Subscriptions receivable ( 10,600)
Total stockholders' equity 412,300
$ 3,600,500
The accompanying notes are an integral part
of the financial statements.
AN-CON GENETICS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
Sales $5,521,000 $ 85,500
Costs and expenses:
Cost of sales 3,215,300 56,700
Research and development 121,900 11,300
Professional services 368,400 265,200
Salaries and related costs 850,000 405,200
Selling, general and administration 1,184,900 378,600
5,740,500 1,117,000
(Loss) from operations (219,500) (1,031,500)
Other income and (expense):
Interest expense (net of income) (68,700) (26,400)
Miscellaneous 57,300 1,500
( 11,400) (24,900)
Income (loss) before extraordinary item (230,900) (1,056,400)
Extraordinary item:
Gain from settlement of debt 76,800 54,200
Income (loss) before income tax (154,100) (1,002,200)
Income tax benefit 183,300 --
Net income (loss) $ 29,200 $(1,002,200)
Per share
Net loss before extraordinary item $( .054)
Net income (loss) $ .007$( .39)
Primary Earnings $ .006
Earnings fully diluted $ .006
Weighted average number of shares
outstanding 4,201,016 2,586,688
Weighted average number of shares
outstanding primary and fully diluted 4,354,349*
* Includes 153,333 An-Con shares to be issued to the
stockholders of the unconsolidated subsidiaries of An-Con,
Xenetics Biomedical Inc. and Automated Diagnostics, Inc. in
exchange for the shares they hold in the respective companies.
The accompanying notes are an integral part of
the financial statements.
AN-CON GENETICS, INC.
STATEMENTS OF SHAREHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
Common
number of Common Paid-in
shares Stock Capital Deficit
Balance January 1,
1994 $ 987,695 $ 15,000$9,090,700$(10,209,900)
Shares
issued
in exchange
for
convertible
debt and
accrued
interest at
$1.00 per
share 236,066 3,500 355,400
Exercise
of warrants
received by
convertible
debt holders
at $1.50 per
warrant 202,001 3,000 288,100
Expired
warrants 16,900
Shares issued
in exchange
for cash less
commission of
$150,000 to a
foreign
investor at
$1.50 per
share 666,667 10,000 840,000
Shares issued
for the
purchase of
technology
at $.65 per
share 91,350 1,400 58,000
Warrants
issued for
services and
consulting
compensation
plan valued
at $.38 per
warrant
The accompanying notes are an integral part of the financial statements.
(continued on next page)
AN-CON GENETICS, INC.
STATEMENTS OF SHAREHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
Paid-in
Treasury Subscriptions Capital
Stock Receivable Warrants Total
Balance January 1,
1994 $ (6,000) $ -- $ 136,900$ (973,300)
Shares
issued
in exchange
for
convertible
debt and
accrued
interest at
$1.00 per
share 358,900
Exercise
of warrants
received by
convertible
debt holders
at $1.50 per
warrant (44,000) 247,100
Expired warrants (16,900) -0-
Shares issued
in exchange
for cash less
commission of
$150,000 to a
foreign
investor at
$1.50 per
share 850,000
Shares issued
for the
purchase of
technology
at $.65 per
share 59,400
Warrants
issued for
services and
consulting
compensation
plan valued
at $.38 per
warrant 133,000 133,000
The accompanying notes are an integral part of the financial statements.
(continued on next page)
AN-CON GENETICS, INC.
STATEMENTS OF SHAREHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
(continued)
Common
number of Common Paid-in
shares Stock Capital Deficit
Warrants
exercised at
$1.50 per
share as per
1994 service
and consulting
compensation
plan 120,500 1,800 149,300
Shares issued
for officers
bonus at
$.30 per
share in
conjunction
with the
rescission
of executive
warrants 1,205,000 18,100343,400
Shares issued
for consulting
and legal
services at
$.30 per
share 516,061 7,700 147,200
Shares issued
for legal
services
at $.90
per share 85,000 1,300 74,700
Net (loss)
for 1994 (1,002,200)
Balance
December 31,
1994 4,110,340 $61,800 $11,363,700 $(11,212,100)
The accompanying notes are an integral part of the financial statements.
(continued on next page)
<PAGE>
AN-CON GENETICS, INC.
STATEMENTS OF SHAREHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
(CONTINUED)
Paid-in
Treasury SubscriptionsCapital
Stock Receivable Warrants Total
Warrants
exercised at
$1.50 per
share as per
1994 service
and consulting
compensation
plan (44,300) (45,800) 61,000
Shares issued
for officers
bonus at
$.30 per
share in
conjunction
with the
rescission
of executive
warrants (120,000) 241,500
Shares issued
for consulting
and legal
services at
$.30 per
share 154,900
Shares issued
for legal
services
at $.90
per share 76,000
Net (loss)
for 1994 (1,002,200)
Balance
December 31,
1994 $( 6,000)$ (88,300) $ 87,200$ 206,300
The accompanying notes are an integral part of the financial statements.
(continued on next page)
AN-CON GENETICS, INC.
STATEMENTS OF SHAREHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
Common
number of Common Paid-in
shares stock Capital Deficit
Balance
December 31,
1994 4,110,340 $61,800$11,363,700$(11,212,100)
Shares issued
for
consulting
and legal
services
at $.40
per share 27,500 400 10,600
Shares issued
in exchange
for outstanding
bonds at $.40
per share 35,000 500 13,500
Shares issued
as part of
purchase of
building
at $1.30 per
share 60,000 900 77,100
Shares issued
for cash
at $1.00 per
share 80,000 1,200 78,800
Shares issued
in escrow
for the
purchase of
Aaron Medical
Industries, Inc.
3,399,096 (memorandum only)
Shares held
in treasury
given in
exchange for
legal fees
at $.40 per
share
Warrants
cancelled 74,400
The accompanying notes are an integral part of the financial statements.
(continued on next page)
AN-CON GENETICS, INC.
STATEMENT OF SHAREHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
(Continued)
Paid-in
Treasury Subscriptions capital
Stock Receivable Warrants Total
Balance
December 31,
1994 $ (6,000) $(88,300) $87,200 $206,300
Shares issued
for
consulting
and legal
services
at $.40
per share 11,000
Shares issued
in exchange
for outstanding
bonds at $.40
per share 14,000
Shares issued
as part of
purchase of
building
at $1.30 per
share 78,000
Shares issued
for cash
at $1.00 per
share 80,000
Shares issued
in escrow
for the
purchase of
Aaron Medical
Industries, Inc.
3,399,096 (memorandum only )
Shares held
in treasury
given in
exchange for
legal fees
at $.40 per
share 6,000 6,000
Warrants
cancelled 12,800 (87,200)
The accompanying notes are an integral part of the financial statements.
(continued on next page)
AN-CON GENETICS, INC.
STATEMENTS OF SHAREHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
Common
number of Common Paid-in
shares stock Capital Deficit
Cash received
to reduce
subscriptions
receivable
Shares canceled
previously
issued for
services (7,500) (100) (2,900)
Cash collection
of warrants
outstanding 900
Cost of
underwriting
for Aaron
acquisition (75,000)
Income for
year 1995 29,200
Balance December 31,
1995 4,305,340 $ 64,700$11,541,100 $(11,182,900)
(Table continued below)
Paid-in
Treasury Subscriptions Capital
Stock Receivable Warrants Total
Cash received
to reduce
subscriptions
receivable $64,900 $64,900
Shares canceled
previously
issued for
services (3,000)
Cash collection
of warrants
outstanding 900
Cost of
underwriting
for Aaron
acquisition (75,000)
Income for
year 1995 29,200
Balance December 31,
1995 $ 0 $ (10,600) $ 0 $ 412,300
AN-CON GENETICS, INC.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
Cash flows from operating activities:
Net income (loss) $29,200 $(1,002,200)
Adjustments to reconcile net
income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization171,000 120,300
Shares issued for services 14,000 230,700
Warrants issued for services -- 57,800
(Gain) loss from settlement of debt (76,700) 26,900
Shares issued for officers bonus -- 241,500
Provision for tax benefit (183,300) --
Change in assets and liabilities:
Increase in receivables (151,200) (900)
(Increase) decrease in prepaid expenses 4,900 (10,100)
Increase in inventories (91,800) ( 7,500)
Increase (decrease) in accounts payable 335,900 (68,400)
Increase (decrease) in accrued interest 45,600 ( 2,500)
Decrease in customers deposits ( 85,100) --
Total adjustments ( 16,700) 587,800
Net cash provided by (used in)
operations $ 12,500 $(414,400)
The accompanying notes are an integral part of
the financial statements.
<PAGE>
AN-CON GENETICS, INC.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
(Continued)
1995 1994
Net cash provided by (used in)
operating activities $12,500 $(414,400)
Cash flows from investing activities:
(Increase)decrease in fixed assets (236,300) 4,300
Increase in security deposits 1,800 (300)
Acquisition costs (20,000) (75,000)
Purchase of technology (126,600) --
Net cash applied to investing
activities (381,100) (71,000)
Cash flows from financing activities
Receipt of common stock subscription 64,900 --
Loans and advances to affiliate -- (190,600)
Common shares issued 80,900 850,000
Decrease in loans from officers (90,700) (165,900)
Common shares issued for warrants -- 383,400
Reduction in notes payable
and capital leases 3,600 --
Cost of underwriting (75,000) --
Net cash provided by (applied to)
financing activities (16,300) 876,900
Net increase (decrease) in cash (384,900) 391,500
Cash at beginning of year 550,700 20,300
Cash at end of year $ 165,800 $ 411,800
The accompanying notes are an integral part of
these financial statements.
AN-CON GENETICS, INC. AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995 AND 1994
Cash paid during the twelve months ended December 31:
1995 1994
Interest $ 27,700 $ -0-
Income Taxes -0- -0-
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995
1.The Company issued 35,000 restricted post-split shares
to convertible note holders 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.
2.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.
3. 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. Aaron's former shareholders voted and
approved An-Con's acquisition of their Company,
and An-Con completed the acquisition, prior to
filing and effectiveness of a registration
statement, under the Securities Act of 1933.
Consequently, the former shareholders of Aaron
have been given the right to accept the registered
shares of An-Con or elect to receive the value of
their share in cash.
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 SUBSIDIARY
STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995 AND 1994
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES (continued):
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 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
five years. In connection with the acquisition,
the Company assumed $681,600 net liabilities of Aaron.
4. 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 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.
5. On November 16, 1995 the Company purchased the
business of Suncoast Design Service for $96,500.
Suncoast is in the business of designing and
maintaining assembly line equipment for
manufacturing companies. The Company paid
$15,000 in cash and issued notes of $81,500.
The note is payable at $823.11 per week
over a period of two years.
6. On December 15, 1995 the Company purchased the
technology to manufacture a 30 watt electrosurgical
coagulation device (ECU) for $185,000. $100,000
of cash at closing and $85,000 in notes payable
over eighteen months at 10% with monthly payments
of $5,105.85.
7. An-Con shares being held by the Company were
issued for legal services valued at $6,000.
8. During the year subscriptions receivable for
shares issued for legal services were canceled
valued at $12,800. The Company
determined they were uncollectible.
FOR THE YEAR ENDED DECEMBER 31, 1994
1. The Company issued 236,066 shares and the
equivalent number of warrants to convertible
note holders in redemption of $332,000 in notes.
The warrants were called by the Company and
202,001 warrants were exercised for $290,880.
As at December 31, 1994, $44,000 of notes taken
by the Company for the exercise of the warrants had
not been paid. These notes bear annual interest rate of
nine percent.
AN-CON GENETICS, INC. AND SUBSIDIARY
STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995 AND 1994
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES (continued):
FOR THE YEAR ENDED DECEMBER 31, 1994
2. The Company purchased a multifunctional cautery
device for 91,350 shares of unregistered common stock
valued at $59,400.
3. As a part of a services and consulting compensation
plan, filed as a registration statement on form S-8, the
Company issued 350,000 warrants to purchase 350,000
common shares of the Company at $1.50 per share. The
value assigned to these rights was $133,000. As of
December 31, 1994, 120,500 warrants were exercised for
$136,300 in cash and $44,300 as subscriptions
receivable.
AN-CON GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Consolidation
The consolidated financial statements include the accounts
of An-Con and its wholly owned subsidiary Aaron Medical
Industries, Inc.. Significant intercompany accounts and
transactions have been eliminated.
Fair values of financial instruments
Fair values of cash and cash equivalents, securities with
original maturities of less than 90 days, short-term investments
and short-term debt approximate cost due to the short period of
time to maturity.
Inventories
Inventories are stated at the lower of cost or market. Cost is
computed on a currently adjusted standard basis (which
approximates actual cost on a current average or first-in,
first-out basis). Inventories at fiscal year-ends were as
follows:
1995 1994
Raw materials $ 296,700 --
Work in process 239,900 --
Finished goods 69,600 17,900
Total $ 606,200 $17,900
Property, Plant and Equipment
Property and other equipment are stated at cost.
Depreciation is computed for financial reporting purposes
principally by use of the straight-line method over the
following estimated useful lives: machinery and equipment,
7-15 years; buildings, 30 years.
The Company adopted SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," effective as of the beginning of fiscal 1995. This adoption
had no material effect on the Company's financial statements.
AN-CON GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS
(continued)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (continued)
Earnings per common and common equivalent share
Earnings per common and common equivalent share are computed
using the weighted average number of outstanding common and
dilutive common equivalent shares outstanding. The Company's
primary and fully diluted earnings per share are the same and
they are computed by dividing the Company earnings by the
weighted average number of common shares outstanding and common
stock equivalents. The only dilutive common stock equivalent
or other convertible securities were the common shares of
Automated Diagnostics, Inc. and Xenetics Biomedical, Inc, An-
Con's unconsolidated and discontinued subsidiaries, which were
convertible to 153,333 common shares of the Company. The
3,399,096 shares, issuable in exchange for $1,331,800
liability to Aaron shareholders were not included in
computing the fully diluted earnings per share, for the
reason of being anti-dilutive.
Cost of acquisition/Stock issue cost
As per APB 16 the Company policy is to capitalize professional
fees in connection with the acquisition of its wholly owned
subsidiary and deduct from capital in excess of par value the
costs associated with the underwriting to register the shares
to be given to the shareholders of the subsidiary.
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. 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
on 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.
AN-CON GENETICS, INC
NOTES TO FINANCIAL STATEMENTS
(continued)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (continued)
Investments (continued)
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.
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.
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 development costs that are purchased from another
enterprise and have alternative future use are capitalized and
are amortized over five years.
Research and Development arrangements
Company accounts for its obligations under an arrangement for
the funding or 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.
AN-CON GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS
(continued)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (continued)
Intangible assets
Intangible assets consist of the excess of the cost of acquired
companies and assets over the values assigned to net tangible
assets. These intangibles are being amortized by the straight-
line method over a 5-year period. Accumulated
amortization totaled $144,100 at December 30, 1995,
after taking into account the impairment discussed below.
At each balance sheet date, the Company assesses whether there
has been an impairment in the value of such intangibles by
determining whether projected undiscounted future cash flow from
operations for each Company, as defined in Statement of
Financial Accounting Standards No. 121, " Accounting for the
impairment of Long -Lived Assets to be Disposed of," exceeds its
net book value as of the assessment date. At December 30, 1995,
$250,000 of intangible assets were written down to their fair
value due to an impairment recognized in the first quarter of
1995 (see note 7).
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.
Accounting for Income Taxes
In February 1992, the FASB issued Statement No. 109, Accounting
for Income Taxes. FASB 109 requires an asset and liability
approach for financial accounting and reporting for income
taxes. It requires recognition of (1) current tax liabilities
or assets for the estimated taxes payable or refundable on tax
returns for the current year, and (2) deferred tax liabilities
or assets for the estimated future tax effects attributable to
temporary differences and carryforwards.
The Company has adopted the policy of preparing its financial
statements in accordance with FASB 109.
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.
AN-CON GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS
(continued)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (continued)
Stock-Based Compensation
The Company has adopted Accounting Principles Board Opinion 25
for its accounting for stock based compensation. Under this
policy:
1. . . Compensation costs are recognized as an expense over the
period of employment attributable to the employee
stock options.
2. 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. The proforma amounts of the
difference between compensation cost included in net income and
related cost measured by the fair value based method, including
tax effects are disclosed.
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.
Currently, the Company is actively engaged in the business of
acquiring ownership interests in medical products and related
technologies. Also, An-Con has devoted its resources to
marketing a product called OmniFix II, an alcohol based tissue
fixative which is sold to hospital and clinical laboratories.
On January 11, 1995 the Company acquired a 100% ownership
interest in Aaron Medical Industries, Inc. a St. Petersburg,
Florida based Company engaged in the manufacturing and
distributing of medical products.
Aaron's largest current product line is battery operated
cauteries. Cauteries were originally designed for precise
hemostasis in ophthalmology. Today they have a variety of uses
including sculpting woven grafts in bypass surgery, vasectomies,
evacuation of subungual hematoma (smashed fingernail) and for
stopping bleeding in many types of surgery. Aaron manufactures
many types of cauteries.
Aaron additionally manufactures a variety of specialty lighting
instruments for use in ophthalmology, as well as a patented
flexible lighting instrument for general surgery, hip
replacement surgery, and for the placement of endotracheal
tubes. An industrial version of this light is distributed
through a large automotive tool distributor, and various retail
outlets and stores.
AN-CON GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS
(continued)
NOTE 2. DESCRIPTION OF BUSINESS (continued)
Aaron Medical Industries, Inc. manufactures and sells its
products under the Aaron label to over eight hundred fifty
distributors worldwide and has private label arrangements with
several large hospital supply Companies. Additionally, private
label arrangements have been made with large buying groups.
These private label arrangements, combined with the Aaron label
allows the Company to gain a greater market share for the
distribution of its products.
Purchase - Aaron Medical Industries, Inc.
On January 11, 1995, the Company acquired Aaron Medical
Industries, Inc. which was accounted for by the purchase method.
Total assets acquired were valued at $2,012,800 and liabilities
assumed were valued at $681,000. In order to properly transfer
the shares agreed upon to the Aaron shareholders the arrangement
called for the shares to be registered so they could be freely
traded. The assets were valued at $335,800 more than their cost
basis which created goodwill.
Purchase - Aaron Medical Industries, Inc.
The goodwill is being written off over 5 years using the
straight-line method. Because the registration statement was
not timely filed the Aaron shareholders have been given the
choice of accepting cash at 22 cents per share for their Aaron
shares, $1,331,800, or taking the An-Con shares in exchange.
The Aaron shareholders have 30 days from the effective day of
the registration statement to accept the cash offer or they will
receive the An-Con shares.
The $.22 cents per share valuation for the Aaron shares
exchanged was determined by (a) a separate fair valuation of
current assets, which included (i) discounted value of
receivables (ii) market value of inventory at estimated selling
price, less cost of disposal and reasonable profit allowance,
(iii) pre-paid expenses and security deposits at present value;
(b) non-current assets of plant, property and equipment at
current replacement cost; (c) intangible assets at present value
of future benefits; (d) present value of liabilities, accounts
and note payable and long term debt. The amount of goodwill
was determined by comparing the financial position of Aaron at
December 31, 1994 with the financial position of similar
companies in the same industry.
AN-CON GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS
(continued)
NOTE 2. DESCRIPTION OF BUSINESS (continued)
Purchase - Suncoast Design
On November 16, 1995 the Company purchased the business of
Suncoast Design Service for $96,500. Suncoast is in the
business of designing and maintaining assembly line equipment
for manufacturing companies (machine shop).
Suncoast has moved its equipment onto the premises of the
Company and continues to bill its previous customers in the
Company's name.
Purchase - ECU Technology
On December 15, 1995 the Company purchased the technology to
manufacturer, a 30 watt electrosurgical coagulation device (ECU)
for $185,000; $100,000 at closing and $85,000 in notes payable
over eighteen months at 10% with monthly payments of $5,105.85.
The device is to be made by a third party manufacturer that the
Company has a one year contract with to produce the unit for a
fixed price. As part of the agreement the Company hired the
individual that brought the technology to the Company as a
salesman. This individual lent the Company $30,000 to be paid
back at 10% interest over 2 years.
NOTE 3. PROPERTY AND EQUIPMENT
As of December 31, 1995, property and equipment consisted
of the following:
Equipment $ 1,173,100
Property held under capital leases 55,000
Building 637,500
Furniture and Fixtures 111,200
Leasehold Improvements 24,400
2,001,200
Less: Accumulated Depreciation( 768,800)
1,232,400
Machinery under construction 37,100
$ 1,269,500
NOTE 4. LEASE AGREEMENTS
On February 28, 1995 an agreement was entered into with the
landlord of one Huntington Quadrangle, Melville, New York for
a new lease on the same premises beginning February 1, 1995 and
extending to January 31, 1997. The annual rental is $24,000
payable $24,000 upon signing the lease, and $1,000 per month for
24 months. The landlord and the Company have signed general
releases absolving each of any past due debts or damages. The
Company has written off prior rents charged to operations in the
amount of $54,200. Annual rental expense was $24,000, for the
year ended December 31, 1995 and 1994 for the parent Company,
An-Con.
AN-CON GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 4. LEASE AGREEMENTS (continued)
The following is a schedule of future minimum rental payments
as of December 31, 1995:
Amount
1996 $ 24,000
1997 2,000
$ 26,000
Aaron had rent expense of $23,400 for the period January 1, 1995
to June 26, 1995 when Aaron purchased the building.
Total consolidated rent expense for the Company was $47,400 in
1995 and $24,000 in 1994, unconsolidated.
Capital leases
The Company is the lessee of transportation and telephone
equipment under capital leases expiring in various years through
May, 1997. The assets and liabilities under capital leases are
recorded at the lower of the present value of the minimum lease
payments or the fair value of the assets. The assets are
amortized over their estimated productive lives. Amortization
of assets under capital leases is included in depreciation
expense for 1995 and 1994. This amortization amounted to
$10,000 and $0 for 1995 and 1994 respectively.
The following is a summary of property held under capital
leases:
1995 1994
Transportation $ 38,800 $ 38,800
Telephone equipment 16,200 16,200
55,000 55,000
Less: Accumulated
depreciation (25,500) (10,000)
$ 29,500 $ 45,000
Minimum future lease payments under capital leases as of
December 31, 1995 for each of the next four years and in the
aggregate are:
Amount
1996 $ 34,400
1997 3,200
1998 --
1999 --
Total minimum lease payments 37,600
Less: Amount representing interest6,000
Present value of net minimum lease
payments $ 31,600
AN-CON GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 4. LEASE AGREEMENTS (continued)
The interest rates on the capitalized leases range between 9.73%
and 15.10% and are imputed based on the lower of the Company's
incremental borrowing rate at the inception of the lease or the
lessor's implicit rate of return.
The capital leases provide for purchase options. Generally,
purchase options are at prices representing the expected fair
value of the property at the expiration of the lease term.
NOTE 5. ACCRUED BONUS
For the year 1995 accrued bonuses earned by the officers and
employees of the Company amounted to $72,000. The bonus
arrangement based on employment contracts calls for 10% of the
profits of Aaron over $200,000 to 1% of the profits of Aaron
over $300,000 to be paid to certain employees.
NOTE 6. NOTES PAYABLE-OFFICERS
The Chief Executive Officer (CEO) and the President made cash
loans to the Company during the period October 12, 1990 to
December 31, 1993 of $159,000 and $21,500, respectively. In
addition to these loans, the CEO advanced his own cash of
$76,100 in the form of loans for product development, travel
and other expenses. Interest on these loans were at 9% to 12%
and has been accrued from inception. This interest is shown as
part of accrued interest payable. During 1995 Mr. Speiser
received $99,400 in payment of principal and interest on his
loan. His loan balance at December 31, 1995 was $ -0- and
accrued interest was $73,800.
NOTE 7. INTANGIBLE ASSETS
At December 31, 1995, the intangible assets consisted of
the following:
Balance Balance
Beginning Additions, at end ofAccumulated
of Period at cost Write-Offs Period Amortization
Classification:
Patents,
trademarks,
and copyrights
Patent rights $ 250,000 $ (250,000) $ -0-$-0-
(Bar code reader)
Patent rights 59,400 59,400 8,900
(Multifunction
Cautery)
Patent rights 59,900 $ 11,600 -0- 71,500 44,400
(cauteries)
Patent rights
(ECU) -0- 185,000 -0- 185,000 3,100
$ 369,300 $ 196,600 $(250,000) $ 315,900 $ 56,400
AN-CON GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 7. INTANGIBLE ASSETS (continued)
The cost of patents, trademarks, and copyrights acquired are
being amortized on the straight-line method over their remaining
lives, ranging from 2 to 5 years. Amortization expense charged
to operations in 1994 and 1995 was $3,000 and $14,300
respectively.
Balance Balance
Beginning Additions, at end ofAccumulated
of Period at cost Write-Offs Period Amortization
Goodwill
Goodwill $ -0- $ 335,800 $ -0- $ 335,800$ 86,200
(Purchase
Aaron)
Goodwill -0- 15,500 -0- 15,500 300
(Purchase
Suncoast
Covenant not
to compete)
(Purchase
Suncoast) -0- 20,000 -0- 20,000 1,200
$ -0- $ 371,300 $ -0- $371,300 $ 87,700
Goodwill represents the excess of the cost of Companies
acquired over the fair value of their net assets at dates of
acquisition and is being amortized on the straight-line method
over 5 years. Amortization expense charges to operations for
1994 and 1995 and 1995 was $-0- and $87,700, respectively.
NOTE 8. LONG-TERM DEBT
The long term debt of the Company includes the convertible
debentures and notes payable of the Company. As of April 21,
1987, the Company had sold 1,711 convertible debentures units.
Each unit consisted of $1,000 subordinated debentures and 50
common stock warrants.
As of December 31, 1995, 1,633 units of debentures had been
converted into common shares of An-Con Genetics, Inc. The
number of outstanding debentures was 78 units. On October 7,
1994, the Company made an offer to debenture holders to convert
each debenture and accrued interest into 500 restricted shares
of common stock. The offer was valid for 45 days. The Company
extended the offer and in 1995 seventy bonds were redeemed for
shares.
As of December 31, 1995 the Company had not paid the interest
due on the convertible debentures for the semiannual periods
ending in November, 1989 to November , 1995. The amount of
unpaid interest was $36,200.
AN-CON GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 8. LONG-TERM DEBT (CONTINUED)
Events of Default are defined in the indenture as
being: (a) default for 30 days in payment of any interest
installment when due, and default in payment of principal
(or premium, if any) when due; (b) default for 60 days
after written notice to the Company by holders of 25% in
principal amount of the outstanding debentures in the
performance of any other covenant of the Company in the
indenture; and (c)certain events of bankruptcy,
insolvency and reorganization of the Company. If an
Event of Default shall occur and be continuing, the
holders of not less than 25% in principal amount of the
outstanding debentures may declare the principal of all
debentures to be due and payable. Under the terms of the
indenture, no periodic evidence is required to be
furnished as to the absence of default or compliance with
the indenture.
The holders of a majority in principal amount of the outstanding
debentures may direct the time, method and place of conducting
any proceeding for any remedy available to the holders. The
right of a holder of any debenture to institute a proceeding
with respect to the indenture is subject to certain conditions
precedent, including the provision of notice of indemnification
to the debenture holders made by the Registrar. The holders of
a majority in principal amount of the outstanding debentures may
on behalf of the holders of all debentures waive any past
default and its consequences under the indenture, except a
default in the payment of the principal of, or interest on, any
debenture or a default in respect of the conversion right of the
debenture holders.
As of December 31, 1995, the bondholders had made no
declaration that the principal was due and payable.
<PAGE>
AN-CON GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 8. LONG-TERM DEBT (continued)
8% - Bonds payable due in 1997 interest
payable semi-annually in May and November
in default. 77,900
10% - Mortgage payable to former landlord
for purchase of property at 7100 30th Avenue
North, St. Petersburg, Florida on June 26,
1995 for $500,000 payable in monthly installments
of $5,673.06 inclusive interest until July 1,
1998 when a balloon payment of $ 442,733 is due. 493,900
10% - Note payable for the purchase of the
ECU technology at $5,104.85 per month self-
liquidating for 18 months beginning January 15,
1996 and extending until June 15, 1997. 85,000
10% - Note payable in connection with the
purchase of the ECU Technology at $1,384.35 per
month for 24 months self-liquidating beginning January
15, 1996 and extending until December 15, 1997. 30,000
6.5% - Note payable over 2 years in connection
with the purchase of Suncoast Machine Shop on
November 16, 1995 payable at $630.80 per week
self-liquidating with the last payment due
November 5, 1997. The original amount of the
note was $61,500.00. 58,200
0% - Loan payable over 2 years in connection
with the purchase of Suncoast Machine Shop on
November 16, 1995 payable at $192.31 per week
self-liquidating with the last payment due November
5, 1997. The original amount of the note was
$20,000.00. 18,800
9% - Note payable to insurance premium
finance Company at $5,661.00 per month
for 2 months. 11,300
775,100
Less: Current portion (132,000)
Long Term Debt $ 643,100
The following are maturities of long term debt for
each of the next 5 years:
1996 $ 132,000
1997 186,900
1998 456,200
1999 --
2000 --
$ 775,100
AN-CON GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 9. DISCONTINUED OPERATIONS
The Company's unconsolidated subsidiaries, Automated
Diagnostics and Xenetics Biomedical, discontinued operations in
1987 and 1989, respectively. In view of the above and the
Company's lack of finances, the previously agreed upon mergers
have not taken place. However, the Company has continued the
development of Omnifix. In consideration of the Company's
failure to consummate its agreement to merge, An-Con intends to
deliver 153,333 shares of its common stock to Automated and
Xenetic shareholders on an adjusted basis.
NOTE 10. WARRANTS
As of December 31, 1995, the Company had no outstanding warrants.
(a) Consulting Compensation Plan
On June 24, 1994, the Company filed a services and consulting
compensation plan on Form S-8 with the SEC. Pursuant to the
plan the Company issued 350,000 warrants with the right to
purchase shares at $1.50 for consulting and legal costs of the
filing. As part of the plan the Company registered 85,000
shares for the payment of legal services. To date 120,500
warrants have been exercised. Because the exercise of certain
warrants was not paid for promptly, the Company rescinded the
arrangement in October, 1994. As of January 25, 1995, all
remaining warrants have been canceled.
NOTE 11. NET OPERATING LOSS CARRYFORWARDS
The Company's accounting policies require the recognition of a
deferred tax asset for the operating loss carryforward as follows:
Year loss Loss Expiration Estimated
incurred Amount Date Tax Asset
1983 $ 376,000 1998 $ 132,000
1984880,000 1999 308,000
1985764,000 2000 267,000
1986301,000 2001 105,000
1987730,000 2002 255,000
1988757,000 2003 265,000
1989374,000 2004 131,000
1990382,000 2005 134,000
1991246,000 2006 86,000
1992 1,004,000 2007 352,000
1993465,000 2008 163,000
1994 1,197,000 2009 419,000
1995 637,200 (a) 2010 223,000
Total $8,113,200 2,840,000
Deferred tax
valuation allowance (2,840,000)
$ -0-
AN-CON GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 11. NET OPERATING LOSS CARRYFORWARDS (continued)
(a) An-Con's unconsolidated loss for the year ended December 31,
1995.
$8,113,200 of losses are available to offset future taxable
income and may have future benefits. Because of the history of
losses from operations, the management believes it is more
likely that the estimated tax asset of $2,840,000 (resulting
from the loss carry forward) will not be realized. Thus, a
valuation allowance of $2,840,000 (100%) is set up to reduce the
tax asset. However, if the Company achieves sufficient
profitably to utilize a portion of the deferred tax asset, the
valuation allowance will be reduced through a credit to income.
Where an ownership change has occurred, Section 382 operates to
limit the annual use of a corporation's NOL but does not
eliminate the carryforward. In each post-ownership change year,
the corporation can use its NOL carry forwards, up to the amount
of the "Section 382 Limitation," to offset annual income.
Pursuant to Section 382(b), the "Section 382 Limitation" equals
the value of the corporation (immediately before the ownership
change, Sec. 382(e), multiplied by the long term tax exempt rate
(the highest Long Term AFR in effect for any month in the three
calendar month period ending with the month of the change, Sec.
382(f)). If the corporation does not have income for the year at
least equal to Section 382 limitation, the unused portion of
the limitation is carried forward to the following year.
Pursuant to the Internal Revenue Code, IRC. Sec. 368(a), the
acquisition of Aaron by An-Con is a considered Type B
reorganization. The transaction should not limit the net
operating loss carryforward of Aaron.
At December 31, 1995, Aaron had the following net operating loss
carryforwards available:
Year of Expiration
Loss Date Amount
1988 2004 $ 131,434
1989 2005 371,386
1990 2006 16,198
Total $ 519,018
The amount of loss carryforward utilized to offset the
taxable income of Aaron in 1995 was $483,400, which resulted in
a tax saving of $175,100. Based on the profitable operations of
the five years ended December 31, 1995 and management's
assessment of Aaron's future prospects, it is more likely than
not that net deferred taxable assets will be realized through
the future taxable earnings. Based on an estimated tax rate of
35.5%, the tax benefit of the unutilized net operating loss
carryforward of Aaron is estimated to be $183,300.
AN-CON GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 12. RETIREMENT PLANS
The Company provides a tax-qualified profit-sharing retirement
plan under sec. 401k of the IRC. (the "Qualified Plans") for the
benefit of eligible employees with an accumulation of funds for
retirement on a tax-deferred basis and provides for annual
discretionary contributions to individual trust funds. The
Company has made no contributions during 1994 and 1995 to the
plan.
NOTE 13. RELATED PARTY TRANSACTIONS
During 1995, A company that is controlled by a recently elected
board member sold to the Company materials that went into the
production of certain of the Company's products. The value
of these materials sold to the Company for 1995 was $158,600.
NOTE 14. PURCHASE OF BUILDING
On June 26, 1995 the Company, exercised its option to purchase
the building it occupied for $625,000. The purchase was
financed as follows:
Cash $ 47,000
Purchase money mortgage 500,000
An-Con shares
(60,000 x $1.30 per share) 78,000
Total purchase price $ 625,000
(a) Payment of principal and interest at 10% payable monthly at
$5,373.06 until July 1, 1998 when a balloon payment of
$439,074.27 is due.
(b) The An-Con shares are restricted for 2 years and are being
held pursuant to an escrow agreement. The agreement further
restricts the release of the shares until the seller takes such
action as is necessary to further investigate, define and
remediate such contamination that exists on the property and is
referred to in environmental reports pursuant to a Remedial
Action Plan approved by the State of Florida's appropriate
agencies.
Two years from the date of Closing, if Seller and Guarantors
have not defaulted under or been in breach of any of their
obligations to Buyer, Buyer shall obtain and deliver to Escrow
Agent additional shares of Stock if the Closing Market Price of
the Stock on the thirtieth day prior to such date shall be less
than $78,000.00.
AN-CON GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS
(continued)
NOTE 15. COMMITMENTS AND CONTINGENCIES
Environmental conditions -Purchase of Building
As part of the purchase of 7100 30th Avenue North, St.
Petersburg, Florida (manufacturing facility) the seller
acknowledged it had previously conducted assessments to document
environmental conditions existing on the property, the results
of which are set forth in a June 23, 1994 Contamination
Assessment Report (Project No. 94170501) and a January 27, 1995
Contamination Assessment Addendum (Project No. 950111302) (the
"Environmental Reports"). As a result of the Environmental
Reports, a recommendation was made that a Remedial Action Plan
be developed for the property which would include removal of
contaminated soil in two locations on the property.
Evironmental conditions -Purchase of Building
The Seller guaranteed (the "Environmental Guaranty") at its sole
cost and expense to undertake through a qualified environmental
engineering firm such action as is necessary to further
investigate, define and remediate such contamination that exists
on the property and is referred to in the Environmental Reports
pursuant to a Remedial Action Plan approved by the State of
Florida Department of Environmental Protection (DEP) and any
other appropriate agencies (the "Environmental Work"). The
environmental work shall begin promptly upon State of Florida
approval of the intended environmental work, which approval and
remediation will be diligently pursued and accomplished.
Satisfaction of the Environmental Guaranty shall be evidenced
by delivery to Buyer of a Site Completion Rehabilitation Order
(SCRO) or its equivalent document from DEP approving completion
of the Environmental Work.
Environmental conditions -Purchase of Building (continued)
In January 1996, the State of Florida approved a Remediation
Plan and work should begin in the 2nd Quarter of 1996.
No assessment can be made at this time if there will be any cost
to the Company if the Seller does not complete the work required
in the plan approved by the State of Florida.
Leases
The Company leases a portion of its capital equipment and
certain of its administrative facilities under operating leases
that expire at various dates through 1997. Rental expense was
$47,400 in 1995 and $24,000 in 1994. Minimum rental commitments
under all non-cancelable leases with an initial term in excess
of one year are payable as follows: 1996 - $58,000; 1997 -
$5,200; 1998 - $ 0; 1999 - $0; 2001 and beyond $-0-.
Commitments for construction or purchase of property, plant, and
equipment approximated $200,000 at December 31, 1995.
AN-CON GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS
(continued)
NOTE 15. COMMITMENTS AND CONTINGENCIES (continued)
Third Party Liability
In 1988, An-Con was the principal shareholder of Xenetics, Inc.
At that time, Xenetics had outstanding payroll tax liabilities
of approximately $15,000, a liability which may be considered an
obligation of the Company.
Employment Agreements
On September 8, 1995 the Company either executed new employment
agreements with key employees or revised old employment
agreements with its executives. These six agreements are for
terms from 2-5 years and call for salaries of $35,000 to
$118,335. Bonus arrangements call for 10% of the profits over
$200,000 for the Chairman to 1% of the profits over $300,000 for
the international sales representative for profits of Aaron
only.
Employee Benefit Plans
Subsequent to December 31, 1995, the Company established a stock
option plan on February 15, 1996 (hereafter referred to as the
EOP plan) under which officers, key employees and non-employee
directors may be granted options to purchase shares of the
Company's authorized but unissued Common Stock. Under the plan,
the option purchase price is not less than fair market value at
the date of grant. The Company accounts for stock options in
accordance with APB Opinion No. 25, "Accounting for Stock Issued
to Employees." In accordance with SFAS No. 123, Accounting for
Stock-Based Compensation," the Company intends to continue to
apply APB No. 25 for purposes of determining net income and to
adopt the proforma disclosure requirements for fiscal 1996.
Employee Benefit Plan
Options currently expire no later than five years from the
grant date. When proceeds are received by the Company from
exercises, they are credited to Common Stock and Capital in
excess of par value. Additional information with respect to EOP
Plan Activity was as follows:
Shares Outstanding Options
available Number Aggregate
for options of shares Price
December 31, 1995 $ -0- $ -0- $ -0-
February 15, 1996 337,000 337,000 379,000
Grants 337,000 337,000 379,000
Exercise -0- -0- -0-
Cancellations -0- -0- -0-
The exercise price for options outstanding under the EOP Plan at
February 15, 1995 was $1.125. These options will expire if not
exercised on February 15, 2001.
AN-CON GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS
(continued)
NOTE 15. COMMITTMENTS AND CONTINGENCIES (continued)
Legal Proceeding
Scura
A lawsuit was brought against the Company by a former consultant
in the Supreme Court of the State of New York, Suffolk County,
in December 1991 alleging breach of a financial consulting
agreement and seeking damages of $3,000,000. In 1993, a
settlement had been reached between the parties whereby the
Company had agreed to, issue 100,000 (pre-split) shares to the
plaintiff in full settlement of any and all claims. Such right
being subject to the consent of the underwriter. Mr. Scura
subsequently refused to execute the stipulation of settlement.
Company counsel is of the opinion that Mr. Scura's claim has no
merit and does not present a material contingent liability.
Speiser
On December 29, 1992, Robert Speiser, the then Chief Executive
Officer of An-Con, obtained a confession of judgement in the
Supreme Court, State of New York, counties of Suffolk and
Westchester for amounts due on loans to the Company of $92,239
and $190,957 inclusive of interest at 12% to May 27, 1992 and 9%
thereafter. These loans represent amounts claimed by Mr.
Speiser to have been expended on behalf of the Company and funds
loaned to the Company. As reported to the Board of Directors,
Mr. Speiser's actions were motivated solely to deter threatened
action by the landlord to file a judgement at that time of
$41,700 in rental arrears. Mr. Speiser has indicated that he
does not intend to enforce this judgement. On March 29, 1993
and in subsequent letters of instruction to the Sheriff of
Suffolk County, Mr. Speiser requested that the execution of the
above-mentioned judgements be held in abeyance for a 60 day
period, until August 30, 1993. On February 28, 1994, the
executive order expired. As of December 13, 1995, the Company
had repaid $235,100 of the principal amount upon which the
aforesaid judgements were based.
MegaDyne
On March 14, 1996 MegaDyne Medical Products, Inc. a Utah
Corporation filed a complaint for injunctive relief and damages
for patent infringement (35 USC.S. 271) in the U.S. District
Court, District of Utah, Central Division. MegaDyne asserts
that Aaron has used its process for creating an Electro-surgical
knife coated with a non-stick material. MegaDyne states in its
suit it is entitled to an accounting from Aaron and to recover
the damages sustained by MegaDyne as a result of infringing
products. Such damages include, but are not limited to, lost
sales and profits due to sales of the infringing products and a
reasonable royalty for use of the patented invention. MegaDyne
is presently unable to ascertain the full extent of monetary
damages it has suffered by reason of Aaron's aforesaid acts of
infringement.
AN-CON GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS
(continued)
NOTES 15. COMMITMENTS AND CONTINGENCIES (continued)
Megadyne
As of March 31, 1996 the Company sold approximately $90,000
of the Aaron Products called Resistick. Aaron counsel has
stated "that scientific testing has proven that the Aaron
Medical electro-surgical blade is resistive in nature. Thus,
there is no capacitive coupling of radio frequency energy as
recited in independent claims 1 and 5 of U.S. 4,785,807.
Accordingly, there appears to be no literal infringement of
the patent in suit. However, without benefit of the
prosecution history, an authoritative opinion as to
infringement under the doctrine of equivalents is not possible.
Initial investigation suggests that the Aaron Medical
electro-surgical blade does not include a second coat of non-
stick fluorinated hydrocarbon material as recited independent
claims 1 and 5." As claimed by MegaDyne.
NOTE 16. SUBSEQUENT EVENTS
OmniFix Formula
The Company entered into an agreement with certain parties
("developers") who had developed and were sole owners of a
histological, mercury and formaldehyde-free fixative
("fixative"), on February 20, 1988. The Company received the
sole and exclusive right to manufacture, market and distribute
the fixative throughout the world.
The agreement shall remain in full force and effect for a
period of five years and shall be renewed automatically for
periods of three years, unless otherwise terminated on consent
of the parties, or if less than 4,000 gallons of OmniFix are
sold in any given year and the licensor is not otherwise
compensated for the amount of royalty payable resulting from
the deficiency. The Company sold 4,028 gallons in 1995.
New Company Products
The Company intends to substantially replace OmniFix II with
OmniFix 2000, which, in addition to preserving thin tissue
specimens, also provides preservation of thicker/larger
tissues. The Company is presently initiating test marketing of
this new product and plans to file a new patent application
with the U.S. Patent office.
AN-CON GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS
(continued)
NOTE 16. SUBSEQUENT EVENTS (continued)
Bank Line of Credit
On March 16, 1996, the Company entered into a three month
agreement with a commercial bank for a line of credit of
$100,000. Interest is to be paid at 2.5% over the banks prime
rate.
Stock Option Plan
On February 15, 1996, the Company established an employee
stock option plan (EOP) by issuing 337,000 warrants to purchase
the Company's shares or $1.125 per share expiring February 15,
2001.
NOTE 17. INDUSTRY SEGMENT REPORTING
The Company operates predominantly in one industry segment.
The Company designs, develops, manufactures and markets battery
operated medical cauteries and related products at various
levels of integration. The Company sells its products directly
to distributors worldwide and also has private label
arrangements with hospital and healthcare companies.
The Company's principal markets are in the United States,
Europe, and South America, with the U.S. and Europe being the
largest based on revenues. The Company's major products
include cauteries, Benda-A-lights, nerve locators, and
reusable pen lights and electrodes. Cauteries disposable and
replaceable account for 50% of the Company's sales.
Geographic and segment information for the year ended
December 31, 1995 is presented in the following table.
Operating
Income Identifiable
Sales Loss(1)(3) Assets(2)
1995 - (in thousands)
Geographic Area
United States $ 4,226 $ 22 $ 3,601
Europe 1,245 6 -0-
Latin America 50 1 -0-
Other -0- -0- -0-
$ 5,521 $ 29 $ 3,601
Segment
Medical Products $ 4,325 $ 189 $ 2,831
Non medical products 1,196 (160) 770
$ 5,521 $ 29 $ 3,601
AN-CON GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS
(continued)
NOTE 17. INDUSTRY SEGMENT REPORTING (continued)
(1) Allocable operating income was determined by sales
percentage by geographic area.
(2) The Company had no assets or liabilities outside the
United States, in the two years ended December 31, 1995.
All assets were identified as United States source.
(3) Allocable operating expenses were determined by a percentage
of total sales by segment.
One significant customer accounted for 17% of revenues in 1995.
(4) Allocation of assets was done by sales percentage.
1994 - For 1994 the Company had sales of one product of $85,000,
all in the United States. However, Aaron the Company's
subsidiary which was acquired in January 1995 had domestic and
international sales of $3.3 million and $800,000 respectively.
Income for Aaron by segment was based on sales and is $264,000
and $54,000 for medical and non-medical respectively. Income
for Aaron by geographic area was $258,000 and $60,000 for
domestic and international sales respectively. All assets were
located in the United States.
During 1995, a substantial portion of the Company's
consolidated net sales and consolidated income from operations
was derived from foreign operations. Foreign operations are
subject to certain risks inherent in conducting business abroad,
including price and exchange controls, limitations on foreign
participation in local enterprises, possible nationalization or
expropriation, potential default on the payment of government
obligations with attendant impact on private enterprise,
political instability and health care regulation and other
restrictive governmental actions. Changes in the relative value
of currencies take place from time to time and could adversely
affected the Company's results of operations and financial
condition. The future effects of these fluctuations on the
operations of the Company's and its subsidiaries are not
predictable.
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 admin. 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 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 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 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.
PART II
Item 24. Indemnification of Directors and Officers.
Reference is made to Section 145 of the Delaware General
Corporation law which provides for indemnification of directors
and officers of a corporation and other specified persons
subject to the specific requirements therein contained. In
general, these sections provide the persons who are officers or
directors of the corporation may be indemnified by the
corporation for acts performed in their capacities as such.
There are no provisions in the An-Con's Certificate of
Incorporation, Amendments thereto or its By-Laws relating to
indemnification as of the date of this Proxy
Statement/Prospectus.
Further reference is made to sections 102 and 145 of the
Delaware General Corporation Law which provide for elimination
of directors liability in certain instances, and indemnification
of directors and officers of a corporation and other specified
persons subject to the specific requirements therein contained.
In general, section 102 allows an authorizing provision in the
Certificate of Incorporation which would, subject to certain
limitations, eliminate or limit a director's liability for
monetary damages for breaches of his or her fiduciary duty.
However, such an enabling provision could not limit or eliminate
a director's liability for: (a) breaches of the duty of loyalty
to the Corporation or its stockholders; (b) for acts or
omissions not in good faith or involving intentional misconduct
or knowing violations of law; (c) for the payment of unlawful
dividends or unlawful stock repurchases or redemptions; or (d)
for transactions in which the director received an improper
personal benefit. There is currently such an enabling provision
in the Company's Certificate of Incorporation.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the Company of expenses incurred or paid by a director,
officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, An-Con, will, unless in the opinion
of its counsel that the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 25. Other Expenses of Issuance and Distribution.
Registration Fees. . . . . . . . . . . . . . $1,785.15
Federal Taxes. . . . . . . . . . . . . . . . . -- *
State Taxes and Fees . . . . . . . . . . . . .1,300.00*
Transfer Agent's Fees. . . . . . . . . . . . .1,000.00*
Printing Costs . . . . . . . . . . . . . . . 10,000.00*
Accounting fees 20,000.00*
Legal. . . . . . . . . . . . . . . . . . . . 60,000.00*
Total . . . 94,085.15*
*Estimated
II-1
Item 26. Recent Sales of Unregistered Securities
On September 17, 1993 the Company sold 500 shares of Common
Stock valued at $750 to an investor at $1.50 per share.
On April 5, 1994, the Company issued a total of 438,000 shares
to 14 investors (some of which are accredited investors). Such
investors (a) converted indebtedness of the Company to them of a
total of $358,900 into 236,066 shares of Common Stock (or an
average of $1.52 per share); and (b) exercised warrants (issued
to them in connection with the loans originally made to the
Company in 1992 and 1993) and purchased 202,001 shares at an
average exercise price of $1.50 per share or a total
consideration for the exercise of $291,000.
In May, 1994, the Company authorized the issuance of a total of
591,061 shares of Common Stock (valued at $177,300) to 21
persons, some of whom are accredited investors, as compensation
for past services rendered.
In May, 1994, the Company issued to Andrew Makrides, President
and Robert Speiser, Chairman of the Board, 421,667 shares and
783,333 shares respectively in lieu of back salaries. The
shares issued were valued at a total of $361,500 or $.30 per
share.
In January, 1995, pursuant to Acquisition Agreement dated
January 11, 1995, as subsequently amended, the Company issued
and placed in escrow a total of 3,399,096 shares of Common Stock
in exchange for all of the outstanding shares of Aaron Medical
Industries, Inc.
In March, 1995, the Company issued a total of 35,000 shares
valued at $.40 per share in exchange for 70 bonds held by
sixteen bondholders.
In April, 1995, the Company issued an additional 27,500 shares
valued at $.40 per share to three consultants as compensation
for services rendered.
In June, 1995, the Company issued the total of 60,000 shares
valued at $1.30 per share (or a total of $78,000) as part of the
purchase price paid for real estate upon which the Company
maintains its principal offices in St. Petersburg, Florida.
During December and January of 1995-1996, the Company sold a
total of 200,000 shares for $200,000, and warrants to purchase
200,000 shares at $3.00 per share, to a total of nine persons,
some of whom were accredited investors. The warrants expire in
November, 1998.
In April 18, 1996, in exchange for construction services the
Company issued 55,350 shares of Common Stock to a privately held
corporation valued at $.69 per share.
Except as to the issuance in escrow of 3,399,096 shares in
January, 1995 (which shares are the subject of this registration
statement), the Company relies upon the exemption to the
registration provisions of the Securities Act of 1933 as set
forth in Section 4(2) thereof with respect to each of the
foregoing issuances.
II-2
Item 27. Exhibits.
Exhibit No. Description Location
5 Opinion of Alfred V. Greco, P.C.
regarding legality of securities
being registered. . . . . . . . . . . . . . . .*
23(a) Consent of Bloom and Company as to
An-Con Financial Statements. . Filed Herewith
(c) Consent of Alfred V. Greco, P.C. . . . . .*
__________________________________
*To be filed by Amendment
Item 28. Undertakings.
The Company will supplement the prospectus after the end of
the rescission offer period, to include the results of the
rescission offer and the transactions by the Company during the
offering period. The Company will file a post-effective
amendment to this registration statement if the amount of shares
that the Company will purchase from rescission offerees requires
a further sale of securities to secure funding by the Company.
Such post-effective amendment will also specify any change in
the terms of offering of shares by the Company from the terms
set forth on the cover page of this prospectus.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Form SB-2 Amendment No. 1 to
Registration Statement on Form S-4 to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of
Melville, State of New York on
, 1996.
AN-CON GENETICS, INC.
________________________________
J. Robert Saron
Chief Executive Officer,
Chairman of the Board of Directors
Pursuant to the requirements of the Securities
Act of 1933, this Form SB-2 Amendment No. 1 to Registration
Statement on Form S-4 has been signed by the following persons
in the capacities and on the dates indicated.
, 1996
J. Robert Saron
Chairman of the Board
of Directors and CEO
, 1996
Andrew Makrides, President,
Director
, 1996
Delton N. Cunningham
Secretary-Treasurer,
Chief Financial Officer
, 1996
George W. Kromer, Jr.
Director
, 1996
Joseph F. Valenti
Director
c: ANCN-F.SB2
EXHIBITS
<PAGE>
BLOOM AND COMPANY
50 CLINTON STREET
HEMPSTEAD, NY 11550
Tel.(516) 486-5900
Fax (516) 486-5476
June 6, 1996
Consent of Auditors
We consent to the use in this registration statement on Form SB-2
Amendment #1 to Form S-4 of our report dated April 15, 1996
relating to the consolidated financial statements of An-Con
Genetics, Inc. for the period indicated in that report and to the
reference of our firm under the caption "Experts" in the
accompanying prospectus.
Bloom and Company
EXHIBIT 23(a)
