ALFRED V. GRECO, P.C.
A Professional Corporation
666 Fifth Avenue (14th Floor)
New York, N.Y. 10103
Alfred V. Greco Tel. 212-246-6550
Attorney At Law Fax 212-582-0176
September 19, 1996
Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549
Attn: Division of Corporation Finance
David S. Lyon - Mail Stop 3-11
Re: An-Con Genetics, Inc.
Amendment No. 2
Form SB-2
SEC File No. 33-80763
Gentlemen:
There follows Amendment No. 2 on Form SB-2
Registration Statement of An-Con Genetics, Inc.,
inclusive of cover letter and other exhibits, which
contains changes implementing comments in the staff's
letter dated August 8, 1996. There follows a
recitation of the Company's responses and comments
regarding the numbered comments of the staff in its
letter of August 8, 1996. The numbered responses
correspond to the numbered comments of the staff.
1. We have complied. See Exhibit I.
2. The solicitation clearly does request a
response. However, the terms of the solicitation
are such that a "failure to respond" is deemed a
"rejection" of the offer, not an "acceptance".
3. The Company prefers and is prepared to deliver
the shares now, but is concerned that it will
technically exacerbate the alleged existing
violation. In the alternative the shares will
definitely be delivered simultaneously with, and
upon effectiveness of, the Registration Statement.
4. We have complied.
5. We have complied and have deleted the shares
from the facing page of the registration statement.
6. We have complied (P. 1).
7. We have complied (P. 1 and 2).
8. We have complied (P. 1).
9. We have complied (P. 1).
10. We have complied (P. 1).
11. We have complied (P. 1).
12. We have complied (P. 1).
13. We have complied (P. 2).
14. Subject to compliance with state statutes
regarding rescission offer, and due to the Company's
belief that what is offered per share is what the
Company's legal obligation will be if determined in
a court of law (if a violation is proven), the
Company believes that no further redress "may" be
available to shareholders who accept rescission.
15. We have complied (P. 3).
16. We have complied (P. 5).
17. We have complied (P. 5).
18. We have complied (P. 5).
19. We have complied (P. 4).
20. We have complied (P. 4).
21. We have complied (P. 4 and 16).
22. We have complied (P. 4).
23. We have complied (P. 13). The cautery market
involves battery operated cauteries (direct
current) and the electrosurgical market (to which
the Multi Function cautery belongs) operates on
alternating current.
24. We have complied (P. 14).
25. We have complied (P. 6).
26. We have complied (P. 6).
27. We have complied (P. 6).
28. We have complied (P. 6).
29. We have complied (P. 7). The agreement has
always provided that the shares were to be acquired
for investment and the Final Acquisition Agreement
(filed initially with the S-4 as Exhibit 2) also
provides the same at Paragraph 7.15.
30. We have complied (P. 8)
31. We have complied (P. 15). The cover letter
Exhibit IV was never to be part of filing and was
included mistakenly due to computer error.
32. We have complied (P.16-18)
33. We have complied (P. 18)
34. We have complied (P. 18)
35. We have complied (P. 22). We have set out as
much detail as we know concerning the staff's
request which is contained under caption "Material
Contacts etc" and subheadings. We feel that to
create a separate section outlining what key
individuals did for each company would be redundant
and confusing.
36. We have complied (P. 22).
37. We have complied (P. 22).
38. We have complied (P. 22).
39. We have complied (P. 22 and 23).
40. We have complied (P.4 and 22).
41. We have complied (P. 23 and 24).
42. We have complied (P. 23).
43. We have complied (P. 24)
44. We have complied (P. 24).
45. Open
46. We have complied (P. 24).
47. We have complied (P.25).
48. We have complied (P. 24).
49. We have complied (P. 24).
50. We have complied (P. ).
51. We have complied (P. 26).
52. We have complied (P. 26).
53. We have complied (P. 26).
54. We have complied (P. 26).
55. We have complied (P. 26).
56. We have complied (P. 26).
57. We have complied (P. 26).
58. We have complied (P. 27).
59. We have complied. We have deleted that section
and replaced it with Item (B) on page 27.
60. We have complied (Pgs 27-29).
61. We have complied (P. 27 second full paragraph).
62. We have complied. We have deleted the language
on former page 28 and have included a schedule
showing the fair value of the assets on page 27.
63. We have complied (P. 33).
64. We have complied (P. 33).
65. We have complied. After each state discussion we
have added commentary as to the status in each state.
66. We have complied (P. 33 and 42 - See "Possible
Uncertainty as to State Blue Sky Law Liability."
67. The former owners of approximately 67% of the
outstanding shares of Aaron (pre-closing) were as
follows:
Number of
Name Aaron Shares
Paul Butler - 544,768
Robert Saron and Fam. - 1,183,458
Louis Powell - 719,886
Maurice P. O'Connell - 517,682
Delton Cunningham - 75,500
Joseph Valenti - 98,308
Gallian Enterprises - 80,000
Doris Graham - 136,000
Barbara Bottone - 90,000
Walter Loebenberg - 88,935
Fitzpatrick Equipment Corp.- 121,500
Lee Rombeau - 61,000
Peter Sklar - 81,000
68. We have complied (P. 41 and 42).
69. We have complied (P. 46).
70. We have complied (48).
71. We have corrected and complied (P. 47).
72. We have complied (P. 52).
73. We have amended section and deleted
inappropriate disclosures.
74. We have complied (P. 54).
75. Form 10K has been amended to reflect a reduction
of goodwill for the tax benefit of Aaron's valuation
account of $183,300. (P. F-3, Note 7)
76. We have complied (P. F-5).
77. We have complied (P. F-8).
78. We have complied (P. F-6).
79. We have complied (Pgs F-42-F-56).
80. Final Acquisition Agreement, as amended was
filed as Exhibit 2 to Form S-4 (initial filing
herein). We have noted the filing of such exhibit in
Item 27 of Part II.
81. We have complied (Signature Page).
82. We have complied.
83. Duly noted.
84. We have complied.
85. We have complied.
86. Not Applicable.
If you have any further questions or comments
concerning the filing or documents included herein,
please do not hesitate to contact the undersigned.
Very truly yours,
S/Alfred V. Greco
Alfred V. Greco
AN-CON GENETICS, INC.
7100 30th Avenue North
St. Petersburg, FL 33710
PROPOSAL TO AARON SHAREHOLDERS
SHAREHOLDERS MUST COMPLETE THE ENCLOSED FORM OF NOTICE OF
REJECTION MEANS YOU KEEP YOUR AN-CON SHARES
ACCEPTANCE OR REJECTION OF RESCISSION OFFER
ACCEPTANCE MEANS YOU MUST RE-SELL TO THE COMPANY ALL
YOUR AN-CON SHARES RECEIVED ON THE EXCHANGE
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 Company's 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 Company's acquisition of Aaron Medical Industries,
Inc. This offer is open for a 30-day period commencing with the
date of delivery to you of the prospectus and Rescission Offer
documents. As of the close of business on September 4, 1996, the
closing price for the Company's shares on the Bulletin Board was
$1.125 per share. If a shareholder accepts the Rescission Offer,
such shareholder must sell all his shares back to the Company for
$.392 per share plus interest by following the procedures
outlined below. If a shareholder fills out the annexed form and
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" and "State Statutes of Limitation" 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. You must make sure that you endorse the certificate
and have your signature guaranteed by your bank.
COVER LETTER EXHIBIT I
PAGE 1
If you fill in the form and choose to 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 immediately. Unless other funds are
obtained privately, the Company will immediately file a new
offering of 500,000 shares of Common Stock for sale 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 cannot obtain sufficient funds to repurchase the
rescinded shares within 180 days of the date of this 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
COVER LETTER EXHIBIT I
PAGE 2
NOTICE OF
ACCEPTANCE OR REJECTION OF 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),
(Joint Ownership Please
Print Both Names)
(Address)
(Please indicate your selection of one of the
following
options)
[ ] REJECT THE RESCISSION OFFER AND WILL KEEP
THE AN-CON GENETICS, INC. SHARES.
[ ] ACCEPT THE RESCISSION OFFER AND HEREBY RE-
SELL 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. I HEREBY
RETURN THE AN-CON SHARES, DULY COUNTERSIGNED WITH
SIGNATURE GUARANTY (MEDALLION) FROM MY BANK, 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 Genetics 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
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
AMENDMENT NO. 2 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
Registra-
tion
Fee(2)
Common Stock
3,399,096
$.392(3)
$1,331,800
$459.25
(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 per share to be paid for the shares
by An-Con Genetics, Inc. if all shareholder offerees accept
Rescission.
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.
Table of Contents
Page
Prospectus Cover Page. . . . . . . . . . . . . . . . .1
Available Information. . . . . . . . . . . . . . . . .3
Prospectus Summary . . . . . . . . . . . . . . . . . .4
Risk Factors . . . . . . . . . . . . . . . . . . . .9
Management's Discussion and Analysis . . . . . . . . 10
Business . . . . . . . . . . . . . . . . . . . . . . 19
The Company . . . . . . . . . . . . . . . . . . . 19
Battery Operated Cauteries. . . . . . . . . . . . 20
Battery Operated Medical and Industrial Lights. . 20
Electro-Surgical Products . . . . . . . . . . . . 20
Multi-Function Cautery. . . . . . . . . . . . . . 21
Resistick . . . . . . . . . . . . . . . . . . . . 21
Aaron 800 . . . . . . . . . . . . . . . . . . . . 21
Nerve Locator Stimulators . . . . . . . . . . . . 22
OmniFix II. . . . . . . . . . . . . . . . . . . . 22
OmniFix 2000. . . . . . . . . . . . . . . . . . . 22
Other Products. . . . . . . . . . . . . . . . . . 22
Manufacturing, Marketing and Distribution . . . . 23
Competition . . . . . . . . . . . . . . . . . . . 23
Regulation. . . . . . . . . . . . . . . . . . . . 24
Patents and Trademarks. . . . . . . . . . . . . . 24
Research and Development. . . . . . . . . . . . . 25
Employees . . . . . . . . . . . . . . . . . . . . 25
Significant Subsidiary - Aaron Medical
Industries, Inc. . .25
Property . . . . . . . . . . . . . . . . . . . . . . 26
Material Contacts Between An-Con and Aaron During
Acquisition. . . . . . . . . . . . . . . . . . . . . 28
The Rescission Offer . . . . . . . . . . . . . . . . 31
Valuation of Aaron For Rescission Purposes. . . . 33
State Blue Sky Laws . . . . . . . . . . . . . . . 37
California. . . . . . . . . . . . . . . . . . 39
Connecticut . . . . . . . . . . . . . . . . . 40
Florida . . . . . . . . . . . . . . . . . . . 40
Hawaii. . . . . . . . . . . . . . . . . . . . 41
Illinois. . . . . . . . . . . . . . . . . . . 41
Indiana . . . . . . . . . . . . . . . . . . . 42
Massachusetts . . . . . . . . . . . . . . . . 43
Nevada. . . . . . . . . . . . . . . . . . . . 44
New Jersey. . . . . . . . . . . . . . . . . . 45
New York. . . . . . . . . . . . . . . . . . . 46
North Carolina. . . . . . . . . . . . . . . . 46
Pennsylvania. . . . . . . . . . . . . . . . . 47
South Carolina. . . . . . . . . . . . . . . . 47
State Statutes of Limitation. . . . . . . . . . . 49
Method of Rescission. . . . . . . . . . . . . . . 51
Rescission Tender Procedure . . . . . . . . . . . 53
Federal Income Tax Consequences . . . . . . . . . 55
Management . . . . . . . . . . . . . . . . . . . . . 57
Remuneration . . . . . . . . . . . . . . . . . . . . 59
Security Ownership of Certain Beneficial
Owners and Management of An-Con . . . . . . . . . . 62
Certain Transactions . . . . . . . . . . . . . . . . 64
Legal Proceedings. . . . . . . . . . . . . . . . . . 67
Description of An-Con Securities . . . . . . . . . . 68
Transfer Agent . . . . . . . . . . . . . . . . . . . 70
Legal Matters. . . . . . . . . . . . . . . . . . . . 70
Experts. . . . . . . . . . . . . . . . . . . . . . . 71
Information as to Unaudited Interim
Financial Statements . . . . . . . . . . . . . . . 71
Other Matters. . . . . . . . . . . . . . . . . . . . 71
Preliminary Prospectus dated
June 21, 1996 Subject to
Completion
An-Con Genetics, Inc. (Ticker Symbol: "AGNT")
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") and (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. An-Con shall not receive any proceeds in
connection with this offer or any subsequent sale of these
shares. 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 and exchanged 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 and
Aaron 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
(presently held in escrow for their benefit pursuant to the
exchange) deliverable to Aaron Shareholders. Upon effectiveness
of this registration statement, these shares held in escrow shall
be delivered to each respective former Aaron shareholder together
with this Prospectus, inclusive of the Company's Rescission
Offer. 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 $72,000 as of
June 30, 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. Any shareholder who accepts this
offer will be receiving $.392 per share (plus interest from
January 11, 1995 at the statutory rate mandated by their
respective state of residence) which amount is approximately $
less per share than current market value if they were to sell
their shares in the public market. The shares deliverable
pursuant to this prospectus become eligible for sale on January
11, 1997 pursuant and subject to the terms of Rule 144
promulgated under the Securities Act of 1933, amended. See "The
Rescission Offer" and "The Rescission Offer - Valuation of Aaron
For Rescission Purposes". See also "Risk Factors on page 9 of
this Prospectus".
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 $72,000 AS OF JUNE 30, 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 AN 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
PURSUANT TO A SEPARATE PROSPECTUS TO BE FILED AND MADE EFFECTIVE
AS SOON AS PRACTICABLE. 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/OR TO PRESERVE HIS RIGHTS BEFORE THE EXPIRATION OF
ANY RELEVANT STATUTE OF LIMITATIONS. AS OF JUNE 30, 1996, THE
COMPANY HAD $75,400 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. MANAGEMENT BELIEVES THAT
SHAREHOLDERS WHO ACCEPT THE RESCISSION OFFER MAY 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" and "State Statutes of
Limitations".
As of the close of business on September 4, 1996, the bid price
for the Company's Common Stock (Ticker Symbol "AGNT") as reported
by the National Quotation Bureau, Inc. "Bulletin Board" Price
Report was $1.125 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 Commission maintains a web site that contains reports, proxy
and information statements and other information regarding
registrants that file electronically with the Commission,
including the Company, and the address is (http//www.sec.gov).
The company intends to 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. On June 30, 1993, the Aaron
Board requested the resignation of M. P. O'Connell, its CEO and
Chairman due to unresolvable differences between Board members
and Mr. O'Connell over future compensation to Mr. O'Connell and
general management policies. Mr. Speiser, CEO and Chairman of
An-Con (who had recently entered into an agreement, which, as
amended, provided for the exchange of An-Con shares for all of
the shares of Aaron) then replaced Mr. O'Connell as Chairman of
Aaron's Board in June of 1993. No value was assigned to Aaron
shares during negotiations which mainly consisted of the
percentage of shares to be allocated to Aaron shareholders. As
of the date of this Prospectus, the acquisition by An-Con of
Aaron has resulted in the two companies operating separately with
respect to the manufacture and sale of their respective products.
An-Con's Board of Directors is the controlling entity and is
comprised of different directors than Aaron's Board (although two
of An-Con's directors are also directors of Aaron). Each company
maintains a separate set of books as well as its separate
corporate identity. Each of the corporations is located at the
same principal location but each continues to operate
independently. An-Con caused Moshe Citronowicz, (among others)
to join Aaron as its Director of Production. Mr. Cintronowicz,
who is currently an officer and director of Aaron, is deemed to
be a key employee of Aaron and Aaron maintains and is beneficiary
of a policy insuring Mr. Cintronowicz's life. In addition, An-
Con has provided, from time to time, funding utilized by Aaron to
facilitate growth and expansion. (See "Material Contacts Between
An-Con and Aaron"). Total consolidated Company sales for the year
1995 and the first six months of 1996 were $5,521,000 and
$3,214,200 respectively, of which An-Con contributed $61,600 and
$16,000 respectively and Aaron contributed $5,459,400 and
$3,198,200 respectively. In 1995 and for the first six months of
1996, net loss of the company was $154,100 and $156,400
respectively. An-Con contributed losses of $637,200 and $111,800
for the respective periods and Aaron contributed income of
$483,100 and $268,200 for the respective periods. Management
believes that the figures indicated above do not adequately
reflect the synergy represented by An-Con's financing, management
and personnel procurement contributions to the Company as
combined. 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, with telephone number (800) 537-2790. Aaron
Medical Industries, Inc. also maintains its executive offices and
manufacturing facilities at the same location. (See- "Business-
The Company" and "Significant Subsidiary".
Securities Outstanding
As of June 30, 1996 there were 4,425,340 shares outstanding
(excluding 3,399,096 shares held in escrow for the benefit of
former Aaron Shareholders). If the escrowed shares are included,
as of June 30, 1996, a total of 44% of the outstanding shares of
An-Con would be owned by former Aaron shareholders. These shares
will be released from escrow upon effectiveness of this
Prospectus and become eligible for sale, subject and pursuant to
Rule 144 after January 11, 1997.
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
has filed this Rescission Offer Prospectus and 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. Such 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 by a total of $4,000 per month as estimated
additional interest. A rejection of the Rescission Offer means
the Aaron shareholder has chosen to keep his shares of An-Con.
An acceptance of the Rescission Offer means the former Aaron
shareholder has chosen to sell the An-Con shares received in the
exchange for $.392 per share. Unless the Company fails to make
payment within a period of 180 days, when a shareholder executes
his notice of election and 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".
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 67%
of the outstanding shares of Aaron (prior to the acquisition),
that such shareholders have no intention of accepting the
Company's rescission offer. Prior to rescission, Aaron
shareholders are presently deemed to be the owners of
approximately 44% of the outstanding shares of the Company.
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>
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. Company's Rescission Offer to Rectify Possible Violation of
Securities Law. 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
choose to sell their shares back to the company for the
consideration paid, plus interest. Interest is mandated by
statute of the state of residence of each Rescission Offeree
and estimated accrued interest totaled approximately $72,000 as
of June 30, 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 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.
2. Company May Lack Sufficient Cash to Make Payment If
Rescission Offer is Accepted. 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 sale of the Company's
securities on a best-efforts basis pursuant to a separate
registration statement, or obtain funds from other third party
sources, or 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 June 30, 1996, the Company had $75,400 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", and "State Statutes of
Limitation".
3. History of Unprofitable Operations of An-Con prior to
Acquisition. 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").
4. Recent Losses from Operations after Acquisition. 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 loss of $154,100 or $.04 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").
5. 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").
6. Payment of Interest on Outstanding Debentures In Arrears. As
of June 30, 1996, 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 $39,500 as of June 30, 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".)
7. 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 in its engineering department at its premises in St.
Petersburg, Florida).
8. 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 not, in the future, be
subjected to a lawsuit and judgment in an amount exceeding the
insurance coverage.
9. Current Prospectus Required. This Prospectus relates to the
shares to be delivered to the Aaron shareholders. However, under
the terms of the Acquisition Agreement, such shares shall bear a
restrictive legend and 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
after January 11, 1997, pursuant to Rule 144 or an exemption from
registration. See Risk Factor No. 14.
10. 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.
11. Control of Company by Officers and Directors. As of June 30,
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.
12. 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").
13. 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").
14. Possible Rule 144 Sales. As of June 30, 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, (a)
provided the Company has filed all the required reports to be
filed with the Securities and Exchange Commissions (quarterly and
annual reports), (b) any person who is either an affiliate or
non-affiliate, has owned restricted securities for a period of
two years, may sell them every three months 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. Prior to any such sale, the seller must file a Form 144
with the Securities and Exchange Commission. 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.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Quarterly Period Ended 6/30/96 as compared to 6/30/95
The results of operations over the six months ended June 30, 1996
show increased sales and profitability, as compared to the first
six months of 1995. The Company's sales revenues increased by
24%, from $2,592,300 to $3,214,200. The smaller rise in the cost
of goods sold (7%), relative to sales, changed the Company's
gross profit from $1,091,000 to $1,614,600, raising the gross
profit margin on sales from 42.1%, to 50.2%. The expanded
marketing activities and shift in product sales mix of the
Company and improved purchasing and manufacturing efficiency were
the principal reasons for the change in gross profits.
Salaries and related expenses increased by 69% from $291,100 to
$493,100, in the six months ended June 30, 1996 as compared to
the same period in 1995. The increase in cost of salaries was
related to the new management of human resource utilization
policies and a change in accounting for indirect labor.
Expenses for professional services decreased by 42.8% to $125,600
in the six months ended June 30, 1996, as compared to $219,400 in
the same period of the previous year. A substantial part of the
professional fees in 1995 were related to financing activities
which the Company did not have in 1996.
The increased marketing activities was accompanied by a 5%
increase in selling, general and administrative expenses. These
expenses were $664,500, in the six month period ended June 30,
1996 as compared to $696,700 for the six months ended June 30,
1995.
The Company had net income of $156,400 for the six months ended
June 30, 1996 as compared to a loss of $(40,800) for the same
period in 1995. The gain, in 1996, was due to 24% increase in
revenues in contrast to 6% rise in cost of sales and 9% in
operating expenses. The operating income was $305,100, in the
first six months of 1996 as compared to a loss of $(116,200) in
1995. The 1995 operating loss was offset only by $76,800 in
income from the settlement of debt.
The Company sells its products in a similar fashion in the
international market as it does in the USA, through distributors.
These distributors are found mainly through responses to company
advertising in international medical journals or contacts made at
domestic or international trade shows. The Company began
attending trade shows in foreign countries for the first time in
1993. Since that time, international sales have more than
doubled. The main focus for export sales has been Western
Europe. The Company has distributors in all major markets there.
The Company exhibited for the first time in South America, Sao
Paulo, Brazil in 1995.
The Company intends to continue marketing their products via this
manner, targeting different regions of the world, while returning
to major markets for increased market exposure and to introduce
new products. In 1996, the Company will exhibit for the first
time in the United Kingdom.
During the first six months of 1996, international sales of the
Aaron Medical product line continued to increase. These sales
were $678,900 which represented 21% of total sales. This
compares favorably to 1995 when total international sales were
$533,300 representing 20%- of total sales. The increase from
1995 to 1996 represents a 27% increase in sales volume. To
minimize credit risk, new international distributors in most
instances pay cash in advance or by irrevocable letter of credit.
This form of credit policy is customary and is not considered a
detriment to further increased international sales.
In the first six months of 1996, fixed costs increased to allow
the introduction of new products, new sales personnel, and to
improve the Company's quality control system to assure good
manufacturing practices as required by the Food and Drug
Administration. At the same time, variable costs were reduced by
discontinuing commissions paid to domestic sales representatives.
Variable material and labor costs were reduced through improved
purchasing strategies and product design. Additionally, the
Company has begun purchasing certain labor intensive items off
shore, effectively reducing cost of materials, and improving
margins.
The company began new product development and improvement of
facilities, as required by regulatory agencies, in the fourth
quarter of 1995. This activity has continued in 1996. The cost
of the improvements is $150,000 and will be funded primarily
through internal cash flow with the balance of $15,000 being paid
in the third quarter of 1996. The allocation of working capital
to these projects caused the company's normally prompt payment
record with trade vendors to decline slightly, in the first six
months of 1996. In order to provide additional working capital,
in the first quarter of 1996 the Company secured a three month
$100,000 credit facility with a local commercial bank and raised
$100,000 through a private placement of shares, the loan was paid
off in the second quarter of 1996.
Subsequent to the close of the first quarter, the Company
commenced production of its new Omnifix 2000 tissue fixative for
purposes of marketing through specialty laboratory distributors.
Management believes Omnifix 2000 is a safer alternative to
formalin, a chemical which OSHA has identified to be
carcenogenic. The product will be marketed to hospital and
private pathology laboratories and research institutions in both
the University and industrial sectors. A patent application has
been filed for Omnifix 2000.
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 which was reduced from the amount of goodwill recognized by
the purchase method. 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 is expected to be achieved for the first
quarter in 1996. 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, and is considering exhibits in the
Middle East and 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 6/30/96 as compared to 6/30/95
Financial Condition and Liquidity
Working capital of the Company was $(933,800) on June 30, 1996 as
compared to $632,900 on June 30, 1995 and $(858,900) as of
December 31, 1995. The deficit in working capital is
attributable to the current cash recession offer made to the
former Aaron shareholders of $1,331,800.
On June 30, 1996, total assets were $3,505,600 as compared to
$2,716,000 on June 30, 1995 and $3,417,200 of December 31,
1995.
The Company's cash decreased by $90,400 as compared to $(490,700)
over the six months ended June 30, 1996 and 1995 respectively.
The net cash provided by operations was $234,300 and $(251,500),
(deficit) in the six months ended June 30, 1996 and 1995
respectively. In the first quarter of 1996 the Company received
$49,600 from financing activities. The issuance of common shares
provided $120,000 of the cash from financing. The amount of cash
used in investing activities was $374,300.
The expenditures for the acquisition of additional fixed assets
was 55% of the total cash outflows for investing. In the six
months ended June 30, 1995, the Company utilized $101,800 to
reduce notes payable and $108,300 to acquire fixed assets.
The Company has not paid interest on long term obligations which
have been due since November, 1990. The total amount of interest
payable on long term obligations was $39,700. As of June 30,
1996, the bondholders had made no declaration that the principal
was due and payable. Additional interest has been accrued on the
outstanding debt to the Aaron shareholders of $20,800, for the
first six months of 1996.
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. battery operated cautery market and does not
expect a dramatic growth in sales of battery operated cautery-
related products domestically.
However, the Company, over the past two years has chosen to
expand its product line of electro-surgical products (as opposed
to battery operated cautery products). Electro-surgical products
sold by the Company consist of standard electrodes, the patented
Multi-Function Cautery, the patent pending Resistick line of
reduced stick electrodes and the Aaron 800 high frequency
desiccator. These products are powered by electrical current
(alternating) as opposed to batteries (which provide a direct
current).
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
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.
The Company's effective income tax rate would have been 35%
except that both An-Con and Aaron have loss carryovers. For the
first six months of 1996 Aaron used $84,200 of its loss
carryover. Aaron's past five years have been progressively more
profitable and it is the Company's belief that it will be able to
use the remaining carryover losses to offset gains in 1996 and
1997. The Company expects to spend approximately $375,000 for
capital additions in 1996 of which $150,000 was committed for the
construction and renovation of the St. Petersburg facility.
The Company's ten largest customers accounted for approximately
44%of net revenues for the six months ended June 30, 1996.
The Company believes that it has the financial resources needed
to meet business requirements in the foreseeable future,
including capital expenditures for the expansion of its
manufacturing site, working capital requirements, and product
development programs.
Outlook
The statements contained in this Outlook are based on current
expectations. These statements are forward looking, and actual
results may differ materially.
The Company believes that the world market for disposable medical
products, such as the Company's battery-operated cauteries, has
significant growth potential because these type of products have
not been affordable or effectively marketed outside the U.S.
Because of these factors, the Company has designed certain
disposable products to be reusable. The Company will expand its
marketing thrust internationally by attending more foreign shows
than it did in 1995. The Company presently has a significant
portion of the U.S. cautery market and does not expect a dramatic
growth in sales of cautery-related products domestically.
The Company, over the past two years has chosen to expand its
product line of electrosurgical products. Electrosurgical
products sold by the Company are the standard electrodes, the
patented Multi-Function Cautery, the patent pending Resistick
line of reduced stick electrodes and the Aaron 800 high frequency
desiccator.
The Company had sales of $608,300 and $205,300 in the
electrosurgical product area for the first six months of 1996 and
1995 respectively. The electrosurgical product line is a larger
market than the Company has normally sold into and is dominated
by two main competitors, Valley Lab a division of Pfizer and
Conmed, based in Utica, New York. In the area of reduced stick
electrodes, the main competitor is MegaDyne. The combined
markets for the Company's electrosurgical products exceeds $100
million annually. Management believes that electrosurgical
product sales will move from fifth place to second in total
Company sales by product line in 1996 and will be the largest
single product line by 1997.
Non-Medical Products
The Company sold $397,600 and $563,200 of its flexible lighting
products used primarily in the automotive and locksmith
industries in the first six months of 1996 and 1995 respectively.
The Company is intending to expand this market with the addition
of a higher quality flexible light unit. The higher quality
version of the Bend-A-Light will be sold into the same markets as
the Company presently sells its less expensive unit.
The Company is manufacturing a fiber optic flexible scope to
compete in the automotive, aircraft and quality maintenance
markets and shipped its first scopes at the end of the second
quarter. The product will compete with much more expensive units
built by companies such as Olympus. After the Company has
successfully marketed the industrial fiber optic flexible scope,
it intends to redesign, manufacture and market a medical scope.<PAGE>
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
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
2nd Quarter 1 1/4 1
On September 4, 1996, the Closing bid for An-Con's Common Stock
as reported by the NASD Bulletin Board was $ per share. As
of September 4, 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.
Prior to the Acquisition, Aaron was a private company the shares
of which were not traded in any public market. Private
transactions in Aaron shares for the years 1992 and 1993 were all
valued at $.11 per share on Aaron's books and records. No
transactions in Aaron shares were recorded in 1994.<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 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. On June 30, 1993, the Aaron
Board requested the resignation of M. P. O'Connell, its CEO and
Chairman due to essential differences between Board members and
Mr. O'Connell. Mr. Speiser, CEO and Chairman of An-Con (who had
recently entered into an agreement, which, as amended, provided
for the exchange of An-Con shares for all of the shares of Aaron)
then replaced Mr. O'Connell as Chairman of Aaron's Board in June
of 1993. No value was assigned to Aaron shares during
negotiations which mainly consisted of the percentage of shares
to be allocated to Aaron shareholders. As of the date of this
Prospectus, the acquisition by An-Con of Aaron has resulted in
the two companies operating separately with respect to the
manufacture and sale of their respective products. Although An-
Con's Board of Directors is the controlling entity and is
comprised of different directors, (two of which are also
directors of Aaron) each maintains a separate set of books as
well as its corporate identity. Each of the corporations is
located at the same principal location but each continues to
operate independently. An-Con caused Moshe Citronowicz, (among
others) to join Aaron as its Director of Production. Mr.
Cintronowicz, who is currently an officer and director of Aaron,
is deemed to be a key employee of Aaron and Aaron maintains and
is beneficiary of a policy insuring Mr. Cintronowicz's life. In
addition, An-Con has provided, from time to time, funding
utilized by Aaron to facilitate growth and expansion. (See
"Material Contacts Between An-Con and Aaron"). Total consolidated
Company sales for the year 1995 and the first six months of 1996
were $5,521,000 and $3,214,200 respectively, of which An-Con
contributed $61,600 and $16,000 respectively and Aaron
contributed $5,459,400 and $3,198,200 respectively. In 1995 and
for the first six months of 1996, net loss of the company was
$154,100 and $156,400 respectively. An-Con contributed losses of
$637,200 and $111,800 for the respective periods and Aaron
contributed income of $483,100 and $268,200 for the respective
periods. Management believes that the figures indicated above do
not adequately reflect the synergy represented by An-Con's
financing, management and personnel procurement contributions to
the Company as combined. 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, with telephone number (800) 537-2790. Aaron
Medical Industries, Inc. also maintains its executive offices and
manufacturing facilities at the same location. (See- "Business-
The Company" and "Significant Subsidiary".
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 half of 1996 sales through the same
distributor and others to this market sector were $397,000. 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 was scheduled for formal
release in the 2nd quarter of 1996. However, due to continuing
market and commercial study to determine degree of efficacy
needed by end-users and required product size, the formal release
has been postponed until the fourth 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 seeking a preliminary
and permanent injunction against Aaron for patent infringement.
On August 27, 1996, after a hearing a federal judge denied
Megadyne's motion for a preliminary injunction based upon, among
other things, that Megadyne failed to establish a likelihood of
success in the lawsuit. 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 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 and is presently marketing these and other similar
new products in this line.
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.
Management believes there is a market niche for a tissue fixative
which is a safer alternative to formalin, and which, unlike
formalin, does not require special handling for safety purposes.
With adequate financing and marketing support, it is management's
opinion that Omnifix 2,000 can be a profitable product for the
Company.
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.
Although there is no formal R&D program or R&D department, the
Company has been creating developing products in-house, through
the production and engineering departments of Aaron, and, on
occasion, has developed products licensed from third parties.
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.
Although 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, the
Company has been advised that such cost will be approximately
$125,000.
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
Background
Prior to the initial contacts resulting in the Acquisition, the
Board of Directors of An-Con consisted of Robert Speiser (CEO and
Chairman) and Andrew Makrides (President) and the Board of
Directors of Aaron consisted of M.P. O'Connell (CEO and Chairman)
J. Robert Saron (President), Louis Powell (director) and Paul
Butler (director). On June 30, 1993, Mr. Speiser replaced Mr.
O'Connell on Aaron's Board of Directors. Mr. Saron joined An-
Con's Board in August, 1994. The following table sets forth the
chronological status and changes to the respective management of
both companies until the date of closing of the acquisition on
January, 11, 1995.
From June 23, 1993 to June 30, 1993
An-Con Aaron
CEO - Director Robert Speiser Patrick O'Connell
President-Director Andrew Makrides Robert Saron
Director -- Louis Powell
Director -- Paul Butler
From June 30, 1993 to August 15, 1994
An-Con Aaron
CEO - Director Robert Speiser Robert Speiser
President Director Andrew Makrides Robert Saron
Director -- Louis Powell
Director -- Paul Butler
From August 15, 1994 to January 11, 1995
An-Con Aaron
CEO - Director Robert Speiser Robert Speiser
President-Director Andrew Makrides Robert Saron
Director Robert Saron Louis Powell
Director -- Paul Butler
As of January 11, 1995 the combined company (An-Con) Board was as
follows:
Robert Speiser 1990 CEO An-Con An-Con Officer
Andrew Makrides 1982 President An-Con An-Con Officer
Robert Saron 8/94 Director Aaron Aaron Officer
See Management for status of current An-Con Board. The Board of
Directors of Aaron was increased to 5 members on , 199 ,
with the addition of Andrew Makrides.
Acquisition Negotiations
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, wherein the possibility of acquisition arose. 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. These discussions which ultimately resulted in the
initial March 31, 1993 Agreement, as amended, June 10, 1993, were
held exclusively between Messrs O'Connell and Speiser with
concomitant further discussion with their respective Boards of
Directors. Mr. O'Connell resigned his position as CEO and
director of Aaron on June 30, 1993 and was replaced by Robert
Speiser as CEO and Chairman of the Board of Aaron. Mr. Saron
joined An-Con's Board in August, 1994. Mr. Speiser continued to
negotiate (on behalf of An-Con) with Robert Saron, President of
Aaron, thereafter until Mr. Speiser resignation in March, 1995.
Mr. Makrides then continued negotiations on behalf of An-Con with
Robert Saron as to the additional amendments of the Acquisition
Agreement. Except as heretofore stated the company remained the
same until execution of the Final Acquisition Agreement, as
amended. No outside assistance was utilized with respect to
determining the exchange terms. 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. The discussions did not include the attribution
of any particular value to Aaron or Company stock and usually
involved the percentage to be allocable to Aaron shareholders.
At the time of the initial negotiations An-Con's shares were
trading at a price of approximately $.30 per share (without
giving effect to the later 1 for 15 reverse stock split which
occurred January 6, 1994) on the NASD Bulletin Board. Aaron was
a private company and Aaron's shares were never traded in the
marketplace. Unrelated transactions in Aaron's shares during
1993 were recorded on Aaron's books at $.11 per share.
The Acquisition Agreement, as Amended
Pursuant to the initial 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 An-Con shares to be received by Aaron
shareholders were to be acquired for investment and constituted
restricted securities. The agreement was later amended on June
10, 1993 after discussions between Speiser and Robert Saron,
President of Aaron, 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.
Transactions Leading to Possible Violations and Rescission Offer
At the time of the negotiations, Aaron had in excess of 100
shareholders. Pursuant to the federal securities laws and the
Blue Sky Laws of most states, the exchange offer by An-Con should
have been made only pursuant to and the subject of an effective
registration statement filed with the Securities and Exchange
Commission in addition to being registered or qualified under the
Blue Sky Laws of the respective states of residence of the Aaron
shareholders.
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 which were
presented to the shareholders at the meeting. The members of the
Aaron Board of Directors at the time of the execution of the
agreement with An-Con were M.P. O'Connell, J. Robert Saron, Paul
Butler and Louis F. Powell. 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 may have possibly violated the
Securities Act of 1933. In June, 1993, officers, directors and
affiliates owned and/or controlled a total of 2,298,368 shares of
Aaron or 44% of the outstanding shares of Aaron. 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 June 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. Although Mr. Speiser was
Chairman and CEO of Aaron, he was only one of four members of the
Board of Aaron, which Board controlled Aaron until January 11,
1995.
From June, 1993 onwards, Mr. Speiser represented An-Con in all
acquisition discussions and Robert Saron represented Aaron. Each
conferred with the respective boards of each Company (Mr. Speiser
abstaining on all Aaron Board votes pertaining to the
negotiations for the acquisition). Mr. Saron and his family
together with Messrs. Butler and Powell (co-directors of Aaron)
effectively controlled Aaron with respect to matters involving
negotiations with An-Con after June, 1993 until closing in
January, 1995. Except for Mr. Saron who went on the Board of An-
Con and Mr. Makrides who is now on the Board of Aaron, there were
never any plans to merge the management of both entities.
On May 18, 1994, at a Special Meeting of Shareholders, a change
of the terms of the proposed formal agreement were submitted to
and 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, a formal agreement with Aaron, containing
the aforementioned changes in terms, was executed and the
exchange of shares 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.
Pursuant to resolutions of the respective Boards of Directors of
An-Con and Aaron, 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 was further 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 its revenues in 1994
or 1995 in order to receive 49% equity (3,399,096 shares) was
deleted. 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 were
to be registered with the Securities and Exchange Commission
prior to delivery from escrow. In November, 1995, final
amendment to the Acquisition Agreement was executed and
constitutes the final Acquisition Agreement between the parties.
Given the progress and growth of the combined companies, the
respective Boards of Directors never considered unwinding the
initial acquisition agreement.
Even though each company has maintained separate books and
records, due to the fact that the companies became so intertwined
since the initial acquisition agreement, it was determined that
to seek a vote of shareholders to ratify or unwind the
transaction would be inappropriate. The combined companies had
so materially changed that unwinding the transaction would not be
fair and rescission (offering the value of the consideration paid
by former Aaron shareholders) was deemed more appropriate to
attempt to rectify any possible violations of law.
Final Acquisition Agreement
The Final Acquisition Agreement as amended, provides simply for
an exchange of 3,399,096 shares of Common Stock of An-Con for all
of the outstanding shares of Aaron. There are no conditions to
the exchange except that the shares deliverable to former Aaron
shareholders, which are presently held IN ESCROW by Delton
Cunningham CFO of An-Con (and Aaron), are deliverable upon
effectiveness of this prospectus. The Final Acquisition
Agreement further provides that the An-Con shares deliverable to
former Aaron shareholders are restricted shares and will become
eligible for sale on January 11, 1997 pursuant and subject to the
terms of Rule 144 promulgated under the Securities Act of 1933,
as amended. See "Certain Transactions".
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 by the Board of Directors and management of Aaron
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.
Management of Aaron, in the person of Delton Cunningham CFO, who
is also a former shareholder of Aaron (now also CFO and a
shareholder of An-Con) in consultation with Bloom & Co.,
independent Certified Public Accountants, determined the
valuation of Aaron for rescission purposes. Since the
transaction closed on January 11, 1995, both companies agreed to
utilize December 31, 1994 as the date for valuation purposes. No
other outside source was used for valuation purposes. There has
been no independent appraisal or fairness opinion sought or given
with respect to valuation of Aaron shares.
Although Mr. Cunningham was charged to make a fair appraisal, due
to his capacity as an officer of An-Con and Aaron, an inherent
conflict of interest existed.
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. Multiplying the number
of An-Con shares exchanged with their market price ($1.25 on
January 11, 1995) would have provided a straight forward approach
to valuing the assets of Aaron. However, historically, the
volume of transactions in An-Con's shares has been very limited
in relation to the number of outstanding shares, and the share
prices highly volatile. An analysis was done of the volume and
price of An-Con shares traded, for the period January, 1993
through the second quarter of 1995. The average volume of shares
traded each month by investors was 8,863, 54,450 and 80,892 for
the periods 1993, 1994 and for the first six months of 1995,
respectively. The price of the shares fluctuated between 4 3/8
in the early part of 1993 (giving effect to the 1 for 15 reverse
stock split in January, 1994) to 1 1/4 (the price on January 11,
1995. It is not clear what price or weighted average of
historical prices would best represent the market price in the
current transaction which involves an extremely large block of
An-Con's shares (44% of total).
The only large private placement transaction in An-Con's shares
took place in 1994, under special circumstances. In this
transaction 666,667 shares of An-Con were sold for $1 million
(1.50 per share) to a foreign investor. Among other conditions,
the contract included the provision that the Company should
assist the foreign investor to secure U.S. residency. The value
of the consideration received by the foreign investor, in
addition to the ownership of An-Con shares, makes the actual
price paid for An-Con share unclear. Thus, the price used in
that transaction can not be used to value the purchase of Aaron's
shares.
According to Accounting Standards, Current Text, if the quoted
market price is not the fair value of stock, the value of the
consideration received shall be estimated even though measuring
directly the fair values of assets received is difficult.
(APB16,175), (CT B50.133).
The present values of amounts to be received were determined at
the appropriate current interest rate of 12%. The rate of 12%
represents the cost of capital, the State of Florida's Legal
interest rate from January 11, 1995 that former Aaron
shareholders who are Florida residents will receive if they
exercise their right in favor of rescission.
The following table indicates the book values and present values
assigned the assets and liabilities of Aaron on December 31,
1994. (The valuation date of the purchase.)
Aaron Present
Method Balance Value
of Valuing Sheet Assigned
(see note) Presentationto purchase
Cash Present value $138,900 $138,900
Accounts Receivable (A) 498,400 491,000
Notes receivable Present value 63,900 63,900
Inventories
Raw Materials (B) 327,200 327,200
Finished goods (B) 81,400 85,600
Work in progress (B) 81,600 83,700
Property plan
and equipment (C) 452,200 452,200
Tax asset Present value 366,600 366,600
Valuation allowance Present value (366,600) (366,600)
Patents (D) 16,500 16,500
Deposits Present value 18,000 18,000
Total assets 1,678,100 1,677,000
Current Liabilities (G) (461,000) (454,500)
Loan - An-Con Present value (190,600) (190,600)
Capital lease Present value ( 36,000) ( 36,000)
Net asset value $ 990,500 $ 995,900
Goodwill determined(F) $335,800
Because of the relatively large size of Aaron's current assets
and the recent replacement of a large 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.
(A) The present value of accounts receivable of $498,400 was
determined to be $491,000. The present value was computed using
12% annual interest rate (Florida's legal interest rate) and an
average collection period of 45 days. The average collection
period of 45 days represent the actual collection experience in
1994 and 1993. The allowance for uncollectibility and collection
costs were determined to be not material. The accounts
receivable of $498,400 was fully collected in 1995.
(B) The average time required for the sale of inventories and
the collection of sales proceeds is estimated to be 56 days. The
present value assigned to finished goods was determined by adding
a net profit margin of 7% to the cost of finished goods and
discounting the amount obtained at an interest of 12%, over a
period of 56 days. The net profit margin of 7% represents the
difference with gross profit margin on cost of goods sold of 57%
and the disposal cost of 50%. The gross profit margin and
disposal cost ratios represent average percentages of gross
profit and disposal costs for the years ended December 31, 1994
and 1993.
The semi finished goods were approximately 50% complete and their
values were obtained utilizing the same methods as used for
finished goods.
Raw materials were valued at current replacement cost. Because
of the recent acquisition of these materials, the book value of
raw materials was assumed to equal their replacement cost.
(C) The $452,200 book value of the equipment includes $287,400,
and $103,000 of equipment purchased in 1994 and 1993.
Substantial recent acquisitions of equipment makes it possible to
use the net book value of the equipment as an estimate of the
replacement cost.
(D) Since the Company patents are on average 9-10 years old
and the cash flows from these patents are not expected to be
substantial. The present value of the cash flows, over an
economic life of 5 years, were estimated to be at least equal to
the book value of $16,500. The present value of any additional
cash flows is included in the computation of the goodwill.
(E) The present value of accounts payable of $461,000 was
determined to be $454,500. The present value was computed using
12% annual interest rate and an average collection period of 43
days. The average collection period of 43 days represents the
actual payment experience in 1994 and 1993.
(F) Management also determined that a 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.
The value of goodwill is the equally weighted average of the
estimates obtained using various methods. The amount of goodwill
was estimated to be $335,800 which was computed as follows:
Methods Market Value
Asset Goodwill
(i) Market to book value $ 2,103,800 $ 335,700
(ii) Capitalization of
weighted earnings 2,003,800 325,700
(iii)Capitalization of 1994
earnings 1,989,400 311,300
(iv) Price/weighted earnings 2,036,100 358,000
(v) Price/1994 earnings 2,026,400 348,300
Average $ 2,012,800$ 335,800
(i) Market to book value. This method involves determining
the market value of Aaron by multiplying the book value of
Aaron assets by the ratio of market to book value of a similar
public company.
The market price to book value multiples were computed for
several public companies in the same industry, including
Biomet, Boston Scientific, Stryker, US Surgical, Bard, Becton
and Maxxim, for 1994. The market to book value multiples
ranged from 1 to 5. The ratio of 1.2 for Maxxim was selected
for computing the market value of Aaron. The products of Aaron
and Maxxim are most comparable and as a closely held small
company, with a history of loss, Aaron's shares do not possess
the liquidity and relatively lower risks of the high market to
book value public companies. A market value of $2,103,700 was
obtained by multiplying the ratio of 1.2 with the book value of
Aaron's assets, $1,677,100.
The goodwill of $335,700, which was computed utilizing this
method, represents the difference of the market value of
$2,013,800 and the value of specific assets of $1,678,100.
(ii) Capitalization of weighted earnings. The method
involves dividing weighted average of annual earnings, before
interest and tax, by a capitalization rate that represents the
weighted average of the cost of debt and return on equity.
Weights of 40% 30%, 20% and 10% were assigned to the earnings of
1995, 1994, 1993, and 1992 respectively to place greater emphasis
on more recent earnings. The weighted average of earnings before
interest and tax of $320,000 was obtained.
Assuming the continuation of the current target capital structure
policy of 1/3 debt and 2/3 equity, 12% the cost of debt, and 18%
cost of equity, a capitalization ratio of 16% was obtained.
By capitalizing the weighted average earnings of $320,600 at
16%, the value of the assets and goodwill were determined to be
$2,003,800 and $325,700, respectively.
(iii) Capitalization of 1994 earnings. This method involves
dividing the earnings, before interest and tax for 1994, by the
capitalization rate, which represents the weighted average of the
cost of debt and return on equity.
The amount of goodwill was estimated by capitalizing 1994
earnings of $318,300, at the weighted average capitalization rate
of 16% (see item (ii)). The value of assets and goodwill were
estimated at $1,989,400 and $311,300, respectively.
(iv) Price-earnings ratio and weighted average annual earnings.
Price earnings ratio of a comparable company is multiplied with
the weighted average annual after tax earnings of the Company to
obtain an estimate of the market value of the stockholders'
equity. The market value of the Company's liabilities are added
to the stockholders' equity to obtain the total value of the
assets.
In 1994, the price earnings ratios for various public companies,
in the same industry, ranged from those showing a loss to 21
times. Because of the past losses, greater risks, and lower
liquidity of the shares of a closely held corporation, a price
earning ratio of 6.5, approximately equal to 1/2 of the ratio for
Becton, a public company with the relatively low price earning
ratio of 12.9, and 40% of the 1994 industry average of 16, was
selected.
Assuming a long term tax rate of 35%, weighted average after tax
earnings of $208,400, and a price earning ratio of 6.5, the
market value of the stockholders equity, the Company assets, and
the goodwill were determined to be $1,356,000, $2,036,100, and
$358,000 respectively.
(v) Price-earnings ratio and 1994 annual earnings. As
determined in (iv) above the price earnings ratio of a comparable
company was multiplied by the 1994 after tax earnings before
interest of the Company. With after tax and before interest
earning of $207,800, for 1994, and a price earnings ratio of 6.5,
the market value of the stockholders' equity, assets and the
goodwill of the Company are determined to be $1,345,200,
$2,026,400 and $348,300 respectively.
Accordingly, by adding the estimated market value of the assets
as determined above $995,900 to the goodwill $335,800, the value
assigned the Aaron purchase was determined to be $1,331,700.
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 qualification or for
exemption from qualification of the shares exchanged in any
states in which Aaron shareholders resided. Most states require
that before securities are offered or sold to their residents,
the securities must be either qualified for sale or exempt
therefrom. For purposes hereof, no exemptions to the Blue Sky
Laws have been assumed to have existed in the states of residence
of the Aaron shareholders at the time of the exchange of shares.
Accordingly, in addition to possible violation of the federal
securities laws, State Blue Sky Laws of the states of residence
of Aaron shareholders may have been violated. Management intends
to remedy these possible violations through this Rescission
Offer.
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. Counsel has
advised the Company that generally, the state 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, although no assurance can be given, if a shareholder
accepts the Rescission Offer and receives payment by the Company,
the accepting shareholder may 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. In such eventuality such shareholder shall
have the option to keep his shares of An-Con or seek redress in
the courts of his respective state of residence. Although no
assurance can be given, Management is not aware of any state of
residence of any Aaron shareholder which offers redress to any
former Aaron shareholder in an amount in excess of what is being
offered pursuant to the Rescission Offer.
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."
The Company has filed an application with the Securities Division
of the California Department of Corporations for approval of the
Rescission Offer. Such application included a special form of
letter (drafted to specifically comply with the terms and
conditions of the statutes of the State of California).
California residents may receive a different "form" of Rescission
Offer but such offer will essentially contain the same terms and
conditions as are being offered to all Aaron shareholders. No
assurance can be given that the Company's application will be
approved by that state. If the application is not approved, then
the Company's Rescission Offer may not extinguish the rights of
former Aaron shareholders who are residents of California (a
total of 4 shareholders) regardless of whether they accept or
reject the Company's Rescission Offer until the California
Statute of Limitations expires. See "State Blue Sky Laws -
Possible Uncertainty as to State Blue Sky Law Liability" and
"State Statutes of Limitation".
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,...
Upon effectiveness of the prospectus or immediately prior
thereto, the Company will file a coordination application to
coordinate the prospectus with the Blue Sky Law of the State of
Connecticut.
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."
The Blue Sky Law of the State of Florida does not require any
independent filing by the Company with respect to its Rescission
Offer covered by this prospectus.
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....
The State of Hawaii requires notification in writing by the
Company advising of the Rescission Offer together with a copy of
the form of Rescission Offer. Upon effectiveness of this
prospectus, the Company will file the foregoing with the
Securities Commissioner of the State of Hawaii.
Illinois
The Illinois Securities Law states in pertinent part, the
following:
Sec. 5. Registration of Securities. "All securities except those
exempt under Section 3 or those offered or sold in transactions
exempt under Section 4 or this Act...shall be registered either
by coordination or by qualification, as hereinafter in this
section provided, prior to their offer or sale in this state."
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.
Pursuant to the policy of the State of Illinois, the Company
will forward a copy of its Rescission Offer herein to the
Securities Director of the State of Illinois for their review
and comment. Subject to the State of Illinois' approval of
form, the Company will be required to furnish the Securities
Director of Illinois with copies of materials provided to
former Aaron shareholders who are residents of the State of
Illinois (a total of 4 persons) together with copies of sworn
statement by the Company indicating proof of receipt of
documents by such persons.
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 attorney 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."
The Company has submitted its Rescission Offer to the Securities
Commission of the State of Indiana for approval. Due to Indiana
requirement that a failure by an offeree to respond is deemed to
be an acceptance of rescission (which is contrary to the terms of
the Company's Rescission Offer - a non-response by a former Aaron
shareholder within 30 days by the Company to be deemed will be a
rejection of the Rescission Offer), the Company is not certain of
the final outcome of the offer to Indiana residents (a total of
3 persons) in the event there is a non-response by any offeree.
In such eventuality the Company will deem the non-response as a
rejection of the Rescission Offer. Because of the Indiana Blue
Sky requirements, such may not foreclose the non-responding
shareholder's right of redress in the State of Indiana until the
Indiana Statute of Limitations expires. See "State of Statutes
of Limitation" and "State Blue Sky Laws - Possible Uncertainty as
to State Blue Sky Law Liability".
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....
There are no specific requirements under the Blue Sky Law of the
State of Massachusetts for filing or submission of the Rescission
Offer for approval. However, upon effectiveness of this
prospectus, the Company intends to notify the Massachusetts
Securities Division of the existence of the Rescission Offer. A
total of two former Aaron shareholders are Massachusetts
residents.
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.
The Company has been advised by an official of the State of
Nevada, that since there is only one former Aaron shareholder who
is a resident of the State of Nevada, no notice to the Securities
Commissioner is required.
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,...
There is only one former Aaron shareholder who is a resident of
the State of New Jersey. New Jersey Blue Sky Law requires that
the Company file an application to coordinate the Company's
Rescission Offer pursuant to an effective registration statement
with the State of New Jersey Blue Sky Law and pay a $1,000 filing
fee to the state. Since the aggregate An-Con shares of the lone
former Aaron shareholder resident of New Jersey have a value
substantially less than the amount of filing fee required by New
Jersey, the necessity of filing by coordination with the State of
New Jersey may be deemed to be onerous and counterproductive.
The Company plans to seek a no-action letter from the State of
New Jersey. Accordingly, if no filing is made and the Company is
not able to otherwise secure a no action position from the State
of New Jersey, the Company's Rescission Offer to the New Jersey
resident may not extinguish his right of redress under New Jersey
Blue Sky Law until the expiration of the New Jersey Statute of
Limitations. See "State Statutes of Limitation" and "State Blue
Sky Laws- Possible Uncertainty as to State Blue Sky Law
Liability.
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.
There is no specific requirement regarding Rescission Offers
under the Martin Act. However, upon effectiveness of this
prospectus, the Company will notify the Office of Attorney
General of the State of New York, Bureau of Securities of the
terms of the Rescission Offer including conditions and facts
surrounding the Company's Rescission Offer and the identity of
New York residents receiving the Rescission Offer.
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....
Upon effectiveness of this prospectus, the Company will file 2
copies of its Rescission Offer with the Securities Division of
the Secretary of State of the State of North Carolina.
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."
Since there are only 5 former Aaron shareholders who are
residents of the State of Pennsylvania, a self-executing
exemption from filing is available to the Company. Accordingly,
no notification or filing will be necessary in the State of
Pennsylvania.
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...
The Company has filed a request for a limited offering exemption
from the South Carolina requirement to qualify the An-Con shares
to be repurchased from residents of South Carolina (a total of 3
former Aaron shareholders). In the event the application is not
granted, the Company will take steps to qualify the shares under
the Blue Sky Law of South Carolina.
Possible Uncertainty as to State Blue Sky Law Liability
The Company is attempting to comply with the requirements of each
of the aforesaid states and, except as otherwise specifically
indicated, is in the process of filing all the necessary papers
and documents, including payment of the necessary filing fees.
However, certain states' requirements may be deemed by the
Company to be so rigorous, demanding or onerous for compliance
under the circumstances, that in the light of the limited number
of former Aaron shareholders residing in such states, the Company
may ultimately forego completion of technical compliance with
such states' regulations. With respect to any such state
(wherein compliance is not obtained), management is of the belief
that the amount of money per share which is being offered in the
Company's Rescission Offer would be equal or at least equivalent
to the amount that would be recoverable by residents of any state
were they to sue and succeed under such State Blue Sky Laws.
Accordingly, any such actions may prove counterproductive.
However, notwithstanding the foregoing, if, for any reason, the
Company fails is determined to have failed to comply with any
particular state's procedure or requirements regarding
rescission, the former Aaron shareholder who is resident of such
state may still have rights to seek redress against the Company
notwithstanding their acceptance or rejection of the Rescission
Offer, until the statute of limitations of such state (whose
procedures were not totally complied with by the Company) expire.
Consequently, prior to the expiration of such statute of
limitations (in a state where the Company fails to comply with
Rescission requirements) this Rescission Offer may not cancel the
shareholders right to seek redress under such state's laws
regardless of whether the shareholder has accepted or rejected
the Company's Rescission Offer pursuant to this prospectus. (See
"Statutes of Limitations").
Statutes of Limitation
The possible state violations which the Company is seeking to
remedy are generally governed by specific limitations of time
within which actions may be brought to seek redress for the
violations ("Statutes of Limitation"). If one seeks to
independently pursue his rights under state law by instituting
suit for damages or rescission, suit must be brought within the
specified period prescribed (within the Statute of Limitations).
Although these state statutes grant rights in addition to the
rights of Aaron shareholders pursuant to the Company's current
Rescission Offer, most of the states have additional provisions
which provide that if a purchaser of securities is sold shares in
violation of statute and the purchaser is offered the return of
his consideration paid, plus interest, he may be foreclosed from
instituting suit under such statute. See "Rescission Offer -
State Blue Sky Laws".
There follows a brief summary of the statutes of limitation of
the various states of residence of the Aaron shareholders which
relate to the state remedies available. See "Rescission Offer-
State Blue Sky Laws".
State Statutes of Limitation
California
Sec. 25507. Time Limit on Action - Qualification Violations. (a)
No action shall be maintained to enforce any liability created
under Section 25503 (or Section 25504 or Section 25504.1) unless
brought before the expiration of two years after the violation
upon which it is based or the expiration of one year after the
discovery by the plaintiff of the facts constituting the
violations, whichever shall first expire.
Connecticut
Sec. 36b-29. Buyers Remedies. "(f) No person may bring an action
under this Section more than two years after the date of the
contract of sale...
Florida
Chapter 95 of the Florida Statutes- Sec. 95.11. Limitations
other than for the Recovery of Real Property - Actions other than
for the Recovery of Real Property shall be commenced as
follows:...WITHIN TWO YEARS- ...(e) an action founded upon a
violation of any provision of chapter 517, with the period
running from the time the facts giving rights to the cause of
action were discovered or should have been discovered with the
exercise of due diligence, but not more than five years from the
date such violation occurred.
Hawaii
Sec. 485.20. Remedies. "(a)...Every sale made in violation of
this chapter shall be voidable at the election of the
purchaser...provided that notwithstanding any law to the
contrary, no action shall be brought for the recovery of the
purchase price after five years from the date of sale or after
two years from the discovery of facts constituting the
violations, but in any event, after seven years from the date of
the sale."
Illinois
Sec. 13. Private and Other Civil Remedies; Securities.
"D. No action shall be brought for relief under this Section or
upon or because of any of the matters for which relief is granted
by this Section after 3 years from the date of sale; provided,
that if the party bringing the action neither knew nor in the
exercise of reasonable diligence should have known of any alleged
violation of subsection E, F, G, H, I or J of Section 12 [5/12]
of this Act which is the basis for the action, the 3 year period
provided herein shall begin to run upon the earlier of :
(1) the date upon which the party bringing such action has
actual knowledge of the alleged violation of this Act; or
(2) the date upon which the party bringing such action has
notice of facts which in the exercise of reasonable diligence
would lead to actual knowledge of the alleged violation of this
Act; but in no event shall the period of limitation so extended
be more than 2 years beyond the expiration of the 3 year period
otherwise applicable."
Indiana
Sec. 23.2.1.19. Civil Penalty. "(g) Action under this Section
shall be commenced within three (3) years after discovery by the
person bringing the action of a violation of this chapter, and
not afterwards..."
Massachusetts
Sec. 410. Civil Liabilities. "(e) No person may sue under this
Section more than four years after the discovery by the person
bringing the action of a violation of this chapter or any sale
promulgated or order issued thereunder..."
Nevada
Sec. 90.670. Statute of Limitations. "A person may not sue under
NRS 90.660 unless suit is brought within the earliest of 1 year
after the discovery of the violation, 1 year after discovery
should have been made by the exercise of reasonable care, or 5
years after the act, omission or transaction constituting the
violation."
New Jersey
Sec. 49:3-71. Civil Liability. Time for bringing suit. "(e) No
person may sue under this section more than two years after the
contract of sale, or within two years of the time when the person
aggrieved knew or should have known of the existence of his cause
of action, whichever is later..."
New York
There are no civil remedy provisions under the New York Blue Sky
Law ("Martin Act").
North Carolina
Sec. 78A-56. Civil Liabilities. "(f) No person may sue under
this Section more than two years after the sale or contract of
sale."
Pennsylvania
Sec. 504. Time Limitations on Rights of Action. "(b) No action
shall be maintained to enforce any liability created under
section 502 (or section 503 in so far as it relates to that
section) unless brought before the expiration of two years after
the violation upon which it is based or the expiration of one
year after the plaintiff receives actual notice or upon the
exercise of reasonable diligence should have known of the facts
constituting such violations, whichever shall first expire."
South Carolina
Sec. 35.1.1530. Limitation of Actions. "No person may sue under
Section 35.1.1490 more than three years after the contract of
sale."
Method of Rescission
The Company is now making an offer to repurchase the
aforementioned securities for the value per share of An-Con at
the time it 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 67%
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 June 30, 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 $72,000 as of June 30, 1996.
As of June 30, 1996 the Company's cash position was $75,400.
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. It
is essential that each shareholder receiving this prospectus
fills in and executes the Notice of ACCEPTANCE OR REJECTION of
Rescission Offer form provided with this prospectus and makes a
choice to either "accept" or "reject" the Rescission Offer.
Rejection of Rescission Offer
Those stockholders who choose to reject 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. The decision by any offeree who rejects the
offer and choose to keep the An-Con shares will be final and such
offeree may be foreclosed from changing his mind, even if
thereafter the price of An-Con stock falls below the Rescission
Offer price. Because of the history of illiquidity and
volatility in price of An-Con shares, Aaron shareholders'
rejection the Rescission Offer may experience difficulty in sale
of their shares in blocks of shares. To remedy possible the
problem of illiquidity, management of An-Con intends to qualify
for a national or regional stock exchange or NASDAQ. No
assurance can be given that these efforts will be successful or
if successful, will result in remedying the possible liquidity
problem. 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. See
"Statutes of Limitations" and "State Blue Sky Laws - Possible
Continuing Liability for Violations".
Acceptance of Rescission Offer
All stockholders choosing to accept the Rescission Offer and
rescind their purchase or acquisition of An-Con shares for the
consideration paid valued herein at $.392 per share plus
applicable interest thereon), must check the appropriate space on
the application, sign it and return it to the Company. Upon
termination of the thirty day rescission period (or any extension
thereof) the Rescission Offer will be terminated. The Company
may be required to make a public offering of its shares in order
to provide additional funds necessary to pay Rescission Offerees.
Upon the successful termination of such public offering, any
Rescission Offerees that have accepted rescission and have not
yet been paid, if any, will be contacted by the Company with a
view to payment. 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.
Failure to Respond:
All offerees who fail to respond within 30 days will be deemed by
management to have rejected the Company's Rescission Offer and
have decided to keep their An-Con shares. However, no assurance
can be given that such shareholder will not be able to change
this presumption in a court of law. If, for any reason, the
present address of the former Aaron shareholder is unknown and
incapable of being ascertained, such shares shall be held by the
Company for their benefit.
The current market price for An-Con shares on the Bulletin Board
is $ per share which is $. greater than the Rescission
Offer. Although no assurance can be given, acceptance of the
Rescission Offer could result in a substantially lesser sum than
could be obtained from the sale of shares in the open market.
However, the shares of An-Con delivered to former Aaron
shareholders pursuant to this prospectus will not be eligible for
public sale before January 11, 1997 (pursuant and subject to Rule
144 promulgated under the Securities Act of 1933, as amended).
See "Risk Factors", No. 14.
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.
(See ("Statutes of Limitation" and "State Blue Sky Laws").
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 that will be offered by the
Company in a 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.
The Acquisition is Deemed to be a Tax Free Exchange
Pursuant to IRC Section 368(a)(1)(B), 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. Application of other
non-statutory requirements- continuity of proprietary interest,
active business and business purpose are also satisfied by the
facts of this transaction. Furthermore the Acquisition satisfies
the additional "equity structure shift" test (a change of
ownership percentages as a result of the tax free
reorganization). Since the shareholders of An-Con retained more
than 50% ownership in the reorganized entity, the
reorganization's equity structure shift did not trigger an
ownership change. Hence the conclusion that the transaction
qualifies for tax free treatment.
Tax Opinion
The foregoing tax analysis is the result of a tax opinion
rendered to the Company. The Company has received a formal tax
opinion from Bloom and Company, its auditors, for filing with
respect to this prospectus. Interested parties are urged to seek
independent tax advice if deemed required.
Tax Consequence of Acceptance of Rescission
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.
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. In June, 1995, Delton
Cunningham was appointed Chief Financial Officer of An-Con.
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 1995$116,000 $39,600 $23,700
Andrew Makrides
President 1995 77,000 11,800 8,000
1994 62,500 126,500 14,000
1993 3,500 -- 14,000
Moshe Citronowicz
1995 97,000 11,800 8,000
Delton Cunningham
Treasurer 1995 82,900 8,800 8,000
Robert Speiser
CEO(Former) 1995 12,500 -0- 8,000
1994 84,850(B)235,000
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 1995 $-- -- -- --
Andrew Makrides
President 1995 $-- -- -- --
1994 -- -- -- $2,700
1993 -- -- -- 2,700
Moshe Citronowicz
1995 -- -- -- --
Delton Cunningham
Treasurer 1995 -- -- -- --
Robert Speiser
CEO(Former) 1995 -- -- -- 47,000(c)
1994 -- -- -- 36,400
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.
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.
There has been no change in the pricing of any SAR's previously
or currently awarded.
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 Nature Percentage
Name and Title Shares of Outstanding
Address of Class Owned Ownership(i)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".
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. See "Rescission
Offer" for a description of the terms of the Company's present
Rescission Offer to former Aaron shareholders to repurchase the
An-Con shares issued pursuant to the Acquisition Agreement at a
repurchase price of $.392 per share.
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. See "Material Contacts Between An-
Con and Aaron Concerning the Acquisition" for a detailed
discussion of the various amendments to the Acquisition
Agreement.
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. See "Rescission Offer" for a description of the terms
of the Company's present Rescission Offer to former Aaron
shareholders.
Purchase of Multi-Function Cautery Device
In 1994, prior to and in contemplation of the Acquisition, 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 and assigned the technology to Aaron for
development and marketing. The Company, through its Aaron
subsidiary, has developed and test marketed the device and will
be shipping orders in the fourth quarter of 1996. See "Business-
Multifunction Cautery".
Sale of Common Stock
In connection with an offering of 666,667 shares of common stock
by the Company pursuant to Regulation S, Tsang Yang Tseng a non-
U.S. person 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. Mr. Tseng is now an unsalaried
officer of the Company. 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 to obtain the satisfaction of
judgment. Mr. Speiser claims he has not been fully reimbursed
with respect to the amounts of the judgments. The Company has
taken the position that the judgments are based upon
unsubstantiated claims. However, the Company has recorded the
liability of such claims on its books.
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.
On August 27, 1996, a federal judge, after a hearing, denied
plaintiff Megadyne's motion for a preliminary injunction, based
upon, among other things, that Plaintiff failed to demonstrate a
reasonable likelihood of success on the merits in the action for
infringement. The lawsuit is continuing pending a trial for the
permanent injunction.
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 76,667 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.
<PAGE>
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
Consolidated Notes to Financial Statements . . . . F-18
UNAUDITED CONSOLIDATED
CONSOLIDATED FINANCIAL STATEMENTS
Page
Consolidated Balance Sheet June 30, 1996 . . . . . F-39
Consolidated Statement of Operations for the
Six Months Ended June 30, 1996 and 1995. . . . . F-41
Consolidated Statement of Cash Flows for the
Six Months Ended June 30, 1996 and 1995 . . . . F-42
Consolidated Notes to Financial Statements . . . . F-45
AARON MEDICAL INDUSTRIES, INC.
FINANCIAL STATEMENTS
Independent Auditors Report. . . . . . . . . . .F-50
Balance Sheet December 31, 1994 and 1993 . . . .F-51
Income Statements for the Years Ended
December 31, 1995 and 1994 . . . . . . . . . . .F-53
Statement of Cash Flows for the Years Ended
December 31, 1994 and 1993 . . . . . . . . . . .F-54
Statement of Stockholders Equity For the Years
Ended December 31, 1994 and 1993 . . . . . . . .F-56
Notes to Financial Statements. . . . . . . . . .F-57
Schedules of Cost of Sales . . . . . . . . . . .F-68
Schedules of Operating Expenses. . . . . . . . .F-69
An-Con Genetics, Inc.
Consolidated Financial Statements
For the period ended
December 31, 1995 and 1994 an<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.
S/Bloom and Company
BLOOM AND COMPANY
April 15, 1996
Except for Notes 7 and 11 August 30, 1996
<PAGE>
AN-CON GENETICS, INC.
CONSOLIDATED 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 100,300
Deferred charges 95,000
Patent rights, net 259,500
Unamortized debt issue costs, net 3,700
Deposits 7,700
466,200
$3,417,200
The accompanying notes are an integral part
of the financial statements.
AN-CON GENETICS, INC.
CONSOLIDATED 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 (11,366,200)
239,600
Subscriptions receivable ( 10,600)
Total stockholders' equity 229,000
$ 3,417,200
The accompanying notes are an integral part
of the financial statements.
AN-CON GENETICS, INC.
CONSOLIDATED 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 -- --
Net income (loss) $ ( 154,100)$(1,002,200)
Per share
Net loss before extraordinary item$( .054)
Net income (loss) $( .04)$( .39)
Weighted average number of shares
outstanding primary and fully diluted 4,354,349* 2,586,688
*This number should be used to calculate earnings per share
because it 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.
CONSOLIDATED 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.
CONSOLIDATED 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,
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.
CONSOLIDATED 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 18,100 343,400
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.
CONSOLIDATED 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.
CONSOLIDATED 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.
CONSOLIDATED 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.
CONSOLIDATED 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 ( 154,100 )
Balance December 31,
1995 4,305,340 $ 64,700$11,541,100 $(11,366,200)
(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 (154,100)
Balance December 31,
1995 $ 0 $ (10,600) $ 0 $ 229,000
AN-CON GENETICS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
Cash flows from operating activities:
Net income (loss) $ (154,100) $(1,002,200)
Adjustments to reconcile net
income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization 171,000 120,300
Tax benefit 183,300 --
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 ( 166,600) 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.
CONSOLIDATED 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
CONSOLIDATED 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
CONSOLIDATED 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. In 1995
the Company reduced goodwill for the tax benefit recognized by
Aaron as a result of its net operating loss carryover of
$183,300 as per Fasb 109 paragraph 30.
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
CONSOLIDATED 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.
CONSOLIDATED 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.
CONSOLIDATED 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
CONSOLIDATED 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.
CONSOLIDATED 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.
CONSOLIDATED 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.
CONSOLIDATED 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.
CONSOLIDATED 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.
CONSOLIDATED 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.
CONSOLIDATED 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.
CONSOLIDATED 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)
Elimination of
valuation for tax
asset (183,300) (183,300)
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- $ 188,000 $ -0- $188,000 $ 87,700
Aaron, the Company's subsidiary had recognized a tax asset for
carryover losses of $366,600 on January 11, 1995 (the date of
purchase) and a corresponding valuation allowance of $366,600.
As per Financial Accounting Standards Board (FASB) Statement
of Standards Number 109 paragraph 30. If a valuation allowance
is recognized for the deferred tax asset for an acquired
entity's deductible temporary differences or operating loss or
tax credit carryforwards at the acquisition date, the tax
benefits for those items that are first recognized (that is,
by elimination of that valuation allowance) in financial
statements after the acquisition date shall be applied (a)
first to reduce to zero any goodwill related to the
acquisition, (b) second to reduce to zero other noncurrent
intangible assets related to the acquisition, and (c) third
to reduce income tax expense.
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.
AN-CON GENETICS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(continued)
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.
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.
AN-CON GENETICS, INC.
CONSOLIDATED 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.
CONSOLIDATED 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.
CONSOLIDATED 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 $183,300. 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.
CONSOLIDATED 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.
CONSOLIDATED 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.
CONSOLIDATED 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.
CONSOLIDATED 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.
CONSOLIDATED 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.
CONSOLIDATED 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.
CONSOLIDATED 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 FINANCIAL STATEMENTS
JUNE 30, 1996
AN-CON GENETICS, INC.
CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
ASSETS
Current assets:
Cash $ 75,400
Trade accounts receivable 581,700
Inventories 727,400
Prepaid expenses 28,400
Deferred tax asset 99,100
Total current assets 1,512,000
Property and equipment, net 1,429,800
Other assets:
Goodwill, net 60,400
Deferred charges, net 195,000
Patent rights, net 297,600
Unamortized debt issue costs, net 3,100
Deposits 7,700
563,800
$ 3,505,600
The accompanying notes are an integral part of the financial
statements.
<PAGE>
AN-CON GENETICS, INC.
CONSOLIDATED BALANCE SHEET
JUNE 30,1996
(CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 738,500
Accrued interest 189,100
Notes payable - current portion 183,700
Due to Aaron shareholders 1,331,800
Obligations under capital leases -
current portion 31,300
Total current liabilities 2,474,400
Long-term debt, net 514,600
Obligations under capital leases,net 600
Stockholders' equity:
Common stock par value $.015; 15,000,000
shares authorized, issued and outstanding
4,425,340 shares on June 30, 1996 66,500
Additional paid in capital 11,659,300
Accumulated deficit (11,209,800)
Total stockholders' equity 516,000
$ 3,505,600
The accompanying notes are an integral part of the financial
statements.
<PAGE>
AN-CON GENETICS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
1996 1995
Sales $ 3,214,200$2,592,300
Costs and expenses:
Cost of sales 1,599,600 1,501,300
Research and development 26,300 --
Professional services 125,600 219,400
Salaries and related costs 493,100 291,100
Selling, general and
administration 664,500 696,700
2,909,100 2,708,500
Gain(Loss)from operations 305,100( 116,200)
Other income (expense):
Interest, net ( 64,500) ( 3,900)
Miscellaneous -- 2,500
( 64,500) ( 1,400)
Gain (Loss) before
extraordinary item 240,600 ( 117,600)
Extraordinary item:
Gain from settlement of debt,
net of taxes -- 76,800
Income 240,600( 40,800)
Provision for income tax ( 84,200) --
Realized benefit of loss
carryforward -- --
Net income (loss) $ 156,400$ ( 40,800)
Per share, Primary and fully diluted:
Gain(Loss) before extraordinary item $ .02$(.02)
Extraordinary item -- .01
Net income (loss) $ .02 $(.01)
Weighted average number of shares
outstanding - Fully Diluted 6,898,040 6,643,040
The accompanying notes are an integral part of the financial
statements.<PAGE>
AN-CON GENETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
1996 1995
Cash Flows from operating activities
Net income (loss) $ 156,400$( 40,800 )
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 116,400 45,900
Common stock issued for
professional fees 5,700 7,900
Gain from forgiveness of debt -- (76,800)
Employee stock option granted 16,900 --
Changes in current assets and liabilities:
Increase (decrease)in receivables 70,600 (267,200)
(Increase) decrease in inventories (121,200) ( 97,100)
(Increase) decrease in prepaid expenses 45,500 ( 2,300)
(Decrease) in accounts payable (171,400) 100,400
Increase in accrued interest 31,200 ( 600)
Decrease in deferred tax 84,200 --
Total adjustments 77,900 (289,800)
Net cash provided by (used in)
operating activities 234,300 (330,600)
Cash flows from investing activities
(Increase)in deferred cost (100,000) --
(Increase)in fixed assets (204,800)( 108,300)
(Increase)in patents ( 69,500) --
Net cash used in investing activities (374,300)( 108,300)
Cash flows from financing activities
Decrease in obligations under
capital lease ( 4,200)( 3,700)
Decrease in notes payable - officers --( 90,800)
(Increase)decrease in long term debt ( 76,800)( 7,300)
Common shares issued for cash 120,000 1,000
Decrease in subscriptions receivable 10,600 49,000
Net cash provided by (used in)
financing activities 49,600( 51,800)
Net increase (decrease) in cash and
cash equivalents ( 90,400) (490,700)
Cash and cash equivalents,
beginning of period 165,800 550,700
Cash and cash equivalents,
end of period $ 75,400$ 60,000
The accompanying notes are an integral part of the financial
statements.
AN-CON GENETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Cash paid during six months ended June 30:
1996 1995
Interest $ 18,900 $9,300
Income Taxes -0- -0-
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
FOR THE SIX MONTHS ENDED JUNE 30, 1996
On February 15, 1996 the Company set up an employee stock option
plan issuing 337,000 warrants to key employees valued at $.05 per
share. The Company utilized a loss carryforward of $240,600 as an
offset against its estimated taxable income of equal amount. For
the period ended the Company wrote off warrants previously issued
for $5,700.
FOR THE SIX MONTHS ENDED JUNE 30, 1995
The Company issued 35,000 restricted post-split shares to
convertible noteholders to redeem $70,000 in notes payable and
$26,900 of related accrued interest. The shares were valued at
$14,000, 50% of the market price of the Company s unrestricted
shares at the time of issuance. The issuance cost of the redeemed
bonds, in the amount of $6,100 was written off.
The Company issued 27,500 post split shares for services valued at
$11,000, 50% of the market price of the Company s unrestricted
shares at the time of issuance.
On January 11, 1995, An-Con acquired all of the outstanding capital
stock of Aaron Medical Industries, Inc.(Aaron), in exchange for
issuing 3,399,096 shares of the Company to an escrow agent. The
total acquisition price of Aaron shares was valued at $1,331,800.
According to the agreement An-Con will register the shares that are
placed in escrow. The former shareholders of Aaron have the right
to accept the registered shares of An-Con or elect to receive the
value of their shares in cash. Since (a) the vote was previously
taken by Aaron s shareholders and shares were already delivered by
them, and (b) An-Con shares were already issued prior to filing and
effectiveness of a registration statement under the Securities Act
of 1933, and (c) since the Company has already been acquired since
January, 1995, the shareholders of Aaron are to be provided with
an effective registration statement by An-Con and are being
requested to choose either to accept delivery of the An-Con shares
pursuant to the Acquisition Agreement, as amended, or, in the
alternative, to receive cash for their shares of Aaron. The amount
of $1,331,800, value of the consideration due to the former Aaron
shareholders, is recorded as a current liability of An-Con, as of
March 31, 1995.
AN-CON GENETICS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1996 (Continued)
The acquisition of Aaron was accounted for using the purchase
method. Accordingly, $2,012,800 was allocated to assets acquired
based on their estimated fair values. This treatment resulted in
$335,800 of cost in excess of net assets acquired. Such excess
(which has increased for additional acquisition costs) is being
amortized on a straight line basis over 5 years. In connection
with the acquisition the Company assumed $681,600 net liabilities
of Aaron.
The company utilized a loss carryforward of $700 as an offset
against its estimated taxable income of equal amount.
AN-CON GENETICS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the interim financial statements
reflect all adjustments, consisting of only normal recurring items,
which are necessary for a fair presentation of the results for the
interim periods presented. The results for interim periods are not
necessarily indicative of results for the full year. These
financial statements should be read in conjunction with the
significant accounting policies and the other notes to the
financial statements included in the Corporation's 1995 Annual
Report to the SEC on Form 10-KSB.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
(A) Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company
considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
(B) Accounts Receivable
Accounts receivable are presented net of the allowance for
doubtful accounts.
(C) Inventories
Inventories are stated at the lower of cost, determined by
the FIFO method or market.
(D) Property, Plant and Equipment
Property and other equipment are recorded at cost.
Depreciation is computed using the straight-line method over
the estimated useful lives of the assets as follows:
leasehold improvements-term of lease: furniture, fixtures
and equipment 5 years.
(E) Bond Issue Costs
Costs related to a bond issue are classified as deferred
charges and amortized using the straight line method, over
the life of the bonds.
(F) Investments
The equity method is used to account for investments in
corporate joint ventures and other investments in common
stock if the company has the ability to exercise significant
influence over operating and financial policies of the
investee enterprise. That ability is presumed to exist for
investments of 20% or more and is presumed not to exist for
investments of less than 20%; both presumptions may be
overcome by predominant evidence to the contrary.
AN-CON GENETICS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(continued)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(F) Investments
The Company initially records an investment at cost.
Subsequently, the carrying amount of the investment is
increased to reflect the Company's share of income of the
investee and is reduced to reflect the company's share of
losses of the investee or dividends received from the
investee. The Company's share of the income or losses of
the investee is included in the Company's net income as the
investee reports them. Adjustments similar to those made in
preparing consolidated financial statements, such as
elimination of intercompany gains and losses and
amortization of the difference between cost and underlying
equity in net assets, also are applicable to the equity
method. Under the equity method, an investment in common
stock is shown in the balance sheet of the Company as a
single amount. Likewise, an investor's share of earnings or
losses from its investment is ordinarily shown in its income
statement as a single amount.
The cost method is used when ownership of securities in an
affiliated company represents less than 20% of the total
outstanding shares of that Company. Under this method the
Company records an investment in the stock of an investee at
cost, and recognizes as income dividends received that are
distributed from net accumulated earnings of the investee
since the date of acquisition by the Company. The net
accumulated earnings of an investee subsequent to the date
of investment are recognized by the company only to the
extent distributed by the investee as dividends. Dividends
received in excess of earnings subsequent to the date of
investment are considered a return of investment and are
recorded as a reduction of cost of the investment.
A loss in value of an investment that is other than a
temporary decline shall be recognized the same as a loss in
value of other long-term assets. Evidence of a loss in
value might include, but would not necessarily be limited
to, absence of the ability to recover the carrying amount
of the investment or inability of the investee to sustain an
earnings capacity that would justify the carrying amount of
the investment. A current fair market value of an
investment that is less than its carrying amount may
indicate a loss in the value of the investment.
(G) Research and Development Costs
Research and development costs are charged to expense when
incurred. Disclosure in the financial statements is made
for the total research and development costs charged to
expense in each period for which an income statement is
presented.
AN-CON GENETICS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(G) Research and Development (continued)
Only the research and development costs that are purchased
from another enterprise and have alternative future use are
capitalized and are amortized over five years.
(H) Research and Development Arrangements
The Company accounts for its obligations under an
arrangement for the funding of research and development by
others by determining whether the Company is contractually
obligated to pay for research not yet performed. If so
determined, to the extent that the Company is obligated to
pay, the Company records a liability and charges research
and development costs to expense.
(I) Patents, Franchises, Licenses and Operating Rights
The cost of franchises, license options to acquire
technology and operating rights acquired are amortized using
the straight-line method over their useful lives, 5 years.
(J) Stock Issue Costs
Stock issue costs are treated as a reduction of the amount
received from the sale of the related capital stock.
(K) Net Earning (Loss) Per Share
Net earnings (loss) per share are computed based upon the
weighted average number of outstanding common shares during
the period considered.
(L) Income Recognition
Income is recognized on the accrual basis, i.e., revenues
are recognized and reported in the income statement when the
amount and timing of revenues are reasonably determinable
and the earning process is complete or virtually complete.
(M) Accounting for Income Taxes
In 1992, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for
Income taxes." This statement requires that deferred taxes
be established for all temporary differences between the
book and tax bases of assets and liabilities, including
those which have not been previously
AN-CON GENETICS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(continued)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(M) Accounting for Income Taxes (continued)
recognized. In addition, deferred tax balances must be
adjusted to reflect tax rates that will be in effect in the years
in which the temporary differences are expected to reverse.
(N) Nonmonetary Transactions
The accounting for non-monetary assets is based on the fair
values of the assets involved. Cost of a non-monetary asset
acquired in exchange for another non-monetary asset is
recorded at the fair value of the asset surrendered to
obtain it. The difference in the costs of the assets
exchanged is recognized as a gain or loss. The fair value
of the asset is used to measure the cost if it is more
clearly evident than the fair value of asset surrendered.
(O) Stock-Based Compensation
The Company has adopted Accounting Principles Board Opinion
25 for its accounting for stock based compensation. Under
this policy:
Compensation costs are recognized as an expense over the
period of employment attributable to the employee stock
options.
Stocks issued in accordance with a plan for past or future
services of an employee is allocated between the expired
costs and future costs. Future costs are charged to the periods
in which the services are performed.
(P) Principles of Consolidation
The consolidated financial statements include the accounts
of An-Con Genetics, Inc. and its wholly-owned subsidiary
Aaron Medical Industries, Inc., after elimination of
material intercompany accounts and transactions.
NOTE 3. DESCRIPTION OF BUSINESS
An-Con Genetics, Inc. ("the Company") was incorporated in 1982,
under the laws of the State of Delaware and has its principal
executive office at 1 Huntington Quadrangle, Melville, New York
11747.
AN-CON GENETICS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 4. STOCK-BASED COMPENSATION
In the first quarter of 1996, the Company issued warrants to
purchase 337,000 restricted shares of the Company stocks to various
employees, in exchange for their services. Under the terms of the
stock warrant plan, warrants are granted a price of $1.125 per
share. The warrants may be exercised at any time during the period
commencing February 16, 1996 and ending February 15, 2001.
The Company applies APB opinion 25, Accounting for Stock Issued to
Employees, and related Interpretations in accounting for its plans.
Accordingly, based on a stock price of $1.175 per share when
warrants were issued, a compensation cost of $.05 per warrant was
recognized. Had the compensation cost for the Company's warrants
been determined based on the fair value at the grant date of the
awards under the warrants plan consistent with the method of FASB
Statement 123 Accounting for Stock Based Compensation, the cost per
warrant would have been $.11 and Company's net income and earnings
per share would have been reduced to the pro forma amounts
indicated below:
Net Income As reported $61,400
Pro forma 41,200
Primary and fully As reported .009
diluted earnings Pro forma .006
per share
NOTE 5. EARNINGS PER SHARE
Primary earnings per share is equal to net income divided
by the weighted average number of shares outstanding including
dilutive convertible securities. In the first six months of 1996,
the dilutive securities included the outstanding shares of Xenetics
Biomedical, Inc. and Automated Diagnostics Inc., the two inactive
subsidiaries of the Company. The shares of these companies were
convertible to 153,333 shares of An-Con common stock. Also,
approximately 70% of former shareholders of Aaron Medical
Industries, Inc. had indicated their decision to accept 2,379,367
shares of An-Con. The Company's fully diluted and primary earnings
per share are the same and are computed assuming the conversion of
these securities.
AARON MEDICAL INDUSTRIES, INC.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1994 AND 1993
BLOOM AND COMPANY
50 CLINTON STREET
HEMPSTEAD, NY 11550
(516) 486-5900
(516) 486-5476
Board of Directors
Aaron Medical Industries, Inc.
St. Petersburg, Florida
We have audited the accompanying balance sheets of Aaron Medical
Industries, Inc. as of December 31, 1994 and 1993, and the related
statements of income, stockholders' equity, and cash flows for the
years then ended. 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 audit 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 audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Aaron
Medical Industries, Inc. as of December 31, 1994 and 1993, and the
results of its operations and its cash flows for the years then
ended, in conformity with generally accepted accounting principles.
Our audit was conducted for the purpose of forming an opinion on
the basic financial statements taken as a whole. The supporting
information included in the accompanying schedules is presented for
the purpose of additional analysis and is not a required part of
the basic financial statements of Aaron Medical Industries, Inc.
Such information has been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to
the financial statements taken as a whole.
BLOOM AND COMPANY
Hempstead, New York
April 15, 1995
AARON MEDICAL INDUSTRIES, INC.
BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
ASSETS
Current assets: 1994 1993
Cash $ 138,900$ 115,800
Accounts receivable 498,400 263,000
Inventories 490,200 447,600
Prepaid expenses and other assets 63,900 19,700
Notes receivable -- 5,100
Total current assets 1,191,400 851,200
Property, plant and equipment 452,200 155,200
Other assets:
Patents, trademarks and
copyrights, net 16,500 21,900
Deposits as security 18,000 21,000
34,500 42,900
$1,678,100$1,049,300
The accompanying notes are an integral part of the financial statements.
F-51
AARON MEDICAL INDUSTRIES, INC.
BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities: 1994 1993
Accounts payable and accrued
expenses $ 327,400 $ 194,000
Current maturity of long-term debt 18,900 52,100
Customer deposits and credits 106,300 51,100
Current portion of obligations
under capital leases 8,400 2,600
Total current liabilities 461,000 299,800
Long-term debt -- 46,200
Obligations under capital leases 36,000 31,100
Loans and advances
due to affiliate 190,600 --
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.001 per
share, authorized 10,000,000 shares,
issued and outstanding on December
31, 1994 and 1993 are 5,960,042 6,0006,000
Additional paid in capital 609,400 609,400
Retained earnings, since
January 1, 1993 435,600 117,300
1,051,000 732,700
Less: subscriptions receivable ( 60,500) ( 60,500)
Total stockholders' equity 990,500 672,200
$1,678,100$1,049,300
The accompanying notes are an integral part of the
financial statements.
F-52<PAGE>
AARON MEDICAL INDUSTRIES, INC.
INCOME STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
1994 1993
Net sales $4,069,600 $3,222,300
Cost of sales 2,628,300 2,008,700
Gross profit 1,441,300 1,213,600
Operating expenses:
Selling expenses 567,400 414,100
General and administrative
expenses 627,200 676,200
1,194,600 1,090,300
Income from operations 246,700 123,300
Other income (expense):
Change in estimate of
useful lives of equipment 55,000 --
Gain from settlement of debt 13,900 --
Interest (expense), net of income (7,600) (6,000)
Other income 10,300 --
71,600 (6,000)
Income before income taxes
and extraordinary item 318,300 117,300
Income taxes 118,100 33,000
Income before extraordinary item 200,200 84,300
Extraordinary item:
Utilization of operating
loss carryforward 118,100 33,000
Net income $ 318,300 $ 117,300
Weighted average number of shares 5,960,0425,360,004
Earnings per share $.05 $.02
The accompanying notes are an integral part of the
financial statements.
F-53<PAGE>
AARON MEDICAL INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
1994 1993
Cash flows from operating activities:
Net income $ 318,300 $117,300
Adjustments to reconcile net
income to net cash provided by
(Used in) operating activities:
Depreciation and amortization 8,600 51,300
Common shares issued for services -- 59,000
Changes in assets and liabilities:
(Increase) decrease in receivables (235,400) 49,900
(Increase) in inventories ( 42,600) (49,000)
(Increase) in prepaid expenses
and other assets ( 44,200) ( 3,000)
(Increase) decrease in
notes receivable 5,100 ( 5,100)
(Increase) in goodwill ( 6,000) --
Increase (decrease) in
accounts payable 133,400 (36,200)
Increase in customer deposits 55,200 33,600
Total adjustments ( 125,900) 100,500
Net cash provided by
operating activities $ 192,400$ 217,800
The accompanying notes are an integral part of the financial statements.
AARON MEDICAL INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
(Continued)
1994 1993
Net cash provided by
operating activities $ 192,400$ 217,800
Cash flows from investing activities:
(Increase) in fixed assets ( 294,200) (33,600)
(Increase) decrease in
security deposits 3,000 ( 18,700)
Net cash used in
investing activities ( 291,200) ( 52,300)
Cash flows from financing activities:
Increase due to affiliate 190,600 --
Increase in capital leases 10,700 --
(Decrease) in long-term debt( 79,400) ( 70,600)
Net cash provided by (used in)
financing activities 121,900 ( 70,600)
Net increase in cash 23,100 94,900
Cash at beginning of year 115,800 20,900
Cash at end of year $ 138,900 $ 115,800
SCHEDULE OF NONCASH TRANSACTIONS
1. In 1994, the Company leased a telephone system valued at
$16,200 and paid $1,600 on the financing arrangement.
2. In 1993, the Company issued 510,000 shares of common stock
for services valued at $53,900.
3. In 1993, the Company leased an automobile valued at $38,800
and paid $5,100 on the financing arrangement.
4. In 1993, certain employees of the Company exercised their
options to purchase 550,000 shares of common stock by
signing promissory notes for $60,500. The amount of the
receivable, $60,500, is recorded as a reduction of
stockholders' equity.
The accompanying notes are an integral part of the financial
statements.
F-55<PAGE>
AARON MEDICAL INDUSTRIES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
Common Stock
Number of Paid-In Subscript.Retained
Shares Par Value Capital ReceivableEarnings
Balance
January 1, 1993 4,760,042$ 4,800 $ 491,100 $ -- $--
Exercise of options
issued to directors
for services
rendered 140,000 140 3,750
Shares issued to
directors for
services
@ $.11 per share 420,000 420 44,800
Shares issued as
compensation for
services at $.11
per share 90,000 90 9,800
Shares issued for
stock options
exercised at $.11
per share 550,000 550 59,950 (60,500)
Net income 1993 117,300
Balance
December 31, 1993 5,960,042 6,000 609,400 (60,500)117,300
Net income 1994 318,300
Balance
December 31, 1994 5,960,042$ 6,000 $ 609,400$(60,500)$435,600
The accompanying notes are an integral part of the financial
statements.
F-56
AARON MEDICAL INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
THE BUSINESS
Aaron Medical Industries, Inc. (the Company), through its
predecessor Key Technologies, Inc., was first incorporated February
27, 1976 as Medical Products Development, Inc. On February 23,
1981, the name of the Company was changed to Key Medical, Inc., and
on January 23, 1984, it was renamed Key Technologies, Inc.
The Company'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. The Company
manufactures many types of cauteries.
The Company 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 patented light is distributed through
the largest automotive tool distributor, Snap On Tools Corporation
and various retail outlets and stores.
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 the largest
hospital supply company in the U.S., Baxter Healthcare Corporations
Hospital Supply Division. Additionally, private label arrangements
have been made with other national firms such as General Medical
Corporation and the largest buying group, Abco Dealers, Inc. These
private label arrangements, combined with the Aaron label allow the
Company to gain a greater market share for the distribution of its
products.
In 1993, the Company expanded into the electrosurgery and
laproscopic markets through its current distribution base.
NOTE 1. ACCOUNTING POLICIES
a. Depreciation:
The cost of property, plant, and equipment is depreciated
over the estimated useful lives of the related assets. The
cost of leasehold improvements is depreciated (amortized)
over the lesser of the length of the related leases or the
estimated useful lives of the assets. Depreciation is
computed on the straight-line method for financial
reporting.
F-57
AARON MEDICAL INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(continued)
NOTE 1. ACCOUNTING POLICIES (continued)
a. Depreciation (continued)
During 1994, the Company increased its estimate of the useful lives
of certain machinery and equipment and furniture and fixtures for
financial reporting purposes, as permitted by generally accepted
accounting principles. This change had the effect of increasing
income before extraordinary items and net income for 1994 by
$55,000 ($.01 per share).
b. Patents, Trademarks, and Copyrights:
The cost of patents, trademarks, and copyrights acquired are being
amortized on the straight-line method over their remaining lives,
ranging from 5 to 10 years. Amortization expense charged to
operations in 1994 and 1993 were $11,400 and $11,000, respectively.
c. Accounts Receivable:
Sales are generally recorded when goods are shipped, and profit is
recognized at that time. The Company sells its products primarily
to consumers who generally pay within 60 days. Accounts for which
no payments have been received for three consecutive months are
considered delinquent and customary collection efforts are
initiated. Accounts for which no payments have been received for
six months are written off. Collections on accounts previously
written off are included in income as received.
Based on past performance, an allowance for doubtful accounts of
1% of accounts receivable is maintained to offset possible future
losses.
d. Inventories:
Inventories are stated at the lower of cost determined by the LIFO
method or market.
e. Accounting for Income Taxes:
In February 1992, the Financial Accounting Standards Board (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.
F-58<PAGE>
AARON MEDICAL INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. ACCOUNTING POLICIES (continued)
e. Accounting for Income Taxes: (continued)
The judgment regarding the need for a valuation allowance depends
on the entity's specific facts and circumstances; there are no
precise formulas for determining whether a valuation allowance is
needed or the amount of the allowance. Such a need is based on an
assessment of the likelihood of the entity's ability to generate
sufficient taxable income of the appropriate character (for
example, ordinary income or capital gain) within the carryback or
carryforward period under the applicable tax law to realize the tax
benefits recognized as a result of deductible temporary
differences, and operating loss carryforwards.
The Company has adopted the policy of preparing its future
financial statements in accordance with FASB 109.
NOTE 2. ACCOUNTS AND NOTES RECEIVABLE
The following is a summary of accounts receivables at December
31:
1994 1993
Trade accounts $ 503,300 $ 267,000
Less: allowance for
doubtful accounts ( 4,900) ( 4,000)
$ 498,400 $ 263,000
During 1993, the Company sold 550,000 common shares to certain
employees and received notes in the amount of $60,500 which are due
in 1995. These notes bear interest at 9% per annum which is to be
paid semi-annually through 1995.
NOTE 3. INVENTORIES
Inventories as of December 31, consisted of:
1994 1993
Raw materials $ 327,200 $ 220,000
Work in progress 81,600 113,000
Finished goods 81,400 105,200
Supplies -- 9,400
Total $ 490,200 $ 447,600
F-59
AARON MEDICAL INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. INVENTORIES (continued)
Inventories are stated at the lower of cost determined by the LIFO
method or market. If the FIFO method had been used, inventories
would have been approximately $465,700 and $425,200 at December 31,
1994 and 1993, respectively, and net income for 1994 and 1993 would
have been approximately $293,800 and $95,000, respectively.
NOTE 4. PROPERTY, PLANT, AND EQUIPMENT
The following is a summary of property, plant, and equipment, at
cost, less accumulated depreciation:
1994 1995
Machinery and equipment $ 972,700$ 739,000
Furniture and fixtures 89,300 81,800
Leasehold improvements 3,800 3,800
Capitalized transportation
equipment 38,800 38,800
1,104,600 863,400
Less: accumulated
depreciation ( 698,600)( 708,200)
406,000 155,200
Machinery and equipment-
Construction in progress 46,200 --
Total $ 452,200$ 155,200
Depreciation expense charged to operations was $52,200 and
$40,500 in 1994 and 1993 respectively.
Computer equipment with a cost of $47,100 was pledged as
collateral for a bank loan in 1993.
The useful lives of property, plant, and equipment for purposes
of computing depreciation are:
Machinery and equipment 5-15 years
Furniture and fixtures 5-10 years
Leasehold improvements Length of the lease
F-60<PAGE>
AARON MEDICAL INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 5. LONG-TERM DEBT
The following is a summary of long-term debt as of December 31:
1994 1993
7.5% note payable to bank in monthly
installments of $1,868.21, inclusive
of interest through September, 1994
which was refinanced in February,
1992. $ -- $ 16,000
8.875% note payable to landlord
affiliate for rental of premises.
Payments began in May of 1993 and
are $1,956.29 monthly, inclusive
of interest through April of 1995.7,400 29,500
0% note payable to unsecured creditors as
stipulated in Chapter 11 Reorganization,
payable $1,055.69, beginning in May,
1994 and ending in May, 1998. 11,500 52,800
Less: Current maturities included
in current liabilities 18,900 98,300
$ -- $ 46,200
The following are maturities of long-term debt for each of the
next three years:
1995 $ 18,900
1996 --
1997 --
$ 18,900
F-61<PAGE>
AARON MEDICAL INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 6. LEASES
a. Operating Lease
On March 8, 1993, the Company entered into a five year operating
lease agreement with minimum future rental payments for each of the
next five years beginning on May 1, 1993. The following is a
schedule of minimum future rental payments.
Year 2 $ 52,500 12,500
Year 3 66,200 15,000
Year 4 92,600 20,000
Year 5 136,100 28,000
Total minimum
rental payments $347,400
Purchase Option.
"If Lessee has fully and faithfully kept and performed all of the
terms and conditions of the Lease, then and in that event Lessee
shall have the Option to Purchase the Premises at the end of twenty
four (24) months for $625,000 by giving Lessor one hundred twenty
(120) days notice, prior to the end of the twenty fourth (24th)
month, and providing Lessor with a non-refundable deposit in the
amount of $25,000 at such time of notice."
The agreement calls for additional rent for:
a. Increases in real estate taxes over 1992 levies.
b. Increases in insurance costs over fiscal year ending July
1993 levels.
c. Increase in any rent taxes imposed by governmental agencies.
b. 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 1994 and 1993.
F-62<PAGE>
AARON MEDICAL INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 6. LEASES (continued)
b. Capital Leases (continued)
The following is a summary of property held under capital
leases:
1993 1994
Transportation equipment $ 38,800 $ 38,800
Telephone equipment 16,200 --
55,000 38,800
Less: accumulated
depreciation (10,000) ( 500)
$ 45,000 $ 38,800
Minimum future lease payments under capital leases as of December
31, 1994 for each of the next five years and in the aggregate are:
1995 $ 13,500
1996 34,400
1997 3,200
1998 --
1999 --
Total minimum lease payments 51,100
Less: Amount representing
interest 9,100
Present value of net
minimum lease payments $ 42,000
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.
F-63<PAGE>
AARON MEDICAL INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 7. INCOME TAXES
An analysis of income tax expense at the statutory federal and
state rates are as follows:
1994 1993
Computed federal income tax
at the statutory rate $ 100,600 $ 26,500
State income tax - net of
federal tax benefits 17,500 6,500
Income tax expense $ 118,100 $ 33,000
The Company had net operating loss carryforwards of $1,128,100 and
$1,248,300 as of December 31, 1994 and 1993, respectively. The
loss carryforwards expire at various future dates and may provide
future tax benefits. In accordance with APB-11, because the
benefit of the operating loss carryforwards was not assured beyond
any reasonable doubt, no recognition was made in the accounts in
the year of loss. When realized in 1994 and 1993, the tax benefits
of $118,100 and $33,000 were reported as extraordinary items in the
respective years.
NOTE 8. STOCK OPTIONS
Under the terms of its 1992 stock option plan, options to purchase
shares of the Company's common stock were granted as compensation
to the Company's Directors. The options may be exercised up to and
including December 10, 1996 at various prices. All options granted
through December 31, 1993 have been exercised.
The following is a summary of the stock options:
Outstanding, beginning of year $ -- $ 540,000
Granted during the year -- 475,000
Cancelled during the year -- --
Exercised during the year --(1,015,000)
Outstanding, end of year
(at prices ranging from
$.01 to $.11 per share) -- --
Eligible, end of year for
exercise currently (at
prices ranging from $.01
to $.11) -- --
F-64
AARON MEDICAL INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 8. STOCK OPTIONS (continued)
On March 25, 1992, the Board of Directors authorized an employee
stock bonus plan by setting aside 165,000 shares of the Company's
stock. These shares were valued at $.11 each.
NOTE 9. COMMITMENTS AND CONTINGENCIES
Under the terms of an installment loan agreement with a bank, the
Company is required to:
1. Make monthly installments of $1,839.71 which began on
October 28, 1992 and ended on September 28, 1994.
2. Pay interest at a variable rate of 1.5% in excess of
base rate charged by the bank which is presently 6.0%.
3. The loan was personally guaranteed by the president of
the Company.
As of December 31, 1994, the Company had entered into employment
agreements with three of its executive employees with various
extension dates through 1999.
NOTE 10. ISO 9000 CERTIFICATION
The company is currently undergoing International Standards
Organization (ISO 9000) certification to make its products
readily acceptable by the European Common Market. "ISO 9000"
is a series of generic quality standards used for all aspects of
a business issued by the International Organization for
Standardization. In the current competitive markets many U.S.
customers are beginning to require this certification which is
synonymous with quality control.
The company is committed to implementing this system and has hired
a consultant at a cost of $30,000 to help put the system in place.
The goal is to be ready for inspection and receive approval for ISO
9000 certification by December 31, 1995.
F-65<PAGE>
AARON MEDICAL INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 11. EMERGENCE FROM REORGANIZATION UNDER THE BANKRUPTCY
CODE
On February 5, 1992 Aaron Medical Industries, Inc. (formerly Key
Technologies, Inc. and Sun-Key Medical Manufacturing, Inc.) was:
"ORDERED, ADJUDGED AND DECREED that the confirmation of the Plan
vests all of the property of the estate in the debtor, free and
clear of all claims and interests of creditors and debtor is
released from all dischargeable debts."
On October 31, 1988, Key Technologies, Inc. filed a petition for
an order of relief under Chapter 11 of the Bankruptcy Code in the
United States Bankruptcy Court for the middle district of Florida,
Tampa Division, case number 88-6569 8B1. The order of protection
was granted on November 8, 1988.
Total payments under the plan amount to $310,300 on final total
indebtedness of $1,679,000. The priority creditors are receiving
$4,000 per month which began on April 30, 1990 and extended through
April, 1994. After April 1994, the unsecured creditors will receive
monthly payments amounting to $1,055.69. The unsecured creditors
do not have interest accruing on their debt. The priority
creditors received initially 12% interest on their debt.
An analysis of debt and its disposition are as follows:
Total unsecured debt $ 1,531,900
Priority claims 136,600
Secured claims 10,500
1,679,000
Cash payments through
December 31, 1994 ( 176,700)
947,652 shares issued for debt( 108,900)
Merchandise accepted
in payment of debt ( 13,200)
Forgiveness under the plan ( 1,368,700)
Balance due under the plan
on December 31, 1994 $ 11,500
This amount is included in current maturity of long-term debt,
see Note 5.
F-66<PAGE>
AARON MEDICAL INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 12. CORPORATE ACQUISITION
On June 11, 1993, the Company entered into an agreement whereby An-
Con Genetics, Inc. [(An-Con), a public company with offices in
Melville, New York], shall acquire a 100% interest in the Company
in exchange for 49% of the outstanding shares of An-Con. The
agreement is to be considered a pooling of interests for financial
reporting purposes.
The An-Con shares to be exchanged for Aaron shares shall be
registered for SEC compliance requirements. On April 15, 1995, An-
Con and Aaron initiated and signed their final agreement.
Included in the exchange of shares of Aaron for An-Con, An-Con
shall register its securities for public sale to derive $3,000,000
to $5,000,000 of proceeds for the use of Aaron and An-Con.
NOTE 13. QUASI-REORGANIZATION
In June of 1993, the shareholders of the Company authorized a
corporate readjustment based on ARB-43 Chapter 7A. During the
prior 10 years, the Company had experienced losses in excess of $2
million dollars and had received protection under Chapter 11 of the
Federal Bankruptcy Act in 1988. The Company came out of Chapter
11 in February, 1992. The Company became profitable in 1991 and
believes it is appropriate to eliminate the accumulated deficit
from past unprofitable operations. Due to the nature of the
Company's assets, a downward adjustment in valuation was not
required. The resulting financial statements will have more
credibility, and make it easier for the Company to borrow money for
its profitable operations. In addition, by eliminating the deficit
in retained earnings, the possibility of paying dividends in the
future becomes more likely.
The effective date of quasi-reorganization was January 1, 1993 and
as such, marks a turning point in the Company's operations. The
accumulated deficit of $2,096,000 was eliminated by a transfer from
additional paid in capital. The Company does not expect any future
tax benefits related to items occurring prior to the
reorganization.
F-67
AARON MEDICAL INDUSTRIES, INC.
SCHEDULES OF COST OF SALES
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
1994 1993
Manufacturing Costs:
Raw materials used $ 1,617,400$ 1,319,900
Direct labor costs 631,800 435,200
Freight 83,500 34,900
Sterilization 56,400 24,000
Other 85,200 52,300
2,474,300 1,866,300
Indirect Manufacturing Expenses:
Occupancy 41,500 41,000
Supplies 23,600 16,700
Utilities 16,000 17,800
Repairs and maintenance 39,000 48,300
Depreciation 33,900 18,600
Total cost of sales $ 2,628,300 $ 2,008,700
F-68<PAGE>
AARON MEDICAL INDUSTRIES, INC.
SCHEDULES OF OPERATING EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
1994 1993
Selling Expenses:
Advertising $ 147,500 $ 60,700
Travel and entertainment 31,500 14,300
Shipping 11,500 8,400
Salaries 82,100 76,000
Bad debt expense 3,400 7,100
Show expense 115,700 84,100
Commissions 175,700 163,500
Total Selling Expenses $ 567,400 $ 414,100
General and Administrative Expenses:
Officers'salaries $ 238,200 $ 228,300
Office salaries 22,200 51,500
Payroll taxes 26,500 32,700
Printing, stationery
and supplies 28,200 36,400
Telephone 21,100 22,600
Insurance 61,100 45,900
Postage 16,500 12,200
Professional fees 66,800 67,800
Utilities 5,300 5,600
Depreciation 18,300 21,900
Amortization 11,400 11,000
Auto5,100 5,800
Dues and subscriptions 5,300 4,000
Education 4,000 2,500
Equipment lease 1,400 700
Employee benefits 41,400 36,700
Directors fees -- 5,500
Taxes and licenses 12,100 9,800
Rent10,500 23,900
Facilities provided (14,600) 13,600
Other expenses 46,400 37,800
Total General and
Administrative Expenses $ 627,200 $ 676,200
F-69
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
September 18, 1996.
AN-CON GENETICS, INC.
S/J. Robert Saron
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.
S/ J. Robert Saron September 18, 1996
J. Robert Saron
Chairman of the Board
of Directors and CEO
S/ Andrew Makrides September 18, 1996
Andrew Makrides, President,
Director
S/ Delton Cunningham September 18, 1996
Delton N. Cunningham
Secretary-Treasurer,
Chief Financial Officer
S/ George W. Kromer September 18, 1996
George W. Kromer, Jr.
Director
, 1996
Joseph F. Valenti
Director
c: ANCN-F.SB2
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.
I
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 40,000.00*
Legal. . . . . . . . . . . . . . . . . . . .120,000.00*
*Estimated Total .174,085.15*
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 whom 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.
II
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.
Item 27. Exhibits.
Exhibit No. Description Location
2 Restated and Amended Agreement between Registrant
and Aaron Medical Industries, Inc. to Exchange
Shares *
5 Opinion of Alfred V. Greco, P.C. regarding
legality of securities being registered and
Consent of Alfred V. Greco, P.C. . . . .Filed Herewith
8 Opinion of Bloom and Company . . . . . .Filed Herewith
23(a) Consent of Bloom and Company as to
An-Con Financial Statements
Aaron Financial Statements
Tax opinion . . . . . . . . . . . . .Filed Herewith
99 Federal Court Decision Denying Megadyne's request
for Preliminary Injunction against Aaron Medical
Industries, Inc. . . . . . . . . . . . .Filed Herewith
__________________________________
*Previously filed with Form S-4
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.
III
EXHIBITS
<PAGE>
ALFRED V. GRECO, P.C.
A Professional Corporation
666 Fifth Avenue (14th Floor)
New York, N.Y. 10103
Alfred V. Greco Tel. 212-246-6550
Attorney At Law Fax 212-582-0176
September 19, 1996
Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549
Re: Registration Statement
Form SB-2, (Commission File No. 33-80763)
Rescission Offer to Repurchase 3,399,056 Shares
of An-Con Genetics, Inc. (the "Company")
Gentlemen:
The undersigned has been requested to render an opinion concerning
the registration of 3,399,056 shares of An-Con Genetics, Inc. of
common stock which was issued and placed In Escrow pursuant to a
certain Final Restated and Amended Stock Exchange Agreement between
An-Con Genetics, Inc. and Aaron Medical Industries, Inc. dated
January 11, 1995 as later amended in April and November, 1995 (the
"Exchange Agreement"). Pursuant to the terms of the Exchange
Agreement, a total of 3,399,056 shares of Common Stock of An-Con
Genetics, Inc. were exchanged for all the issued and outstanding
shares of Aaron Medical Industries, Inc.. Due to irregularities
with respect to the premature offer of the shares to more than 100
investors of Aaron Medical Industries, Inc. prior to filing and
effectiveness of a registration statement with the Securities and
Exchange Commission, and to rectify possible violations of the
Federal Securities Laws (and State Blue Sky Laws), An-Con Genetics,
Inc. is offering rescission to all the Aaron shareholders that
acquired the shares of An-Con Genetics, Inc. on the exchange. The
shares are presently being held In Escrow subject to the
effectiveness of the registration statement filed by the Company
with the Securities and Exchange Commission.
In connection with the foregoing matter, the undersigned has
reviewed the Exchange Agreement and the resolutions of the Board
of Directors of the Company authorizing the issuance and delivery
of the shares pursuant thereto, as well as other corporate
EXHIBIT 5,PAGE 1
Securities and Exchange Commission
September 19, 1996
Page -2-
records of the Company and am satisfied that the Agreement was duly
authorized and executed, and the shares were properly issued and
placed into escrow pursuant to the terms thereof.
The shares, presently held In Escrow by Delton Cunningham, CFO of
An-Con Genetics, Inc. and CFO of Aaron Medical Industries, Inc.,
when issued, were validly issued, fully paid and nonassessable.
Upon effectiveness of the registration statement and subject to the
Rescission Offer, when the shares are transferred and delivered to
former Aaron shareholders pursuant to the terms of the Exchange
Agreement, such shares will constitute shares that have been
validly issued, fully paid and are nonassessable.
Consent of Alfred V. Greco, P.C., the undersigned on behalf of
Alfred V. Greco, P.C. does hereby consent the use of the name of
the firm in the prospectus and elsewhere in the registration
statement filed with An-Con Genetics, Inc. pursuant to Form SB-2.
Very truly yours,
S/ Alfred V. Greco
Alfred V. Greco
EXHIBIT 5, PAGE 2
Bloom and Company
50 Clinton Street
Hempstead, NY 11550
(Tel) 516 486-5900
(Fax) 516 486-5476
September 19, 1996
Robert Saron,Chairman
An-Con Genetics, Inc.
7100 30th Avenue N.
St. Petersburg, FL 33710
Re: An-con Genetics, Inc. with
Aaron Medical Industries, Inc.
Dear Mr. Saron:
Our firm has been requested to provide certain information
to An-Con Genetics, Inc., regarding the tax consequences of an
acquisition by An-Con Genetics, Inc. of the stock of Aaron
Medical Industries, Inc. Pursuant to the instructions we have
received, we are forwarding our opinion directly to you.
The analysis is based upon the following information
provided to us by Andrew Makrides and Delton Cunningham.
1) An-Con will acquire all of the stock of Aaron in exchange for
its common stock. After the acquisition, the old Aaron
shareholders will own approximately 44% of the An-Con stock
outstanding.
2) An-Con has a net operating loss of approximately $5,000,000
prior to the acquisition of Aaron.
Based on these facts, we have specifically focused on the
following issues:
I) Whether the acquisition of Aaron by An-Con will be tax free,
and whether the tax-free transaction would be disturbed if An-
Con agreed to pay Aaron $l million as part of the reorganization
to be used as working capital?
2) Whether the net operating loss of An-Con will be limited by
the addition of new shareholders?
3) Whether the An-Con net operating loss could be utilized to
offset income of Aaron if An-Con and Aaron file consolidated
returns?
After thorough research and discussions with Mr. Makrides
and Mr. Cunningham, our analysis is as follows:
1) Pursuant to IRC Section 368 (a)(J)(B), 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
EXHIBIT 8, PAGE 1
Robert Saron, Chairman
An-con Genetics, Inc.
Page 2
facts provided, An-Con will be acquiring 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 in
addition to the stock there was an agreement for An-Con to pay
cash or any other form of consideration to Aaron or its
shareholders the tax-free nature of the transaction could be
destroyed. 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 acquirer.
In addition to the statutory requirements, a number of non-
statutory requirements have developed from rulings and case law
over the past 30 years. The main non-statutory requirements
are: (a) continuity of proprietary interest, (b) active business
requirement, and (C) business purpose.
The first requirement will be met as long as there is a
continuing proprietary interest in An-Con by the Aaron
shareholders. Because this is a B reorganization, the
Continuity of Interest test will be met, unless there is a
prearranged plan for the Aaron shareholders to sell their stock
in An-Con.
Based on the information provided, it appears that neither the
Active business requirement, nor the Business purpose test, will
pose any problems in the tax-free treatment of the transaction.
2) IRC Section 382 limits the usefulness of net operating loss
carry-forwards where there has been an "ownership change" in the
loss corporation. An ownership change occurs when a shareholder
of a loss corporation increases their ownership of stock by more
than 50 percentage points. Generally, shareholders that own less
than 5% of the company, prior to the shift in ownership, are
grouped together to determine if an ownership change has
occurred. When dealing with a public company all of the
shareholders will be considered as one. Therefore, if the new
shareholders own more than 50% of the company after the
transaction, a Section 382 ownership change would have occurred.
However, the facts Mr. Makrides and Mr. Cunningham have provided
state that they will only own 44% and therefore, the general test
for an ownership change will not be met.
When a tax-free reorganization under Section 368(a)(f)(E) is
involved, an additional test for an ownership change must be
examined. An "equity structure shift" in a tax-free
reorganization can also trigger a Section 382 ownership change.
An equity structure shift (a change of ownership percentages as
a result of a tax-free reorganization) however, will not trigger
an ownership change unless the shareholders of the old loss
corporation retain less than a 50 percent ownership in the
reorganization survivor. In other words, if control of the loss
corporation changes as a result of the reorganization, the
requirements for an ownership change through an equity structure
shift will have been satisfied. Since the Aaron shareholders
will only own 44% of the An-Con stock, the reorganization s
equity structure shift will not trigger an
EXHIBIT 8,PAGE 2
Robert Saron, Chairman
An-Con Genetics, Inc.
Page 3
ownership change. Where an ownership change has occurred,
Section 382 operates to limit the annual use of a corporation s
NOL if it does not eliminate the carry forward. 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 the annual income.
Pursuant to Section 382(b), the "Section 382 Limitation" equals
the value of the corporation (immediately before the ownership
change, Sec. 3829(c), multiplied by the long term exempt tax
rate (the highest Long Term AFR in effect for any month in the
3 calendar month period ending with the month of the following
year.
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.
3) The final issue relates to the utilization of An-Con s losses
against Aaron s income in a consolidated return filing.
Generally, the taxable income of a consolidated group is
determined by aggregating the income and losses of each member
of the group. However, an exception to the general rule occurs
with regard to losses incurred by group members in taxable years
in which they were not part of a consolidated return, which are
carried forward to years in which they are part of the
consolidated group. In this situation, the Separate Return
Limitation Year ("SRLY") rules limit the use of such loss by the
group.
The SRLY rules provide that a loss that arises in a separate
year cannot be used to offset the consolidated taxable income
attributable to other members of the group. The SRLY losses can
only be used to offset income of that particular corporation.
A major exception to the SRLY rules applies when dealing with
the Parent of a consolidated group. Generally, a separate
taxable year of the Parent is not treated as a Separate Return
Limitation Year. Pursuant to Regulation Section 1.1502-1(f) (2)
(I), the losses attributable to the separate return years of the
Parent can be used to offset consolidated taxable income of the
group in consolidated years. In effect, the Parent is treated
as a consolidated group in years in which new subsidiaries
exist. Therefore, it would appear that the Separate Return
Limitation Year rules do not pose any threat to the utilization
of An-Con's losses since An-Con would be the Parent in the
consolidated group.
Please be advised that the above analysis is based upon the
facts as presented. If the facts are not as they have been set
forth, the analysis should not be relied upon. If the facts are
materially different, please contact us and we will review and
revise our opinion.
Very truly yours,
S/Bloom and Company
Bloom and Company
EXHIBIT 8,PAGE 3
BLOOM AND COMPANY
50 CLINTON STREET
HEMPSTEAD, NY 11550
TEL (516) 486-5900
Fax (516) 486-5476
September 19, 1996
Consent of Auditors
Financial Statements
We consent to the use in this registration statement on Form SB-2
Amendment #2 of our reports dated April 15, 1996 and August 30,
1996 relating to the consolidated financial statements of An-Con
Genetics, Inc. for the period indicated in the reports and report
dated April 15, 1995 relating to the financial statements of Aaron
Medical Industries, Inc. for the period indicated in that report
and to the reference of our firm under the caption "Experts" in the
accompanying prospectus.
Tax
We also consent to the use in this registration statement of our
tax opinion dated September 19, 1996 and to the reference of our
firm under the caption "Tax Opinion" in the accompanying
prospectus.
S/Bloom and Company
Bloom and Company
Exhibit 23(a)
IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH
C ENTRAL DIVISION
MEGADYNE MEDICAL PRODUCTS, INC.
PLAINTIFF MEMORANDUM DECISION
AND ORDER
VS. Civil No. 2:96-CV-233C
AARON MEDICAL INDUSTRIES, INC., et al.,
DEFENDANTS
Plaintiff, Megadyne Medical Products, Inc. filed this action
against Aaron Medical Industries, Inc., claiming that Aaron has
infringed claims 1 and 5 of the Blanch Patent, United States
Patent Number 4,785,807 ('807 Patent), which Megadyne owns. On
June 5, 1996, plaintiff filed a motion for preliminary
injunctive relief, seeking to enjoin defendant from making or
selling any electrical surgical blade that infringed the claims
of the '807 Patent. A hearing on plaintiff's motion for
preliminary injunction was held on August 1, 1996, and August
13, 1996. Having considered the evidence presented at that
hearing, the memoranda filed by the parties, and the relevant
law, the court denies plaintiff's motion and enters the
following findings of fact and conclusions of law:
FINDINGS OF FACT
1. Megadyne owns the '807 Patent. The '807 Patent is directed
to an electrosurgical knife, the blade of which is coated with
a fluorinated hydrocarbon material, commonly known as teflon.
Electrical energy is delivered through the blade of the knife
during surgery to cauterize tissue and minimize bleeding.
2. According to Megadyne, this invention solves a long-standing
problem in electrosurgery, that is, the buildup of flesh or
char on the knife blade during surgery. The typical
electrosurgery is performed by the direct (ohmic) conduction of
electrical energy from the stainless steel blade to the flesh.
Although teflon, with its non-stick quality, would appear to be
a simple solution to the char buildup, the fact that Teflon is
an electrical insulator, thereby preventing the direct
conduction of electrical energy from the blade to the patient's
flesh, initially made it seem unworkable for use in
electrosurgery. The innovation of the Megadyne invention is
that the blade is coated with Teflon yet is able to transfer the
electricity to the flesh by capacitive coupling.
3. Aaron manufactures and sells an electrosurgical knife with
a coated blade which Megadyne contends infringes claims 1 and
5 of the '807 Patent. Independent claim 1 (the relevant
limitations are underlined) reads:
An electrosurgical instrument for use with a source of radio-
frequency electrical energy during surgery to cauterize tissue,
said instrument comprising:
EXHIBIT 99(a), PAGE 1
A. A stainless steel portion of said instrument for receiving
said radio-frequency energy and having at least one flesh
contacting surface formed thereon;
B. A first coat of primer material covering at least all of
said flesh contacting surface; and
C. A second coat of fluorinated hydrocarbon material
entirely covering the primer material to cause a total
thickness of the first and second coats of about 3 mils
thereby enabling said radio frequency energy to be
transported across said coatings to said flesh by capacitive
coupling.
Independent claim 5 (the relevant limitations are underlined)
reads:
An electrosurgical knife for utilizing radio-frequency energy
to cause hemostasis during surgery comprising:
A. A stainless steel blade at least a part of whose surface
is abraded
B. A first coat of primer material covering said abraded
surface of said blade; and
C. A second coat of non-stick fluorinated hydrocarbon
material completely covering said primer material only to a
thickness sufficient to ensure transmission of radio-
frequency electrical energy from said blade to said flesh
essentially exclusively by capacitive coupling to cause
hemostasis during surgery.
4. Aaron contends that its blade does not infringe the claims
of the '807 Patent because its blade, which has an aggregate
thickness of 0.7 mils, is only about one fourth the total
thickness of the limitation of "about 3 mils," and because its
blade delivers at least a substantial portion of the electrical
energy by ohmic conduction, not by capacitive coupling.
5. Megadyne asserts that the Aaron blade does infringe the
claim limitations. According to Megadyne, "about 3 mils" refers
to a range based upon the function, "thereby enabling said
radio-frequency energy to be transported across said coating to
said flesh by capacitive coupling" and would read on the 0.7
mils of the Aaron blade.
6. Megadyne argues that the Aaron blade operates by capacitive
coupling to a degree sufficient to infringe the claims,
particularly claim 1, which does not have the "essentially
exclusively" language found in claim 5.
7. Plaintiff brought an infringement action against Aspen
Laboratories, claiming Aspen's electrosurgical blade infringed
the '807 Patent. The case went to trial in 1993, and a jury
found that Aspen had infringed the claims of the Megadyne
patent. The court entered judgment on the jury's verdict and,
based upon the jury's finding of willfulness, doubled the damage
award. On appeal the judgment was affirmed. Megadyne Medical
Products, Inc. vs. Aspen Laboratories, Inc. 52 F.3rd 344
(Fed.Cir. 1995).
EXHIBIT 99(a),PAGE 2
8. After losing its appeal in the Federal Circuit, Aspen sought to
have the '807 Patent reexamined by the United States Patent and
Trademark Office (PTO). The PTO conducted a reexamination of the
'807 Patent and concluded that the invention was patentable.
9. In support of their motion for preliminary injunction,
plaintiff submitted the affidavits of William G. Pitt and David B.
Kieda; Doctor Kieda also testified at the hearing. Mr. Pitt stated
in his affidavit that the Aaron electrosurgical blade was coated
with "extremely pure" polytetrafluoroethylene (PTFE), commonly
known as "teflon."
10. Doctor Kieda testified that he had tested the Aaron blade and
found that it performed through capacitive coupling. Both of
plaintiff's witnesses gave an opinion that the Aaron blade was
similar to the Aspen blade, which they had examined for purposes of
the earlier litigation.
11. Doctor Kieda, in his second affidavit and in testimony at the
hearing, disputed the evidence of defendant's expert, William
Bowers, who submitted an affidavit and testified at the hearing.
Mr. Bowers had tested the Aaron blade and had concluded that the
Aaron blade operating primarily by ohmic conduction with a
secondary capacitive effect. Mr. Bowers based this conclusion on
tests which showed that the Aaron blade had a phase shift far less
than that associated with capacitive circuits. However, Dr. Kieda
testified that Mr. Bowers had failed to adjust for the resistive
components used in his testing, and once the necessary adjustments
were made, the results were consistent with capacitive coupling.
CONCLUSION OF LAW
1. To obtain a preliminary injunction, plaintiff must establish:
(1) a reasonable likelihood of success on the merits; (2)
irreparable harm, (3) the balance of hardships tipping in its
favor; and (4) a tolerable impact of the injunction on the public
interest. Hybritech Inc. v Abbott Laboratories, 849 F.2nd 1446,
1451 (Fed. Cir. 1988).
2. To determine the likelihood of success in a patent infringement
case, the court may construe disputed claim language as a matter of
law. The court than determines whether the accused device is
likely to fall within the scope of the claims. Sofamor Danek
Group, Inc. v. DePuy-Motech, Inc. 74 F.3d 1216, 1220 (Fed. Cir.
1996).
3. To construe the claims, the court first looks to the claims
themselves, the specification, and the prosecution history. The
court may also, in its discretion, consider extrinsic evidence in
interpreting the claims. Markman v Westview Instruments, Inc. 52
F.3d 967, 979-980 (Fed. Cir. 1995), affd, U.S. , 64
U.S.L.W. 4263 (1996). In the present case, the court finds that
the evidence presented is insufficient to support a finding that
there is a reasonable likelihood that Megadyne will succeed on the
merits: Megadyne has not met its burden of establishing the claims
should be construed so as to read on the Aaron blade. The parties
dispute the interpretation that the court should give certain terms
in the claims and the specification does not define the disputed
terms. At this stage, the prosecution history does not resolve the
issue. Defendant argues that the proper construction limits the
claim so they can be read only on devices with a thickness of 3
EXHIBIT 99(a), PAGE 3
mils that transmit electricity to the flesh by capacitive
coupling and could be not read on its device, which has a
thickness of .7 mils and operates, to some degree, by ohmic
conduction. Plaintiff disputes such an interpretation of the
claims and argues that it is too narrow.
4. The court concludes that Plaintiff has failed to establish
a substantial likelihood that claims 1 and 5 should be
interpreted to read on a device, such as the Aaron blade, with
an aggregate thickness of 0.7 mils and which operates, to some
degree, by ohmic conduction.
5. Plaintiff has also failed to present sufficient evidence to
establish that there is a substantial likelihood that the Aaron
device performs substantially the same function, in substantially
the same way, to achieve substantially the same result as the
claimed invention. As discussed above, the expert testimony
before the court as to whether the Aaron blade delivered
electrical energy primarily through ohmic conduction or by
capacitive coupling was contradictory. Although Dr. Kieda
testified that Mr. Bowers was incorrect in his determination that
the Aaron blade operated primarily by ohmic conduction, the court
cannot make that conclusion based on the evidence presented,
which appeared to be a battle of equally knowledgeable experts.
6. Much of plaintiff's argument focused on its prior
infringement action against Aspen. The jury verdict for
Plaintiff in that case might be evidence to support a finding of
the likelihood of success if the issue before this court was the
validity of the patent. Hybritech, Inc. v. Abbott Laboratories,
849 F.2nd 1446, 1453(Fed.Cir 1988). Although Aaron does dispute
the validity of the patent, at this stage, the court finds that
the '807 patent is valid. However, in order to show a likelihood
of success on the merits, a plaintiff must present proof on both
validity and infringement. Sofamor Danek 74 F.3d at 1219. To
establish infringement, the claims at issue must be compared with
the accused device. Amstar Corp. v. Envirotech Corp., 730 F.2d
1476 (Fed. cir. 1984). Therefore, the court's analysis has
focused on the claims of the '807 patent and the Aaron blade, not
an analysis of the similarities of the Aaron blade and the Aspen
blade. The court finds the evidence presented with regard to the
Aaron blade is equivocal and insufficient to support a finding
that plaintiff is likely to succeed on its claims.
The plaintiff having failed to establish a reasonable likelihood
of success on the issue of infringement, the court hereby DENIES
the motion for a preliminary injunction.
IT IS SO ORDERED this 27 day of August, 1996.
BY THE COURT;
TENA CAMPBELL
United States District Judge
EXHIBIT 99(a), PAGE 4
