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
ACCEPTANCE OR REJECTION OF RESCISSION OFFER
REJECTION MEANS YOU KEEP YOUR AN-CON SHARES
ACCEPTANCE MEANS YOU MUST RE-SELL TO AN-CON GENETICS, INC. 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 your
shares a certificate for which is also enclosed herewith) 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
mailing or receipt by you of the prospectus and Rescission Offer
documents. The current bid price for the Company's shares on the
Bulletin Board is $1.62 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 ACCEPT THE RESCISSION OFFER AND
SELL ALL HIS AN-CON SHARES AT A PRICE OF $.392 PER SHARE.
COVER LETTER EXHIBIT I
PAGE 1
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.
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
s/J. Robert Saron
J. Robert Saron
COVER LETTER EXHIBIT 1
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 November 8, 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 November 8, 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 December 21, 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
POST EFFECTIVE
AMENDMENT NO. 1 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.
<PAGE>
Table of Contents
Page
Prospectus Cover Page. . . . . . . . . . . . . . . . .1
Available Information. . . . . . . . . . . . . . . . .4
Prospectus Summary . . . . . . . . . . . . . . . . . .5
Risk Factors . . . . . . . . . . . . . . . . . . . .8
Management's Discussion and Analysis . . . . . . . . 13
Markets and Market Prices. . . . . . . . . . . . . . 20
Business . . . . . . . . . . . . . . . . . . . . . . 21
The Company . . . . . . . . . . . . . . . . . . . 21
Battery Operated Cauteries. . . . . . . . . . . . 22
Battery Operated Medical and Industrial Lights. . 22
Electro-Surgical Products . . . . . . . . . . . . 22
Multi-Function Cautery. . . . . . . . . . . . . . 23
Resistick . . . . . . . . . . . . . . . . . . . . 23
Aaron 800 . . . . . . . . . . . . . . . . . . . . 23
Nerve Locator Stimulators . . . . . . . . . . . . 24
OmniFix II. . . . . . . . . . . . . . . . . . . . 24
OmniFix 2000. . . . . . . . . . . . . . . . . . . 24
Other Products. . . . . . . . . . . . . . . . . . 25
Manufacturing, Marketing and Distribution . . . . 25
Competition . . . . . . . . . . . . . . . . . . . 25
Regulation. . . . . . . . . . . . . . . . . . . . 25
Patents and Trademarks. . . . . . . . . . . . . . 26
Research and Development. . . . . . . . . . . . . 27
Employees . . . . . . . . . . . . . . . . . . . . 27
Significant Subsidiary - Aaron Medical
Industries, Inc. . .27
Property . . . . . . . . . . . . . . . . . . . . . . 28
Material Contacts Between An-Con and Aaron During
Acquisition. . . . . . . . . . . . . . . . . . . . . 29
Acquisition Agreement. . . . . . . . . . . . . . . . 30
Possible Violations of Securities Laws . . . . . . . 33
Recommendation of Management of An-Con
and Aaron as to Rescission Offer. . . . . . . . . 34
The Rescission Offer . . . . . . . . . . . . . . . . 34
Valuation of Aaron For Rescission Purposes. . . . 36
State Blue Sky Laws . . . . . . . . . . . . . . . 40
California. . . . . . . . . . . . . . . . . . 41
Connecticut . . . . . . . . . . . . . . . . . 43
Florida . . . . . . . . . . . . . . . . . . . 44
Hawaii. . . . . . . . . . . . . . . . . . . . 44
Illinois. . . . . . . . . . . . . . . . . . . 46
Indiana . . . . . . . . . . . . . . . . . . . 46
Massachusetts . . . . . . . . . . . . . . . . 47
Nevada. . . . . . . . . . . . . . . . . . . . 48
New Jersey. . . . . . . . . . . . . . . . . . 49
New York. . . . . . . . . . . . . . . . . . . 49
North Carolina. . . . . . . . . . . . . . . . 49
Pennsylvania. . . . . . . . . . . . . . . . . 50
South Carolina. . . . . . . . . . . . . . . . 51
State Statutes of Limitation. . . . . . . . . . . 52
Method of Rescission. . . . . . . . . . . . . . . 54
Rescission Tender Procedure . . . . . . . . . . . 56
Federal Income Tax Consequences . . . . . . . . . 58
Management . . . . . . . . . . . . . . . . . . . . . 60
Remuneration . . . . . . . . . . . . . . . . . . . . 62
Security Ownership of Certain Beneficial
Owners and Management of An-Con . . . . . . . . . . 66
Table of Contents
(CONTINUED)
Page
Certain Transactions . . . . . . . . . . . . . . . . 68
Legal Proceedings. . . . . . . . . . . . . . . . . . 71
Description of An-Con Securities . . . . . . . . . . 72
Transfer Agent . . . . . . . . . . . . . . . . . . . 74
Legal Matters. . . . . . . . . . . . . . . . . . . . 74
Experts. . . . . . . . . . . . . . . . . . . . . . . 74
Information as to Unaudited Interim
Financial Statements . . . . . . . . . . . . . . . 75
Other Matters. . . . . . . . . . . . . . . . . . . . 75
<PAGE>
Prospectus
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"). A total of 5,960,042 outstanding
shares of Aaron valued at $.22 per share on January 11, 1995, were
exchanged on that date for 3,399,096 shares of Common Stock of An-
Con, which An-Con shares had an equivalent value of $.392 per
share as of the date of the exchange. Accordingly Aaron
shareholders received .57 shares of An-Con for each share of Aaron
surrended. The An-Con shares exchanged for Aaron shares are
presently held in escrow pending delivery to former Aaron
shareholders upon effectiveness of this prospectus. 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 shares have been valued
at 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. If a
shareholder fails to respond, such failure to respond shall be
deemed an acceptance of the Company's Rescission Offer and such
shares shall be repurchased by the Company at a price of $.392 per
share. 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 $84,000 as of September 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. See "Rescission Offer- Valuation of Aaron for Rescission
Purposes".
Any shareholder who fails to respond or 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 (exclusive of interest) is approximately
$1.23 less per share than current market value on November 19,
1996 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. "See "The Rescission Offer" and "The
Rescission Offer - Valuation of Aaron For Rescission Purposes" and
"Markets and Market Prices". See also "Risk Factors on page 8 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 $84,000 AS OF SEPTEMBER 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. RESCISSION OFFEREES WHO REJECT THE RESCISSION
OFFER AND WHO ARE NON-AFFILIATES, MAY SELL THEIR SHARES WITHOUT
RESTRICTIONS AFTER JANUARY 11, 1997. AFFILIATES WHO REJECT THE
RESCISSION OFFER MAY ALSO SELL AFTER JANUARY 11, 1997 PROVIDED
THEY COMPLY WITH THE PROVISIONS OF RULE 144 UNDER THE SECURITIES
ACT OF 1933. 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 NON-AFFILIATED 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 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. RESCISSION OFFEREES WHO ARE AFFILIATES OF THE COMPANY
AND WHO CHOOSE TO RESCIND MAY UTILIZE AN EXEMPTION UNDER THE
FEDERAL SECURITIES LAW, IF AVAILABLE, TO SELL THEIR SHARES IF THEY
ARE NOT PAID BY AN-CON WITHIN 180 DAYS; AND, IF THE AMOUNT
RECEIVED ON SALE IS INSUFFICIENT, SHALL REMAIN CREDITORS OF THE
COMPANY TO SUCH EXTENT. 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 SEPTEMBER 30, 1996, THE COMPANY HAD $54,300 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".
The bid price for the Company's Common Stock (Ticker Symbol
"AGNT") as reported by the National Quotations Bureau, Inc.
"Bulletin Board" Price Report was $1.62 per share.
The Date of this Prospectus is November 8, 1996, as amended
November 19, 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 February 6, 1997 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 by either the Company or
Aaron during negotiations. Such negotiations 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 the net income was $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".
Market Price for An-Con Common Stock
The current bid price for the Company's Common Stock (ticker
symbol "AGNT") as reported on the National Quotation Bureau Inc.
"Bulletin Board" Price Report was $1.62 per share.
"Exchange of Shares- The Acquisition of Aaron"
A total of 5,960,042 outstanding shares of Aaron valued at $.22
per share on January 11, 1995, were exchanged on that date for
3,399,096 shares of Common Stock of An-Con, which An-Con shares
had an equivalent value of $.392 per share as of the date of the
exchange. Accordingly, Aaron shareholders received .57 shares of
An-Con for each share of Aaron surrended. The An-Con shares
exchanged for Aaron shares are presently held in escrow to be
delivered to former Aaron shareholders upon effectiveness of this
prospectus.
Securities Outstanding
As of September 30, 1996 there were 4,683,118 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 September 30, 1996, a total of 42% 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 such shares become eligible for sale (without
restriction) by non-affiliated shareholders, after January 11,
1997. Affiliates of the Company, who choose to reject the
Rescission Offer, may also sell their shares after January 11,
1997, subject and pursuant to Rule 144. See Risk Factor 15 at
page 9.
Rescission Offer
A recission offer does not in and of itself cure a violation of
section 5 of the Securities Act of 1933. However, 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.
A total of 5,960,042 outstanding shares of Aaron valued at $.22
per share on January 11, 1995, were exchanged on that date for
3,399,096 shares of Common Stock of An-Con, which An-Con shares
had an equivalent value of $.392 per share as of the date of the
exchange. Accordingly Aaron shareholders received .57 shares of
An-Con for each share of Aaron surrended. The An-Con shares
exchanged for Aaron shares are presently held in escrow pending
delivery to former Aaron shareholders upon effectiveness of this
prospectus.
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. Notwithstanding the foregoing,
acceptance or rejection of the Recission Offer does not bar Aaron
shareholders from the alternative of seeking restitution in court
for violation of Section 5 of the Securities Act of 1933. See
also "State Blue Sky Laws", "State Statutes of Limitation",
"Rescission Offer - Method of Rescission" and "Recission Tender
Procedure".
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 7.
<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 Violations of
Securities Law. After the preliminary agreement between An-Con
and Aaron management for the Acquisition of Aaron, and prior to
filing and effectiveness of a registration statement by An-Con for
circulation to Aaron shareholders, management of Aaron, with the
knowledge of management of An-Con, solicited Aaron shareholders to
approve the acquisition. Such precipitate solicitation of Aaron
shareholders without the disclosure provided pursuant to an
effective prospectus of An-Con may have constituted a violation of
the Federal Securities Laws and Rules promulgated thereunder. In
addition, subsequent changes to the terms of the Acquisition
Agreement in April and November, 1995, after the closing thereof
(January 11, 1995) without prior Aaron shareholder approval, may
have constituted additional possible violations of state and
federal law which has also occasioned the necessity for the
rescission offer ("Rescission Offer") by An-Con.
This prospectus relates to the 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 $84,000 as of September 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 September 30, 1996,
the Company had $54,300 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. Subjective Elements Involved in Valuation of Aaron Shares.
Similar to every valuation, the present valuation of Aaron
involves a subjective weighing of certain factors, estimates of
future conditions and choosing similar companies among other
things. The valuation of the Aaron shares as of January 11, 1995
was performed in mid 1996 by Aaron management though its chief
financial officer, Delton Cunningham, (who is presently also the
Chief Financial Officer of An-Con). Neither Aaron nor the Company
has ever sought any outside expert advice regarding such
valuation. Other than consultation with the auditors as to
reasonableness of methods and procedures and appropriate
documentation, there has been no independent appraisal or fairness
opinion sought or given with respect to the valuation of the Aaron
shares. However, although management believes it has considered
all relevant factors in arriving at what it deems to be a fair
valuation, there may be differences between the subjective
elements employed by management for such valuation and the
subjective elements that would have been chosen in a valuation by
an independent outside source, which subjective choices could have
resulted in a different valuation. See "Rescission Offer -
Valuation for Aaron for Rescission Purposes".
4. 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").
5. 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").
6. 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").
7. Payment of Interest on Outstanding Debentures In Arrears. As
of September 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 $44,200 as of September 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".)
8. 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).
9. 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.
10. Current Prospectus Required. This Prospectus relates to the
shares to be delivered to the Aaron shareholders. However, by
virtue of the terms of the Acquisition Agreement, such shares will
bear a restrictive legend and are to be considered restricted
securities upon the distribution to the former Aaron shareholders.
Future sales of the shares by Aaron shareholders who are not
affiliates may take place without restriction in the open market
after January 11, 1997. Aaron shareholders who are affiliates may
also sell after January 11, 1997 pursuant to Rule 144 under the
Securities Act of 1933. See ("Certain Transactions").
11. 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.
12. Control of Company by Officers and Directors. As of September
30, 1996 (giving effect to the Acquisition) the officers and
directors of the Company own and/or control approximately 21% of
the presently outstanding shares through which they may be able to
exercise effective control over the Company.
13. 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").
14. 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").
15. Possible Rule 144 Sales. As of September 30, 1996, the Company
estimates that there were outstanding approximately 6,157,778
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.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Quarterly Period Ended 9/30/96 as compared to 9/30/95
The results of operations over the nine months ended September 30, 1996
show increased sales and profitability, as compared to the first nine
months of 1995. The Company's sales revenues increased by 28%, from
$4,108,600 to $5,254,200. The smaller rise of 12% in the cost of goods
sold , relative to sales, changed the Company's gross profit from
$1,643,400 to $2,487,000, raising the gross profit margin on sales from
40% to 47%. The expanded marketing activities and shift in product
sales mix of the Company and improved purchasing and manufacturing
efficiency were the principal reasons for the change in gross profits.
Salaries and related expenses increased by 48% from $556,600 to
$824,200, in the nine months ended September 30, 1996 as compared to the
same period in 1995. The increase in cost of salaries was related to
the new management of human resource utilization policies and a change
in accounting for indirect labor.
Expenses for professional services decreased by 23% to $221,700 in the
nine months ended September 30, 1996, as compared to $288,600 in the
same period of the previous year. A substantial part of the
professional fees in 1995 were related to financing activities which the
Company did not have in 1996.
The increased marketing activities was accompanied by a 6% increase in
selling, general and administrative expenses. These expenses were
$902,600, in the nine months period ended September 30, 1996 as compared
to $853,100 for the nine months ended September 30, 1995.
The Company had net income of $270,500 for the nine months ended
September 30, 1996 as compared to $11,500 for the same period in 1995.
The gain, in 1996, was due to 28% increase in revenues in contrast to
12% rise in cost of sales, and a 22% rise in operating expenses. The
operating income was $507,500, in the first nine months of 1996 as
compared to $(54,900) in 1995. The 1995 operating loss was offset only
by $76,800 in income from the settlement of debt.
The Company sells its products through distributors both internationally
and domestically. Distributors are found mainly through responses to
Company advertising in international medical journals or contacts made
at domestic and international trade shows. The Company began attending
trade shows in foreign countries for the first time in 1993. Since that
time, international sales have more than doubled, from $381,900 to
$1,031,600 for the nine months ended September 30, 1993 and 1996,
respectively. The main focus for export sales has been Western Europe.
The Company has distributors in all major markets there.
The Company intends to continue similar marketing of its products,
targeting different regions of the world, while returning to major
markets for increased market exposure and to introduce new products. In
1996, the Company will exhibit for the first time in the United Kingdom.
During the first nine months of 1996, international sales of the Aaron
Medical product line increased to $1,031,600 which represented 19% of
total sales. This compares favorably to the first nine months of 1995
when total international sales were $815,100, or representing 20% of
total sales. The increase from 1995 to 1996 represents a 28% increase
in sales volume. To minimize credit risk, new international
distributors in most instances pay cash in advance, or by an irrevocable
letter of credit. This form of credit policy is customary and is not
considered detrimental to further increased international sales.
In the first nine months of 1996, fixed costs increased because of the
introduction of new products, new sales personnel, and an improved
quality control system to assure good manufacturing practices as
required by the Food and Drug Administration. At the same time,
variable costs were reduced by discontinuing commissions paid to
domestic sales representatives.
Variable material and labor costs were reduced through improved
purchasing strategies and product design. Additionally, the Company has
begun purchasing certain labor intensive items off shore, effectively
reducing the cost of materials, leading to improved margins.
The Company began new product development and improved its facilities,
as required by regulatory agencies, in the fourth quarter of 1995. This
activity has continued in 1996. The allocation of working capital to
these projects caused the Company's normally prompt payment record with
trade vendors to decline slightly in the first nine months of 1996. In
order to provide additional working capital, in the first quarter of
1996 the Company secured a three month $100,000 credit line with a local
commercial bank and additionally raised $166,000 through a private
placement of shares. The loan was paid off in the
second quarter of 1996.
Subsequent to the close of the first quarter, the Company
commenced production of its new Omnifix 2000 tissue fixative for
purposes of marketing through specialty laboratory distributors.
Management believes Omnifix 2000 is a safer alternative to
Formalin, a chemical which OSHA has identified to be
carcinogenic. The product will be marketed to hospitals and
private pathology laboratories and to research institutions in
both the university and industrial sectors. A patent application
has been filed for Omnifix 2000.
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 has been achieved for the first time, in the first
six months of 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 and Liquidity
Quarterly Period Ended 9/30/96 as compared to 9/30/95
Working capital of the Company was ($859,100) on September 30, 1996 as
compared to ($699,700) on September 30, 1995 and ($858,900) as of
December 31, 1995. The deficit in working capital is attributable to
the current cash recission offer made to the former Aaron shareholders
of $1,331,800 which is shown as a current liability.
On September 30, 1996, total assets were $3,747,000 as compared to
$2,682,800 on September 30, 1995 and $3,417,200 of December 31, 1995.
The Company's cash decreased by $111,500 as compared to a decrease of
$534,900 over the nine months ended September 30, 1996 and 1995
respectively. The net cash provided by operations was $327,400 and
($328,800), (deficit) in the nine months ended September 30, 1996 and
1995 respectively. In the first three quarters of 1996 the Company
received $66,500 from financing activities. The sale of common shares
provided $166,000 in the nine months ended September 30 1996, of the
cash from financing. The amount of cash used in investing activities
was $505,400.
The expenditures for the acquisition of additional fixed assets was 62%
of the total cash outflows for investing. In the nine months ended
September 30, 1995, the Company utilized $90,800 to reduce official
outstanding notes and $175,800 to acquire fixed assets.
The Company has not paid interest on long term obligations which have
been due since November, 1990. The total amount of interest payable on
long term obligations was $40,800. As of September 30, 1996, the
bondholders had made no declaration that the principal was due and
payable. Additional interest has been accrued on the outstanding debt
to the Aaron shareholders of $32,800, for the first nine months of 1996.
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.
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 Company Outlook, in particular the
statements regarding growth in the medical products industry, capital
spending, research and development, and marketing and general and
administrative expenses, involve a number of risks and uncertainties.
In addition to the factors discussed above, among the other factors that
could cause actual results to differ materially are the following:
business conditions and the general economy; competitive factors such as
rival manufacturers availability of products at reasonable prices; risk
of nonpayment of accounts receivable; risks associated with foreign
operations; and litigation involving intellectual property and consumer
issues.
An-Con believes that it has the product mix, facilities, personnel, and
competitive and financial resources for continued business success.
However, future revenues, costs, margins, product mix and profits are
all influenced by a number of factors, as discussed above.
The Company's effective income tax rate would have been 35% except that
both An-Con and Aaron have loss carryovers. For the first nine months of
1996 Aaron used $132,200 of its loss carryover. Aaron's past five years
have been progressively more profitable and it is the Company's belief
that it will be able to use the remaining carryover losses to offset
gains in 1996 and 1997. The Company expects to spend approximately
$375,000 for capital additions in 1996 of which $150,000 was committed
for the construction and renovation of the St. Petersburg facility.
The Company's ten largest customers accounted for approximately 48% of
revenues for the nine months ended September 30, 1996.
The Company believes that it has the financial resources needed to meet
business requirements in the foreseeable future, including capital
expenditures for the expansion of its manufacturing site, working
capital requirements, and product development programs.
Outlook
The statements contained in this Outlook are based on current
expectations. These statements are forward looking, and actual results
may differ materially.
The Company believes that the world market for disposable medical
products, such as the Company's battery-operated cauteries, has
significant growth potential. Since products of this type have not
been affordable or effectively marketed outside the U.S. due to these
factors, the Company has designed certain disposable products to be
reusable. The Company will expand its marketing thrust internationally
by attending more foreign shows than it did in 1995. The Company
presently has a significant portion of the U.S. cautery market and does
not expect a dramatic growth in sales of cautery-related products
domestically.
The Company, over the past two years has chosen to expand its product
line of electrosurgical products. Electrosurgical products sold by the
Company are the standard electrodes, the patented Multi-Function
Cautery, the patent pending Resistick line of reduced stick electrodes
and the Aaron 800 high frequency desiccator.
The Company had sales of $1,076,200 and $303,700 in the electrosurgical
product area for the first nine months of 1996 and 1995 respectively.
The electrosurgical product line is a larger market than the Company has
normally sold into and is dominated by two main competitors, Valley Lab
a division of Pfizer and Conmed, based in Utica, New York. In the area
of reduced stick electrodes, the main competitor is MegaDyne. The
combined markets for the Company's electrosurgical products exceeds $100
million annually. Management believes that electrosurgical product
sales will move from fifth place to second in total Company sales by
product line in 1996, and will constitute the largest single product
line by 1997.
Non-Medical Products
The Company sold $777,800 and $1,025,700 of its flexible lighting
products used primarily in the automotive and locksmith industries in
the first nine months of 1996 and 1995 respectively. The Company is
intending to expand this market with the addition of a higher quality
flexible light unit. The higher quality version of the Bend-A-Light
will be sold into the markets in which it sells its less expensive unit.
The Company is manufacturing a fiber optic flexible scope to compete in
the automotive, aircraft and quality maintenance markets and shipped its
first scopes at the end of the second quarter. The product will compete
with much more expensive units built by companies such as Olympus. As
the Company successfully markets the industrial fiber optic flexible
scope, it intends also to redesign, manufacture and market a medical
scope.
<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
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
3rd Quarter 1 1/4 1 1/16
On November 19, 1996 the closing bid price for An-Con's Common Stock as
reported by the NASD Bulletin Board was $1.62 per share. As of November
8, 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.
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.
Although there is no formal R&D program or R&D department, the Company
has been creating and developing products in-house, through the
production and engineering departments of Aaron, and, on occasion, has
developed products licensed from third parties utilizing the same
departments.
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. Pursuant to request
of a majority of the Board of Directors, Robert Speiser resigned as an
officer and director of An-Con and Aaron in March, 1995. The Board of
Directors of Aaron replaced Mr. Speiser on April 12, 1995, with the
election of Andrew Makrides as director. See "Certain Transactions".
Acquisition Negotiations Between Principals
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.
THE ACQUISITION AGREEMENT
Chronology of Events Leading to the Final Acquisition Agreement
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 aforesaid discussion culminated in the initial informal agreement
between An-Con and Aaron for the acquisition of Aaron on March 31,
1993, which was later amended on June 10, 1993.
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. In June, 1993, Management of Aaron, with
the full knowledge of An-Con management, after approving and indorsing
the agreement, immediately solicited its shareholders to approve the
March 31, 1993 agreement, as amended. No registration statement had
been filed or made effective by An-Con with the Securities and
Exchange Commission, nor was any proxy statement (reviewed by the
securities and Exchange Commission) provided to Aaron shareholders.
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 (which were approved and indorsed
by management) 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, which was approved and indorsed by
management; was submitted to and 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, the 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.
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 deemed restricted shares
and will become eligible for sale in the marketplace on January 11,
1997. See "Certain Transactions".
POSSIBLE VIOLATIONS OF SECURITIES LAWS
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. Neither
An-Con nor Aaron filed a registration statement with the Securities
and Exchange Commission prior to the solicitation of Aaron shareholder
nor were any An-Con shares registered or qualified in any states prior
to the exchange of shares.
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.
Furthermore, the shareholders of Aaron were not given the opportunity to
approve or disapprove of the changes to the agreement which were
effected after the exchange of shares (January 11, 1995) in April and
November, 1995, and such failure to submit same to shareholders may
constitute an additional basis for this rescission offer.
Determination to Offer Rescission
It was determined that to seek a vote of shareholders to either ratify
the agreement or otherwise unwind the transaction would be
inappropriate. Since the condition of the combined companies had so
materially changed from that of the date of the exchange of shares
(January 11, 1995), the option of ratifying the agreement or unwinding
the transaction would not be deemed fair to shareholders of either
company, and a rescission offer (offering the value of the consideration
paid by former Aaron shareholders) was deemed a more appropriate remedy
for the possible violations of the securities laws.
RECOMMENDATION OF MANAGEMENT OF AN-CON
AND AARON AS TO RESCISSION OFFER
The respective Boards of Directors of Aaron and An-Con have
unanimously determined that it is in the best interests of the former
shareholders of Aaron to reject the Rescission Offer of An-Con based
upon, among other things, the perceived future potential of the
business of An-Con (and its subsidiary Aaron) and the present market
value of An-Con Common Stock.
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 of the Company with the
agreement of 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").
A total of 5,960,042 outstanding shares of Aaron valued at $.22 per
share on January 11, 1995, were exchanged on that date for 3,399,096
shares of Common Stock of An-Con, which An-Con shares had an equivalent
value of $.392 per share as of the date of the exchange. Accordingly
Aaron shareholders received .57 shares of An-Con for each share of Aaron
surrended. The An-Con shares exchanged for Aaron shares are presently
held in escrow pending delivery to former Aaron shareholders upon
effectiveness of this prospectus. If a shareholder fails to respond,
such failure to respond shall be deemed an acceptance of the Company's
Rescission Offer and such shares shall be repurchased by the Company at
a price of $.392 per share.
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. If such decision is
to accept the Rescission Offer, such decision will be 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 an acceptance of the Rescission
Offer and such shareholder's shares shall be purchased by the Company at
a price of $.392 per share. 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 September 30, 1996, the Company had cash of $54,300, 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.
Rescinding shareholders who are non-affiliates and who are not paid
within 180 days, may sell their shares in the open market and if there
remains a balance due, they shall remain creditors of the Company for
such amount. In the event rescinding shareholders who are affiliates
are not paid in full by the Company within 180 days of the date of this
prospectus, then such affiliated 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)
performed the valuation. Since the transaction closed on January 11,
1995, both companies agreed to utilize December 31, 1994 as the date for
valuation purposes. No independent 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 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 have been highly volatile with the lowest price during the
period January, 1993 to September, 1995 being $1.00. 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 generally fluctuated between 4
3/8 in the early part of 1993 (giving effect to the 1 for 15 reverse
stock split in January, 1994) and 1, with the closing bid being 1 1/4 on
January 11, 1995, the date of exchange of shares. 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 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 shares 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 (An-Con) stock, the value of the
consideration received (by Aaron shareholders) shall be estimated even
though measuring directly the fair values of assets received (An-con
Stock)is difficult.
The present values (and where necessary, adjusted values explained
below) of amounts to be received were determined at the appropriate
current interest rate of 12%. The rate of 12% represents the cost of
capital, and which is the State of Florida's legal interest rate from
January 11, 1995 that former Aaron shareholders, most of whom 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, plant
and equipment(C) Adjusted Value 452,200 452,200
Tax asset Present value 366,600 366,600
Valuation allowance Present value (366,600) (366,600)
Patents(D) Adjusted Value 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 state. Some states have
requirements which preclude Rescission Offers unless such are made to
all shareholders. In the instant case, the Rescission is being made
only to those An-Con shareholders who were formerly Aaron shareholders.
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
qualify the Rescission Offer and/or otherwise 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. Where the Rescission Offer is required
to be qualified in any state and the Company fails to so qualify it in
such state, the Aaron Shareholder residents thereof may continue to have
rights of Rescission under such state laws even though they reject the
Company's current Rescission Offer. In such event, the Company may be
required to maintain a liability on the Company's records for amounts
represented by the number of shares held by Aaron shareholder residents
of such (non-qualified) states, until the state's Statute of Limitations
has run. 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 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 or 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 September 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 $84,000 as of September 30, 1996. As of September 30, 1996
the Company's cash position was $54,300. 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 not offer its shares for sale
pursuant to a companion Prospectus.
Within five days after the effective date of this prospectus, the Company
will distribute through the United States Certified Mail, Return Receipt
Requested, and by overnight courier service 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. Rescission
Offerees who reject the Rescission Offer and who are non-affiliates, may
sell their shares free of restrictions after January 11, 1997.
Rescission Offerees who reject the Rescission Offer and who are
affiliates, may also sell their shares in the market after January 11,
1997, provided they comply with the provisions of Rule 144 under the
Securities Act of 1933. 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" and "State Statutes of
Limitation".
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. Notwithstanding the foregoing, acceptance of the Rescission
Offer does not bar a shareholder from attempting to seek redress in
court for violation of Section 5 of the Securities act of 1933. See
"Recission Tender Procedure".
Failure to Respond:
All offerees who fail to respond within 30 days will be deemed by
management to have accepted the Company's Rescission Offer and must sell
their An-Con shares back to the Company at a price of $.392 per share.
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, the payment for such shares shall be held by the
Company for their benefit.
The current market price for An-Con shares on the Bulletin Board is $1.62
per share which is $1.23 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 (and in the case of
affiliates, pursuant and subject to Rule 144 promulgated under the
Securities Act of 1933, as amended). See "Risk Factors", No. 15.
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
prior to January 11, 1997. 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 amount of
indebtdness ( 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, acceptance, refusal or failure to accept or reject the
offer of rescission will not terminate the stockholder's rights to
independently 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 as set forth in the opinion of Bloom & Company, auditors
of An-Con and Aaron. 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 Consequences 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. Pursuant to IRC Sections 1001 and
related sections, if the Aaron shareholders accept the Rescission Offer
and accept cash for their An-Con shares, such acceptance will create a
taxable occurrence and Aaron shareholders should contact their respective
tax advisers or consultants to determine the tax nature (gain or loss)
resulting from their decision and the extent thereof.
Generally, 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.
Tax Opinion
The foregoing tax analysis is the result of a tax opinion rendered to the
Company by Bloom & Company, its auditors, for filing with respect to this
prospectus. Interested parties are urged to seek independent tax advice
if deemed required.
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 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 June 30,
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 5.25%
(v)
255 3rd St.
St. James, New York
Tsang Yang
Tseng Common Stock 666,667 Beneficial 7.92%
(v)
190-1 Ming-Chun Road
Chi-Yi, Taiwan
Robert
Speiser Common Stock 753,333 Beneficial 8.95%
(ii)(v)
1340 Boca Ciega
Isle Drive
St. Petersburg,
Florida 33706
Dr. Louis F.
Powell Common Stock 422,587 Beneficial 5.02%
(vi)
202 Bluffview Drive
Belleair, FL 34640
J. Robert
Saron Common Stock 487,385 Beneficial 5.79%
(iii)
Ashley Drive
Seminole, FL 34642
Delton
Cunningham Common Stock 74,946 Beneficial .89%
(iv)
7500 Normandy Ct.
Seminole, FL 34642
George W.
Kromer Jr. Common Stock 35,000 Beneficial .42%
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 21.35%
and Directors as a
Group (6 persons)
(ii)
(i) Based on 8,419,214 shares outstanding as of September 30, 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 71,667 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
period ended September 30, 1996 and September 30, 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 September 30, 1996. . . F-39
Consolidated Statement of Operations for the
Six Months Ended September 30, 1996 and 1995 . . F-41
Consolidated Statement of Cash Flows for the
Six Months Ended September 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 <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.
FORM 10-QSB
QUARTERLY REPORT
SEPTEMBER 30, 1996
<PAGE>
AN-CON GENETICS, INC.
INDEX TO FORM 10-QSB
Page
Part I. Financial Information
Item 1: Consolidated Financial Statements:
Consolidated Balance Sheet -
September 30, 1996 F1
Consolidated Statement of Operations
for the Nine Months Ended September 30,
1996 and 1995 F3
Consolidated Statement of Cash Flows
for the Nine Months Ended September 30,
1996 and 1995 F4
Notes to Financial Statements F7
Item 2: Management's Discussion and
Analysis or Plan of Operation 1
Part II. Other Information 7
Item 1: Legal Proceedings 7
Item 2: Changes in Securities 7
Item 3: Defaults Upon Senior Securities 7
Item 4: Submission of Matters to Vote
of Security Holders 7
Item 5: Exhibits and Reports on Form 8-K 7
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS
AN-CON GENETICS, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
ASSETS
Current assets:
Cash $ 54,300
Trade accounts receivable 792,800
Inventories 783,300
Prepaid expenses 24,300
Deferred tax asset 50,100
Total current assets 1,704,800
Property and equipment, net 1,443,800
Other assets:
Goodwill, net 81,400
Deferred charges, net 174,700
Patent rights, net 332,700
Unamortized debt issue costs, net 1,900
Deposits 7,700
598,400
$3,747,000
The accompanying notes are an integral part of the financial
statements.
<PAGE>
AN-CON GENETICS, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30,1996
(CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 813,700
Accrued interest 201,600
Notes payable - current portion 186,600
Due to Aaron shareholders - recission offer 1,331,800
Obligations under capital leases -
current portion 30,200
Total current liabilities 2,563,900
Long-term debt, net 484,300
Stockholders' equity:
Common stock par value $.015; 15,000,000
shares authorized, issued and outstanding
4,683,118 shares on September 30, 1996 70,200
Additional paid in capital 11,724,200
Accumulated deficit (11,095,600)
Total stockholders' equity 698,800
$ 3,747,000
The accompanying notes are an integral part of the financial
statements.
<PAGE>
AN-CON GENETICS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
1996 1995
Sales $ 5,254,200$4,108,600
Costs and expenses:
Cost of sales 2,767,200 2,465,200
Research and development 31,000 --
Professional services 221,700 288,600
Salaries and related costs 824,200 556,600
Selling, general and
administration 902,600 853,100
4,746,700 4,163,500
Gain(Loss)from operations 507,500( 54,900)
Other income (expense):
Interest, net ( 104,700) ( 10,400)
Gain (Loss) before
extraordinary item 402,800 ( 65,300)
Extraordinary item:
Gain from settlement of debt,
net of taxes -- 76,800
Income 402,800 11,500
Provision for income tax ( 132,300) --
Net income (loss) $ 270,500$ 11,500
Per share:
Gain(Loss) before
extraordinary item $ .04 $ (.01)
Extraordinary item -- .01
Net income (loss) $ .04 $ --
Weighted average number of shares
outstanding - Fully Diluted6,980,718 6,898,040
The accompanying notes are an integral part of the financial
statements.<PAGE>
AN-CON GENETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
1996 1995
Cash Flows from operating activities
Net income (loss) $ 270,500 $ 11,500
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 198,900 74,600
Common stock issued for professional fees 5,7007,900
Gain from forgiveness of debt -- (76,800)
Employee stock option granted 16,900 --
Changes in current assets and liabilities:
(Decrease) in receivables (140,500) (373,800)
(Increase) decrease in inventories (177,100) 3,000
(Increase) decrease in prepaid expenses 49,600 32,000
(Decrease) in accounts payable (73,600) (3,300)
Increase (decrease) in accrued interest 43,800 ( 3,900)
Decrease in deferred tax 133,200 --
Total adjustments 56,900 (340,300)
Net cash provided by (used in) 327,400 (328,800)
operating activities
Cash flows from investing activities
(Increase)in deferred cost (79,700) --
(Increase)in fixed assets (314,700)( 175,800)
(Increase)in patents ( 111,000) --
Net cash used in investing activities ( 505,400)( 175,800)
Cash flows from financing activities
Decrease in oblig. under capital lease (5,900) (5,900)
Decrease in notes payable - officers -- ( 90,800)
(Increase)decrease in long term debt ( 104,200) ( 22,500)
Common shares issued for cash 166,000 1,000
Decrease in subscriptions receivable 10,600 87,900
Net cash provided by (used in) financing
activities 66,500( 30,300)
Net increase (decrease) in cash and
cash equivalents ( 111,500)( 534,900)
Cash and cash equivalents,
beginning of period 165,800 550,700
Cash and cash equivalents, end of period $ 54,300$ 15,800
The accompanying notes are an integral part of the financial
statements.
AN-CON GENETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Cash paid during nine months ended September 30:
1996 1995
Interest $12,500 $7,500
Income Taxes -0- -0-
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
On February 15, 1996 the Company set up an employee stock option plan
issuing 337,000 warrants to key employees valued at $.05 per share.
The Company utilized a loss carryforward of $240,600 as an offset
against its estimated taxable income of equal amount. For the period
ended the Company wrote off warrants previously issued for $5,700.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
The Company issued 35,000 restricted post-split shares to
convertible noteholders to redeem $70,000 in notes payable and
$26,900 of related accrued interest. The shares were valued at
$14,000, 50% of the market price of the Company s unrestricted
shares at the time of issuance. The issuance cost of the redeemed
bonds, in the amount of $6,100 was written off.
The Company issued 27,500 post split shares for services valued
at $11,000, 50% of the market price of the Company s unrestricted
shares at the time of issuance.
On January 11, 1995, An-Con acquired all of the outstanding
capital stock of Aaron Medical Industries, Inc.(Aaron), in
exchange for issuing 3,399,096 shares of the Company to an escrow
agent. The total acquisition price of Aaron shares was valued at
$1,331,800.
According to the agreement An-Con will register the shares that are placed
in escrow. The former shareholders of Aaron have the right to accept the
registered shares of An-Con or elect to receive the value of their shares
in cash. Since (a) the vote was previously taken by Aaron s shareholders
and shares were already delivered by them, and (b) An-Con shares were
already issued prior to filing and effectiveness of a registration
statement under the Securities Act of 1933, and (c) since the Company has
already been acquired since January, 1995, the shareholders of Aaron are
to be provided with an effective registration statement by An-Con and are
being requested to choose either to accept delivery of the An-Con shares
pursuant to the Acquisition Agreement, as amended, or, in the alternative,
to receive cash for their shares of Aaron. The amount of $1,331,800,
value of the consideration due to the former Aaron shareholders, is
recorded as a current liability of An-Con, as of March 31, 1995.
AN-CON GENETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
The acquisition of Aaron was accounted for using the purchase method.
Accordingly, $2,012,800 was allocated to assets acquired based on their
estimated fair values. This treatment resulted in $335,800 of cost in
excess of net assets acquired.
Such excess (which has increased for additional acquisition costs) is
being amortized on a straight line basis over 5 years. In connection with
the acquisition the Company assumed $681,600 net liabilities of Aaron.
On June 26, 1995 the company's subsidiary, Aaron Medical, purchased a
building for $625,000 by issuing 60,000 An-Con shares valued at $78,000
and by issuing a purchase money mortgage of $500,000. A security deposit
given to the seller of $12,200 was applied to the purchase and $34,800 was
paid in cash.
<PAGE>
AN-CON GENETICS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the interim financial statements reflect all
adjustments, consisting of only normal recurring items, which are
necessary for a fair presentation of the results for the interim periods
presented. The results for interim periods are not necessarily indicative
of results for the full year. These financial statements should be read
in conjunction with the significant accounting policies and the other
notes to the financial statements included in the Corporation's 1995
Annual Report to the SEC on Form 10-KSB.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
(A) Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with an original maturity of three months or
less to be cash equivalents.
(B) Accounts Receivable
Accounts receivable are presented net of the allowance for doubtful
accounts.
(C) Inventories
Inventories are stated at the lower of cost, determined by the FIFO method
or market.
(D) Property, Plant and Equipment
Property and other equipment are recorded at cost. Depreciation is
computed using the straight-line method over the estimated useful lives
of the assets as follows: leasehold improvements-term of lease:
furniture, fixtures and equipment 5 years.
(E) Bond Issue Costs
Costs related to a bond issue are classified as deferred charges and
amortized using the straight line method, over the life of the bonds.
(F) Investments
The equity method is used to account for investments in corporate joint
ventures and other investments in common stock if the Company has the
ability to exercise significant influence over operating and financial
policies of the investee enterprise. That ability is presumed to exist
for investments of 20% or more and is presumed not to exist for
investments of less than 20%; both presumptions may be overcome by
predominant evidence to the contrary.
The Company initially records an investment at cost. Subsequently, the
carrying amount of the investment is increased to reflect the Company's
share of income of the investee and is reduced to reflect the Company's
share of losses of the investee or dividends received from the investee.
The Company's share of the income or losses of the investee is included
in the Company's net income as the investee reports them.
AN-CON GENETICS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(f) Investments (continued)
Adjustments similar to those made in preparing consolidated
financial statements, such as elimination of intercompany gains
and losses and amortization of the difference between cost and
underlying equity in net assets, also are applicable to the
equity method. Under the equity method, an investment in common
stock is shown in the balance sheet of the Company as a single
amount. Likewise, an investor's share of earnings or losses
from its investment is ordinarily shown in its icome statement
as a single amount.
The cost method is used when ownership of securities in an affiliated
company represents less than 20% of the total outstanding shares of that
Company. Under this method the Company records an investment in the stock
of an investee at cost, and recognizes as income dividends received that are
distributed from net accumulated earnings of the investee since the date of
acquisition by the Company. The net accumulated earnings of an investee
subsequent to the date of investment are recognized by the Company only to
the extent distributed by the investee as dividends. Dividends received in
excess of earnings subsequent to the date of investment are considered a
return of investment and are recorded as a reduction of cost of the
investment.
A loss in value of an investment that is other than a temporary decline
shall be recognized the same as a loss in value of other long-term assets.
Evidence of a loss in value might include, but would not necessarily
limited to, absence of the ability to recover the carrying amount of the
investment or inability of the investee to sustain aa earnings capacity that
would justify the carrying amount of the investment. A current fair market
value of an investment that is less than its carrying amount may indicate
a loss in the value of the investment.
(G) Research and Development Costs
Research and development costs are charged to expense when incurred.
Disclosure in the financial statements is made for the total research and
development costs charged to expense in each period for which an income
statement is presented. Only the research and development costs that are
purchased from another enterprise and have alternative future use are
capitalized and are amortized over five years.
(H) Research and Development Arrangements
The company accounts for its obligations under an arrangement for the
funding of research and development by others by determining whether the
company is contractually obligated to pay for research not yet performed.
If so determined, to extent that the company development is obligated to
pay, the company records a liability and charges research and development
costs to expense.
(I) Patents, Franchises, Licenses and Operating Rights
The cost of franchises, license options to acquire technology and
operating rights acquired are amortized using the straight-line method
over their useful lives, 5 years.
AN-CON GENETICS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(J) Stock Issue Costs
Stock issue costs are treated as a reduction of the amount received from
the sale of the related capital stock.
(K) Net Earning (Loss) Per Share
Net earnings (loss) per share are computed based upon the
weighted average number of outstanding common shares during
the period considered.
(L) Income Recognition
Income is recognized on the accrual basis, i.e., revenues
are recognized and reported on the income statement when the
amount and timing of revenues are reasonably determinable
and the earning process is complete or virtually complete.
(M) Accounting for Income Taxes
In 1992, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income taxes." This
statement requires that deferred taxes be established for all temporary
differences between the book and tax bases of assets and liabilities,
including those which have not been previously recognized. In addition,
deferred tax balances must be adjusted to reflect tax rates that will be
in effect in the years in which the temporary differences are expected to
reverse.
(N) Non-monetary Transactions
The accounting for non-monetary assets is based on the fair
values of the assets involved. Cost of a non-monetary asset
acquired in exchange for another non-monetary asset is
recorded at the fair value of the asset surrendered to obtain
it. The difference in the costs of the assets exchanged is
recognized as a gain or loss. The fair value of the asset
received is used to measure the cost if it is more clearly
evident than the fair value of asset surrendered.
(O) Stock-Based Compensation
The company has adopted Accounting Principles Board Opinion 25 for its
accounting for stock based compensation. Under this policy:
Compensation cost are recognized as an expense over the period of
employment attributable to the employee stock options.
Stocks issued in accordance with a plan for past or future
services of an employee is allocated between the expired
costs and future costs. Future costs are charged to the
periods in which the services are performed.
AN-CON GENETICS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(P) Principles of Consolidation
The consolidated financial statements include the accounts of
An-Con Genetics, Inc. and its wholly-owned subsidiary Aaron
Medical Industries, Inc., after elimination of material
intercompany accounts and transactions.
NOTE 3. DESCRIPTION OF BUSINESS
An-Con Genetics, Inc. ("the Company") was incorporated in 1982, under the
laws of the State of Delaware and has its principal executive office at 1
Huntington Quadrangle, Melville, New York 11747.
NOTE 4. STOCK-BASED COMPENSATION
In the first quarter of 1996, the Company issued warrants to
purchase 337,000 restricted shares of the Company
stocks to various employees, in exchange for their services.
Under the terms of the stock warrant plan, warrants are
granted a price of $1.125 per share. The warrants may be
exercised at any time during the period commencing February
16, 1996 and ending February 15, 2001.
The Company applies APB opinion 25, Accounting for Stock Issued to
Employees, and related interpretations in accounting for its plans.
Accordingly, based on a stock price of $1.175 per share when the warrants
were issued, a compensation cost of $.05 per warrant was recognized. Had
the compensation cost for the Company's warrants been determined based on
the fair value at the grant date of the awards under the warrants plan
consistent with the method of FASB Statement 123 Accounting for Stock Based
Compensation, the cost per warrant would have been $.11 and Company's net
income and earnings per share would have been reduced to the pro forma
amounts indicated below:
Net Income As reported $ 270,500
Net Income Pro forma 250,300
Net Income Per Share:
Primary and fully
Dilluted As reported .04
Primary and fully
Dilluted Pro forma .04
AN-CON GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE 5. EARNINGS PER SHARE
Primary earnings per share is equal to net income divided
by the weighted average number of shares outstanding
including dilutive convertible securities. In the first
nine months of 1996, the dilutive securities included the
outstanding shares of Xenetics Biomedical, Inc. and
Automated Diagnostics Inc., the two inactive and defunct
subsidiaries of the Company. The shares of these
Companies were convertible to 153,333
shares of An-Con common stock. Also, approximately 70%
of former shareholders of Aaron Medical Industries, Inc.
had indicated their decision to accept 2,379,367 shares
of An- Con. The Company's fully diluted and primary
earnings per share are the same and are computed assuming
the conversion of these securities.
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.
F-54
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
18,900 98,300
Less: Current maturities included
in current liabilities 18,900 52,100
$ -- $ 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
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.
II-1
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*
Total . . . . . . . . . . . . . . .174,085.15*
*Estimated
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-2
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. *
8 Amended Opinion of Bloom and Company *
23(a) Consent of Bloom and Company as to
An-Con Financial Statements
Aaron Financial Statements and expertise filed herewith
23(b) Consent of Bloom and Company as to
Tax Opinion *
23(c) Bloom consent as to disclosure .Deleted hereby
23(d) Consent of Alfred V. Greco, P.C.
is contained in the opinion *
99 Federal Court Decision Denying Megadyne's request
for Preliminary Injunction against Aaron Medical
Industries, Inc. *
__________________________________________________________
*Previously filed with Form S-4 as amended on Form sb-2.
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.
The Company will:
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration
statement to:
(i) Include any prospectus required by section 10(a)(3) of
the Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price represent no
more than a 20 percent change in the maximum aggregate offering
price set forth in the "Calculation of Registration fee" table in
the effective registration statement.
(iii) Include any additional or changed material information
on the plan of distribution.
(2) For determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time
to be initial bona fide offering.
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the offering.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this post-effective amendment No. 1 on
Form SB-2 to Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City
of St. Petersburg, State of Florida on November 19, 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. 4 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 November 19, 1996
J. Robert Saron
Chairman of the Board
of Directors and CEO
S/ Andrew Makrides November 19, 1996
Andrew Makrides, President,
Director
S/ Delton Cunningham November 19, 1996
Delton N. Cunningham
Secretary-Treasurer,
Chief Financial Officer
Principal Accounting Officer
S/ George W. Kromer November 19, 1996
George W. Kromer, Jr.
Director
S/ Joseph F. Valenti November 19, 1996
Joseph F. Valenti
Director
c: ANCN-F.SB2
EXHIBITS
<PAGE>
BLOOM AND COMPANY
50 CLINTON STREET
HEMPSTEAD, NY 11550
TEL (516) 486-5900
Fax (516) 486-5476
November 19, 1996
Consent of Auditors
Financial Statements
We consent to the use in this post-effective amendment No. 1 on Form SB-2
to registration statement, originally filed on Form s-4 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.
S/Bloom and Company
Bloom and Company
Exhibit 23(a)
