U.S. Securities and Exchange Commission
Washington D.C. 20549
Form 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
For the transition period from to
Commission file number 0-12183
AN-CON GENETICS, INC.
(Exact name of small business issuer as
specified in its charter)
Delaware 11-2644611
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
734 Walt Whitman Rd., Melville, New York 11747
(Address of principal executive offices)
(516) 694-8470
(Issuer's telephone number)
N/A
(Former name, former address and former fiscal year,
if changes since last report)
Check whether the issuer (1) filed all reports required to
be filed by Section or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and
reports required to be filed by Section 12,13 or 15(d) of the
Exchange Act after the distribution of securities under a plan
confirmed by court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the
issuers's class of common equity, as of the latest practicable
date: 8,288,368
AN-CON GENETICS, INC.
FORM 10-QSB
QUARTERLY REPORT
JUNE 30, 1997
<PAGE>
AN-CON GENETICS, INC.
INDEX TO FORM 10-QSB
Page
Part I. Financial Information
Item 1: Consolidated Financial Statements:
Consolidated Balance Sheet -
June 30, 1997 F1
Consolidated Statements of Operations
for the Six Months Ended June 30,
1997 and 1996 F3
Consolidated Statements of Cash Flows
for the Six Months Ended June 30,
1997 and 1996 F4
Notes to Financial Statements F6
Item 2: Management's Discussion and
Analysis or Plan of Operation 1
Part II. Other Information 6
Item 1: Legal Proceedings 6
Item 2: Changes in Securities 6
Item 3: Defaults Upon Senior Securities 6
Item 4: Submission of Matters to Vote
of Security Holders 6
Item 5: Exhibits and Reports on Form 8-K 6
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS
AN-CON GENETICS, INC.
CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
Assets
Current assets:
Cash $ 43,993
Trade accounts receivable 952,622
Inventories 993,781
Prepaid expenses 51,857
Deferred tax asset 175,000
Total current assets 2,217,253
Property and equipment, net 1,479,768
Other assets:
Goodwill, net 47,126
Patent rights, net 321,379
Deposits 7,140
375,645
$ 4,072,666
The accompanying notes are an integral part of the
financial statements.
<PAGE>
AN-CON GENETICS, INC.
CONSOLIDATED BALANCE SHEET
JUNE 30,1997
(CONTINUED)
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 700,797
Accrued expense 101,040
Notes payable - current portion 309,471
Due to shareholders 97,400
Total current liabilities 1,208,708
Long-term debt, net 618,405
Stockholders' equity:
Common stock par value $.015; 15,000,000
shares authorized, issued and outstanding
8,288,368 shares on June 30, 1997 122,299
Additional paid in capital 12,953,164
Accumulated deficit (10,815,910)
2,259,553
Less: Subscription receivable ( 14,000)
Total stockholders' equity 2,245,553
$ 4,072,666
The accompanying notes are an integral part of the
financial statements.
<PAGE>
AN-CON GENETICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
1997 1996
Sales $ 3,694,018 $ 3,214,200
Costs and expenses:
Cost of sales 2,071,504 1,599,600
Research and development 41,144 26,300
Professional services 135,238 125,600
Salaries and related costs 690,662 493,100
Selling, general and administration 659,499 664,500
3,598,047 2,909,100
Gain from operations 95,971 305,100
Other income (expense):
Interest, net ( 36,365) ( 64,500)
Miscellaneous 12,793 --
( 23,572) ( 64,500)
Income 72,399 240,600
Extraordinary item - waiver of
bonus payments due officers 70,600 --
142,999 240,600
Provision for income tax ( 50,050) ( 84,200)
Realized benefit of loss
carryforward 50,050 --
Net income $ 142,999 $ 156,400
Per share, Primary and fully diluted:
Net income (loss) $ .02 $ .02
Weighted average number of shares
outstanding 8,199,508 6,898,040
The accompanying notes are an integral
part of the financial statements.<PAGE>
AN-CON GENETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
1997 1996
Cash Flows from operating activities
Net income (loss) $ 142,999 $ 156,400
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 161,486 116,400
Employee stock option granted -- 16,900
Common stock for professional fees -- 5,700
Changes in current assets and liabilities:
Increase in receivables ( 96,222) 70,600
(Increase) decrease in inventories (139,781) (121,200)
(Increase) decrease in prepaid expenses 4,243 45,500
(Decrease) in accounts payable ( 86,703) (171,400)
Increase (decrease) in accrued expense (193,909) 31,200
Decrease in deferred tax -- 84,200
Total adjustments (350,886) 77,900
Net cash provided by (used in)
operating activities (207,887) 234,300
Cash flows from investing activities
(Increase)in deferred cost -- (100,000)
(Increase)in fixed assets (169,582) (204,800)
(Increase)in patents ( 10,986) ( 69,500)
Net cash used in investing activities (180,568) (374,300)
Cash flows from financing activities
Decrease in obligations under capital lease ( 4,628) ( 4,200)
(Decrease) Increase in notes payable 266,176 --
(Increase)decrease in long term debt -- ( 76,800)
Common shares issued for cash -- 120,000
Decrease in subscriptions receivable 50,000 10,600
Net cash provided by (used in) financing
activities 311,548 49,600
Net increase (decrease) in cash and
cash equivalents ( 76,907) ( 90,400)
Cash and cash equivalents,
beginning of period 120,900 165,800
Cash and cash equivalents, end of period $ 43,993 $ 75,400
The accompanying notes are an integral part of
the financial statements.
AN-CON GENETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Cash paid during the six months ended June 30:
1997 1996
Interest $ 39,837 $ 18,900
Income Taxes -0- -0-
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
FOR THE QUARTER ENDED JUNE 30, 1997
In February of 1997, 10 year notes came due and the Company
offered each bond holder 2,200 shares of common stock for each
$1,000 bond and accrued interest of $550. Nineteen bondholders
accepted the offer and forty-three bondholders received cash for
their bonds and accrued interest. The balance of the
bondholders have not redeemed their bonds or accepted the share
offer.
FOR THE QUARTER ENDED JUNE 30, 1996
On February 15, 1996 the Company set up an employee stock
option plan issuing 337,000 warrants to key employees valued
at $.05 per share. The Company utilized a loss carryforward of
$96,400 as an offset against its estimated taxable income of
equal amount.
AN-CON GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
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 1996 Annual Report to the SEC on Form 10-KSB.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates in the Preparation of Financial Statements
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.
Basis of Financial Statement Presentation - Consolidation
The consolidated financial statements include the accounts of
An-Con and its wholly owned subsidiary Aaron Medical
Industries, Inc. Intercompany transaction accounts have been
eliminated.
Fair Values of financial instruments
Cash and cash equivalents. Holdings of highly liquid
investments with maturities of three months or less when
purchased are considered to be cash equivalents. The carrying
amount reported in the balance sheet for cash and cash
equivalents approximates its fair values.
Accounts receivable and accounts payable. The carrying amount
of accounts receivable and accounts payable on the balance
sheet approximates fair value.
Short term and long term debt. The carrying amount of the
bonds and notes payable, and amounts due to shareholders
approximates fair value.
Warrants
The fair values of the Company's warrants were estimated using
the Black-Scholes model.
AN-CON GENETICS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(continued)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Inventories
Inventories are stated at the lower of cost or market. Cost
is determined principally on the average cost method.
Inventories at June 30, 1997 were as follows:
Raw materials $ 447,797
Work in process 369,334
Finished goods 176,650
Total $ 993,781
Property, Plant and Equipment
Property, plant and equipment are recorded at cost less
depreciation and amortization. Depreciation and
amortization are primarily accounted for on the straight
line method based on estimated useful lives. The
amortization of leasehold improvements is based on the
shorter of the lease term or the life of the improvement.
Betterments and large renewals which extend the life of the
asset are capitalized whereas maintenance and repairs and
small renewals are expensed as incurred. The estimated
useful lives are: machinery and equipment, 7-15 years;
buildings, 30 years; and leasehold improvements 10-20
years.
Revenue Recognition and Product Warranty
Revenue from sales of products is generally recognized upon
shipment to customers. The Company warrants its products
generally for one year. Based on the Company's experience
the estimated future costs relating to warranties are not
material.
Income is recognized in the financial statements (and the
customer billed)when products are shipped from stock. Net
sales are arrived at by deducting discounts and freight
from gross sales.
Environmental Remediation
The Company accrues environmental remediation costs if it
is probable that an asset has been impaired or a liability
incurred at the financial statement date and the amount can
be reasonably estimated. Environmental compliance costs
are expensed as incurred. Certain environmental costs are
capitalized based on estimates and depreciated over their
useful lives.
AN-CON GENETICS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(continued)
NOTE 2. 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 and warrants
outstanding. The Company's primary and fully diluted
earnings per share were substantially the same and they
were computed by dividing the Company earnings by the
weighted average number of common shares and warrants
outstanding and common stock equivalents. The only
dilutive common stock equivalent or other convertible
securities were the common shares attributable to the
minority shareholders 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.
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 2. 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 of research and development by others by
determining whether the Company is contractually obligated
to pay for research not yet performed. If so determined,
to the extent that the Company is obligated to pay, the
Company records a liability and charges research and
development costs to expense.
AN-CON GENETICS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(continued)
NOTE 2. 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.
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.
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.
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. The Company has adopted the policy of
preparing its financial statements in accordance with FASB
109.
AN-CON GENETICS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(continued)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
Stock-Based Compensation
The Company has adopted Accounting Principles Board Opinion
25 for its accounting for stock based compensation. Under
this policy:
Compensation costs are recognized as an expense over the
period of employment attributable to the employee
stock options.
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 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 734 Walt Whitman Road, Melville, New York
11747.
Currently, the Company is actively engaged in the business of
marketing and sale of medical products, acquiring ownership
interests in medical products and related technologies.
AN-CON GENETICS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(continued)
NOTE 4. 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 second quarter of 1997,
the dilutive securities included the outstanding shares of
Xenetics Biomedical, Inc. and Automated Diagnostics Inc., the
two inactive subsidiaries of the Company. The shares of these
companies were convertible to 153,333 shares of An-Con common
stock.
AN-CON GENETICS, INC.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The results of operations over the six months ended June
30, 1997 show steady sales and profitability, as compared to the
first six months of 1996. The Company's sales revenues
increased by 15%, from $3,214,200 to $3,694,018. Gross profit
percentage of 44% was down from 50% for the same period in 1996.
Gross profit went up from $1,614,600 to $1,622,514. Increased
sales were mainly attributable to a 37% increase in Bend-a-
light and a 25% increase in sales of electro-surgical devices.
For the first half of 1997 and 1996 cauteries accounted for 42%
and 44% of all sales, respectively.
Operating salaries and related expenses increased by 40%
from $493,100 to $690,662, in the six months ended June 30, 1997
as compared to the same period in 1996. The increase in
salaries was largely attributable to a new quality control
manager, a new research and development department and increased
salaries for sales personnel.
Research and development costs increased from $26,300 to
$41,144 for the two quarters ended June 30, 1996 and 1997
repectively. In 1997 the Company set up a staffed research and
development department which is improving and developing new and
existing products.
Expenses for professional services increased by 8% to
$135,238 in the six months ended June 30, 1997, as compared to
$125,600 in the same period of the previous year. The main
reason for this increase is the fees associated with the
Megadyne lawsuit.
Marketing activities were accompanied by a 1% decrease in
selling, general and administrative expenses. These expenses
were $659,499, in the six month period ended June 30, 1997 as
compared to $664,500 for the six months ended June 30, 1996.
Interest expense decreased for the six months ending June
30, 1997 by $28,135 from the six months ending June 30, 1996.
This was mainly attributable to the conversion of the Aaron
shareholders' debt to shares as per An-Con's recission offer in
the fourth quarter of 1996 which had accrued interest of $13,000
per quarter.
The Company had net income of $142,999 for the six months
ended June 30, 1997 as compared to $156,400 in 1996 for the same
period. The decreased gain, in 1997, was mainly due to a 6%
decrease in gross profit. Operating income was $72,399 in the
first half of 1997 as compared to $240,600 in the same period
AN-CON GENETICS, INC.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
of 1996. The extraordinary revenue item of $70,600 was
attributed to a voluntary waiver of bonuses by the officers of
the Company for the year 1996.
The Company sells its products through distributers both
nationally and internationally. These distributors are found
mainly through response to company advertising in 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 where the Company has distributors in all major
markets.
During the first half of 1997, international sales of the Aaron
Medical product line continued to increase. These sales were
$899,860 which represented 24% of total sales. This compares
favorably to the first half of 1996 where total international
sales were $678,807 representing 21% of total sales. The
increase from the first six months of 1997 to the first six
months of 1996 represents a 32% increase in sales volume. To
minimize credit risk, new international distributors in most
instances pay cash in advance or by irrevocable letter of
credit.
New product development and improvements to the Company's
facility required by regulatory agencies in 1996 and projected
into 1997 amounted to $550,000. These expenditures will be and
have been funded primarily through internal cash flow and bank
financing. 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 has secured a fourteen month
$400,000 credit facility with a local commercial bank in the
first quarter of 1997 and a $150,000 three year note to purchase
fixed assets with interest at 1% over prime. The amount
outstanding on the bank loans was $387,499 as of June 30, 1997.
AN-CON GENETICS, INC.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Financial Condition
As of June 30, 1997, cash totaled $43,993 down from $120,900 at
December 31, 1996. Cash provided (applied) to operating
activities was $(207,887) in the first half of 1997 as compared
to $234,300 in the first half of 1996. Net working capital of
the company on June 30, 1997 was $1,008,545.
Investing activities utilized $180,568 in cash during the first
half of 1997, compared to $374,300 in the first half of 1996.
Capital expenditures increased substantially in the first half
of 1997 as the Company continued to invest in property, plant
and equipment needed for future business requirements, including
manufacturing capacity.
The Company's ten largest customers accounted for approximately
51% of net revenues for the first half of 1997. At June 30,
1997, the same ten customers accounted for approximately 53% of
outstanding accounts receivable.
Cash flow provided $311,548 and $49,600 from financing
activities in the first half of 1997 and the first half of 1996,
respectively. The most significant items of financing activity
in the first half of 1997 were the reduction of notes payable
of $133,824 and the use of bank loans of $400,000.
The Company believes that it has the financial resources needed
to meet business requirements in the foreseeable future,
including capital expenditures for the expansion of its
manufacturing site, working capital requirements, and product
development programs.
Outlook
The statements contained in this Outlook are based on current
expectations. These statements are forward looking, and actual
results may differ materially.
The Company believes that the world market for disposable
medical products, such as the Company's battery-operated
cauteries, has significant growth potential because heretofore
these type of products have not been affordable or effectively
marketed outside the U.S. Because of these factors, the Company
has designed certain disposable products to be reusable.
AN-CON GENETICS, INC.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OPERATIONS (continued)
Outlook (continued)
The Company presently has a significant portion of the U.S.
disposable cautery market and does not expect a dramatic growth
in sales of cautery-related products domestically unless an OEM
arrangement can be obtained with a co-leader in this market.
The Company, over the past two years has chosen to expand its
line of electrosurgical products. Electrosurgical products sold
by the Company are the standard stainless steel electrodes, the
patented Multi-Function Cautery, the patent pending Resistick
line of reduced stick electrodes and the Aaron 800 high
frequency desiccator. The Company plans to continue expanding
its electrosurgical product line in 1997 and 1998.
From the first half of 1996 to the first half of 1997, the
Company's electrosurgical sales increased by more than 26%. 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. 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. Electrosurgical product sales
moved from fifth place to second in total Company sales by
product line in 1996. The Company anticipates continued sales
growth in its electrosurgical products.
The Company has received a finding of substantial equivalence,
from the Food and Drug Administration for five new devices. The
Company is permitted to market the devices according to the
indications for use as stated in the submissions. The first
three devices are for use in electrosurgery, the main area of
focus for the Company, while the other two are for use in
plastic and reconstructive surgery. The first two devices,
representing fourteen different catalog numbers are the
Company's first products in the expanding area of laparoscopic
surgery. These laparoscopic electrodes will be manufactured in
stainless steel and coated with the Company's patent pending
Resistick coating process. These electrodes are a logical
expansion to the Company's line of electrosurgical electrodes
with larger sizes and higher prices. The third item is an
electrosurgical tip cleaner which is an ancillary product to the
Company's overall electrosurgical line. The last two products
are nerve locator/stimulator products for helping to identify
individual nerves during surgery to prevent accidental damage.
AN-CON GENETICS, INC.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
C0NDITION AND RESULTS OF OPERATIONS (continued)
Non-Medical Products
The Company during the first half 1997 sold $547,000 of its
flexible lighting products for use primarily in the automotive
and locksmith industries. Approximately $350,000 was sold to
one customer. The Company is expanding 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.
Liquidity and Future Plans
Since the acquisition of Aaron Medical Industries, Inc. the
Company has partially changed its direction from acquiring
ownership interest in companies to acquiring new product
technology and expanding manufacturing capabilities through
Aaron. The Aaron 800 is an 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 has obtained a line of
credit with a local commercial bank for $400,000 and a $150,000
loan for capital improvements. Interest on these loans is to
be paid at 1% over prime. On June 30, 1997 the Company had
$387,499 outstanding on its bank loans.
The Company's future results of operations and the other
forward-looking statements contained in the Outlook, in
particular the statements regarding growth in the medical
products industry, capital spending, research and development,
and marketing and general and administrative expenses, involve
a number of risks and uncertainties. In addition to the factors
discussed above, among the other factors that could cause actual
results to differ materially are the following: business
conditions and the general economy; competitive factors such as
rival manufacturers' availability of products at reasonable
prices; risk of nonpayment of accounts receivable; risks
associated with foreign operations; and litigation involving
intellectual property and consumer issues.
AN-CON GENETICS, INC.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Liquidity and Future Plans (continued)
An-Con believes that it has the product mix, facilities,
personnel, and competitive and financial resources for continued
business success, but future revenues, costs, margins, product
mix and profits are all subject to the influence of a number of
factors, as discussed above.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Form 10-KSB for the year ended December 31, 1996.
Part I, Item 3.
ITEM 2. CHANGES IN SECURITIES
There have been no changes in the instruments defining the
rights or rights evidenced by any class of registered
securities.
There have been no dividends declared.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
In February of 1997, the 10 year notes came due and the Company
offered each bond holder 2,200 shares of common stock for their
$1,000 bond and accrued interest of $550. Nineteen bondholders
accepted the offer and forty-three bondholders received cash for
their bonds and accrued interest. The balance of the
bondholders have not redeemed their bonds or accepted the share
offer.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
There has not been a meeting of shareholders and
therefore, no matters have been submitted to a vote of security
holders.
ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K
A) Exhibits
28 None
SIGNATURES:
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
An-Con Genetics, Inc.
(Registrant)
Date: _________________
_________________________
Andrew Makrides, President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 43,933
<SECURITIES> 0
<RECEIVABLES> 952,622
<ALLOWANCES> 0
<INVENTORY> 993,781
<CURRENT-ASSETS> 2,217,253
<PP&E> 2,561,454
<DEPRECIATION> 1,081,686
<TOTAL-ASSETS> 4,072,666
<CURRENT-LIABILITIES> 1,208,708
<BONDS> 0
0
0
<COMMON> 122,299
<OTHER-SE> 2,137,254
<TOTAL-LIABILITY-AND-EQUITY> 4,072,666
<SALES> 3,694,018
<TOTAL-REVENUES> 3,694,018
<CGS> 2,071,504
<TOTAL-COSTS> 2,071,504
<OTHER-EXPENSES> 1,526,543
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,365
<INCOME-PRETAX> 72,399
<INCOME-TAX> 0
<INCOME-CONTINUING> 72,399
<DISCONTINUED> 0
<EXTRAORDINARY> 70,600
<CHANGES> 0
<NET-INCOME> 142,999
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
