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 March 31, 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.)
One Huntington Quadrangle, Melville, New York 11747
(Address of principal executive offices)
(516) 694-8470
(Issuer's telephone number)
N/A
(Former name, former address and former fiscal year,
if changes since last report)
Check whether the issuer (1) filed all reports required to
be filed by Section or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and
reports required to be filed by Section 12,13 or 15(d) of the
Exchange Act after the distribution of securities under a plan
confirmed by court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the
issuers's class of common equity, as of the latest practicable
date: 8,288,368
AN-CON GENETICS, INC.
FORM 10-QSB
QUARTERLY REPORT
MARCH 31, 1997
<PAGE>
AN-CON GENETICS, INC.
INDEX TO FORM 10-QSB
Page
Part I. Financial Information
Item 1: Consolidated Financial Statements:
Consolidated Balance Sheet -
March 31, 1997 F1
Consolidated Statements of Operations
for the Three Months Ended March 31,
1997 and 1996 F3
Consolidated Statements of Cash Flows
for the Three Months Ended March 31,
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
MARCH 31, 1997
Assets
Current assets:
Cash $ 108,123
Trade accounts receivable 934,695
Inventories 1,059,250
Prepaid expenses 58,600
Deferred tax asset 175,000
Total current assets 2,335,668
Property and equipment, net 1,464,528
Other assets:
Goodwill, net 57,113
Patent rights, net 324,915
Deposits 7,140
389,168
$ 4,189,364
The accompanying notes are an integral part of the
financial statements.
<PAGE>
AN-CON GENETICS, INC.
CONSOLIDATED BALANCE SHEET
MARCH 31,1997
(CONTINUED)
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 950,043
Accrued expense 92,646
Notes payable - current portion 305,392
Due to shareholders 96,400
Total current liabilities 1,444,481
Long-term debt, net 567,127
Stockholders' equity:
Common stock par value $.015; 15,000,000
shares authorized, issued and outstanding
8,152,448 shares on March 31, 1997 122,299
Additional paid in capital 12,953,164
Accumulated deficit (10,833,707)
2,241,756
Less: Subscription receivable ( 64,000)
Total stockholders' equity 2,177,756
$ 4,189,364
The accompanying notes are an integral part of the
financial statements.
<PAGE>
AN-CON GENETICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
1997 1996
Sales $ 1,915,741 $ 1,546,600
Costs and expenses:
Cost of sales 1,075,768 829,900
Research and development 18,286 19,800
Professional services 46,795 32,900
Salaries and related costs 348,260 278,500
Selling, general and administration 291,452 262,200
1,780,561 1,423,300
Gain from operations 135,180 123,300
Other income (expense):
Interest, net ( 11,414) ( 26,900)
Miscellaneous 1,427 --
( 9,987) ( 26,900)
Income 125,193 96,400
Provision for income tax 45,570 ( 35,000)
Realized benefit of loss
carryforward ( 45,570) --
Net income $ 125,193 $ 61,400
Per share, Primary and fully diluted:
Net income (loss) $ .02 $ .01
Weighted average number of shares
outstanding 8,131,313 6,804,707
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 THREE MONTHS ENDED MARCH 31, 1997 AND 1996
1997 1996
Cash Flows from operating activities
Net income (loss) $ 125,193 $ 61,400
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 82,976 53,400
Employee stock option granted -- 16,900
Changes in current assets and liabilities:
Increase in receivables ( 78,295) (153,800)
(Increase) decrease in inventories ( 205,250) 10,300
(Increase) decrease in prepaid expenses ( 2,500) 47,300
(Decrease) in accounts payable 162,503 (205,700)
Increase (decrease) in accrued expense ( 203,291) 12,000
Decrease in deferred tax -- 35,000
Total adjustments ( 243,857) (184,600)
Net cash used in operating activities ( 118,664) (123,200)
Cash flows from investing activities
(Increase)in deferred cost -- (20,000)
(Increase)in fixed assets ( 100,332) (48,300)
(Increase)in patents -- (10,900)
Net cash used in investing activities ( 100,332) (79,200)
Cash flows from financing activities
Decrease in obligations under capital lease ( 4,600)(1,900)
(Decrease) Increase in notes payable 210,819 --
(Increase)decrease in long term debt -- 8,300
Common shares issued for cash -- 100,000
Decrease in subscriptions receivable -- 10,600
Net cash provided by (used in) financing
activities 206,219 117,000
Net increase (decrease) in cash and
cash equivalents ( 12,777) (85,400)
Cash and cash equivalents,
beginning of period 120,900 165,800
Cash and cash equivalents, end of period $ 108,123 $ 80,400
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 THREE MONTHS ENDED MARCH 31, 1997 AND 1996
Cash paid during the three months ended March 31:
1997 1996
Interest $ 11,414 $ 13,500
Income Taxes -0- -0-
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
FOR THE QUARTER ENDED MARCH 31, 1997
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.
FOR THE QUARTER ENDED MARCH 31, 1996
On February 15, 1996 the Company set up an employee stock
option plan issuing 337,000 warrants to key employees valued
at $.05 per share. The Company utilized a loss carryforward of
$96,400 as an offset against its estimated taxable income of
equal amount.
AN-CON GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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 March 31, 1997 were as follows:
Raw materials $ 569,170
Work in process 263,974
Finished goods 226,106
Total $ 1,059,250
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 warranty 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:
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 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.
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.
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 first 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 three months ended
March 31, 1997 show improved sales and profitability, as
compared to the first three months of 1996. The Company's sales
revenues increased by 24%, from $1,546,600 to $1,915,741. Gross
profit percentage of 44% remained the same for the two periods
but the gross profit went up from $716,700 to $839,973.
Increased sales were mainly attributable to a 74% increase in
Bend-a-light, a 239% increase in electro surgical coagulation
device and a 119% increase in electrode sales. For the first
quarter of 1997 and 1996 cauteries accounted for 39% and 46%
respectively.
Salaries and related expenses increased by 25% from
$278,500 to $348,260, in the three months ended March 31, 1997
as compared to the same period in 1996. The increase in cost
of salaries was mostly attributable to a new quality control
manager, a new research and development department and increased
salesmen salaries.
Research and development costs remained constant for the
two quarters at approximately $19,000. 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 43% to
$46,795 in the three months ended March 31, 1997, as compared
to $32,900 in the same period of the previous year.
The increased marketing activities was accompanied by a
11% increase in selling, general and administrative expenses.
These expenses were $291,452, in the three month period ended
March 31, 1997 as compared to $262,200 for the three months
ended March 31, 1996.
Interest expense decreased by $15,486 mainly attributable
to the conversion of Aaron shareholders recission offer in the
fourth quarter of 1996 which accrued interest of $13,000 per
quarter.
The Company had net income of $125,193 for the three
months ended March 31, 1997 as compared to $61,400 in 1996. The
gain, in 1997, was due to a 24% increase in revenues in contrast
to 23% rise in cost of sales and 19% in operating expenses. The
operating income was $135,180, in the first quarter of 1997 as
compared to $123,300 in 1996.
AN-CON GENETICS, INC.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
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 intends to continue marketing 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 exhibited for the
first time in the United Kingdom, the United Arab Emirates
(Middle East) and in February 1997, Bangkok, Thailand (Far
East).
During the first quarter of 1997, international sales of the
Aaron Medical product line continued to increase. These sales
were $500,357 which represented 26% of total sales. This
compares favorably to the first quarter of 1996 where total
international sales were $348,046 representing 22% of total
sales. The increase from the first quarter of 1997 to the
first quarter of 1996 represents a 44% 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.
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
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 $295,000 as of March 31, 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
With the acquisition of Aaron, the Company's financial condition
has begun to improve. As of March 31, 1997, cash totaled
$108,123 up from $80,400 at March 31, 1996. Cash applied to
operating activities was $118,664 in the first quarter of 1997
as compared to $123,200 in the first quarter of 1996. Net
working capital of the company on March 31, 1997 was $891,187.
Investing activities used was $100,332 in cash during the first
quarter of 1997, compared to $79,200 in the first quarter of
1996. Capital expenditures increased substantially in the first
quarter of 1997 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 $426,000 for capital additions in 1997 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
51% of net revenues for the first quarter of 1997. At March 31,
1997, the same ten customers accounted for approximately 50% of
outstanding accounts receivables.
The Company provided $206,219 and $117,000 from financing
activities in the first quarter of 1997 and the first quarter
of 1996, respectively. The most significant items of financing
activity in the first quarter of 1997 were the reduction of
notes payable of $89,181 and the use of bank loans of $300,000.
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 these type
of products have not been affordable or effectively marketed
outside the U.S. Because of these factors, the Company has
designed certain disposable products to be reusable. The
Company will expand its marketing thrust internationally by
attending more foreign shows than it did in 1996.
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 and the Aaron 1200 to be introduced in the
second half of 1997.
From the first quarter of 1996 to the first quarter of 1997, the
Company's electrosurgical sales increased by more than 132% from
$184,000 to $427,000. 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. Electrosurgical product sales
moved from fifth place to second in total Company sales by
product line in 1996 and is expected to be the largest single
product line by the end of 1997.
Non-Medical Products
The Company for the first quarter of 1997 sold $369,000 of its
flexible lighting products used primarily in the automotive and
locksmith industries. Approximately $300,000 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.
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 fiber
optic flexible scope.
AN-CON GENETICS, INC.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND OF OPERATIONS (continued)
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 and 1200 are prime examples 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 March 31, 1997 the Company
had $295,000 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 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.
AN-CON GENETICS, INC.
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
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