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
September 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: 8,405,868.
AN-CON GENETICS, INC.
FORM 10-QSB
QUARTERLY REPORT
SEPTEMBER 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 -
September 30, 1997 F1
Consolidated Statements of Operations
for the Nine Months Ended September 30,
1997 and 1996 F3
Consolidated Statements of Cash Flows
for the Nine Months Ended September 30,
1997 and 1996 F4
Notes to Financial Statements F6
Item 2: Management's Discussion and
Analysis of Financial and Results of
Operations 1
Part II. Other Information 5
Item 1: Legal Proceedings 5
Item 2: Changes in Securities 5
Item 3: Defaults Upon Senior Securities 5
Item 4: Submission of Matters to Vote
of Security Holders 5
Item 5: Exhibits and Reports on Form 8-K 5
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS
AN-CON GENETICS, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
Assets
Current assets:
Cash $ 124,456
Trade accounts receivable 869,413
Inventories 969,654
Prepaid expenses 78,093
Deferred tax asset 175,010
Other receivables 56,125
Total current assets 2,272,751
Property and equipment, net 1,441,436
Other assets:
Goodwill, net 45,937
Patent rights, net 274,285
Deposits 7,150
327,372
$ 4,041,559
The accompanying notes are an integral part of the
financial statements.
<PAGE>
AN-CON GENETICS, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30,1997
(CONTINUED)
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 476,593
Accrued expense 96,511
Notes payable - current portion 892,578
Due to shareholders 92,040
Total current liabilities 1,557,722
Long-term debt, net 93,070
Stockholders' equity:
Common stock par value $.015; 15,000,000
shares authorized, issued and outstanding
$8,405,868 shares on September 30, 1997 122,711
Additional paid in capital 12,964,325
Accumulated deficit (10,696,269)
Total stockholders' equity 2,390,767
$ 4,041,559
The accompanying notes are an integral part of the
financial statements.
<PAGE>
AN-CON GENETICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
1997 1996
Sales $ 5,518,558 $ 5,254,200
Costs and expenses:
Cost of sales 3,095,287 2,767,200
Research and development 60,290 31,000
Professional services 262,645 221,700
Salaries and related costs 1,055,795 824,200
Selling, general and administrative 811,183 902,600
5,285,200 4,746,700
Gain from operations 233,358 507,500
Other income (expense):
Interest, net ( 59,468)( 104,700)
Miscellaneous 18,140 --
( 41,328)( 104,700)
Income 192,030 402,800
Extraordinary item - waiver of
bonus payments due officers 70,600 --
262,630 402,800
Provision for income tax ( 91,920) (132,300)
Realized benefit of loss
carryforward 91,920 --
Net income $ 262,630 $ 270,500
Per share, Primary and fully diluted:
Net income (loss) $ .03 $ .04
Weighted average number of shares
outstanding 8,307,951 6,980,718
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 NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
1997 1996
Cash Flows from operating activities
Net Income $262,631 $270,500
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 234,828 198,900
Employee stock option granted -- 16,900
Common stock for professional fees 7,000 5,700
Waiver of bonus payments to officers (70,600) --
Changes in current assets and liabilities:
(Increase) in receivables ( 19,623)(140,500)
(Increase) in inventories (114,776) (177,100)
(Increase) decrease in prepaid expenses ( 22,027) 49,600
(Decrease) in accounts payable (310,907)( 73,600)
Increase (decrease)in accrued expense(131,363) 43,800
Decrease in deferred tax -- 133,200
(Increase) in other receivables ( 11,678) --
Total adjustments (439,146) 56,900
Net cash provided by (used in)
operating activities: (176,515) 327,400
Cash flows from investing activities
(Increase)in deferred cost --( 79,700)
(Increase)in fixed assets (192,241)(314,700)
(Increase)in patents ( 13,780)(111,000)
(Increase) in deposits ( 10) --
Net cash used in investing activities (206,031) (505,400)
Cash flows from financing activities
Decrease in obligations
under capital lease ( 4,600) ( 5,900)
(Decrease) in due to Shareholder ( 4,360) --
(Decrease) in long term debt (136,478) (104,200)
Bank term loan 150,000 --
Repayment of bank term loan (25,002) --
Loan-Bank line of credit 425,000 --
Repayment of loan-line of credit (85,000) --
Common shares issued for cash 2,538 166,000
Decrease in subscriptions receivable 64,000 10,600
Net cash provided by financing activities 386,098 66,500
Net increase (decrease) in cash and
cash equivalents 3,552 (111,500)
Cash and cash equivalents,
beginning of period 120,904 165,800
Cash and cash equivalents, end of period $ 124,456 $ 54,300
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, 1997 AND 1996
Cash paid during the nine months ended September 30:
1997 1996
Interest $ -- $12,500
Income Taxes -0- -0-
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
1- 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 total
amounts of principal and the accrued interest of the converted
bonds were $19,000 and $10,450 respectively. The balance of
the bondholders have not redeemed their bonds or accepted the
share offer.
2- The Company issued 10,000 shares of common stock in
exchange for $4,572 of accounts payable.
3- The Company issued 100,000 shares of common stock and
cancelled 200,000 warrants that were issued in conjunction
with a private placement of the Company's securities.
4- The Company exchanged its patent for Borascope Technology
and related equipment and inventories for notes receivable in
the amount of $49,525. The costs of the patent (net of
amortization), equipment, and inventories were $31,735,
$7,000, and $10,790 respectively.
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 nine months ended September 30, 1996
the Company wrote off warrants previously issued for $5,700.
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
AN-CON GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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
Principles of Consolidation
The consolidated financial statements include the accounts of
An-Con Genetics, Inc. and its wholly owned subsidiary Aaron
Medical Industries, Inc. All intercompany accounts and
transactions are eliminated in consolidation.
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.
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.
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 September 30, 1997 were as follows:
Raw materials $ 541,552
Work in process 258,404
Finished goods 169,698
Total $ 969,654
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 expended 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
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.
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.
AN-CON GENETICS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(continued)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue Recognition and Product Warranty (continued)
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
expended as incurred. Certain environmental costs are
capitalized based on estimates and depreciated over their
useful lives.
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.
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
The Company accounts for its obligations under an arrangement
for the funding of research and development by others by
determining whether the Company is contractually obligated to
pay for research not yet performed. If so determined, to the
extent that the Company is obligated to pay, the Company
records a liability and charges research and development costs
to expense.
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.
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.
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.
AN-CON GENETICS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(continued)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Stock-Based Compensation (continued)
Stocks issued in accordance with a plan for past or future
services of an employee are 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.
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.
NOTE 5. RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING
STANDARDS BOARD
Recent pronouncements of the Financial Accounting Standards
Board ("FASB"), which are not required to be adopted at this
date, include Statement of Financial Accounting Standards
("SFAS") No. 129, "Disclosure of Information about Capital
Structure" ("SFAS No. 129") and SFAS No. 128, "Earnings Per
Share" ("SFAS No. 128"). SFAS No. 129 and 128 specify
guidelines as to the method of computation as well as
AN-CON GENETICS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(continued)
NOTE 5. RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING
STANDARDS BOARD (CONTINUED)
presentation and disclosure requirements for earnings per
share ("EPS"). The objective of these statements is to
simplify the calculation and to make the U.S. standard for
computing EPS more compatible with the EPS standards of other
countries and with that of the International Accounting
Standards Committee. These statements are effective for
fiscal years ending after December 15, 1997 and earlier
application is not permitted. The Company does not expect
that the adoption of SFAS No. 129 and 128 will have a material
effect on the Company's consolidated financial statements.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward-looking Statements.
This Report on Form 10-QSB contains forward-looking
statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including statements regarding the
company's expectations, hopes, intentions, beliefs or
strategies regarding the future. Such forward-looking
statements include, but are not limited to, the Company's
anticipated expense levels for research and development,
and selling general and administrative; anticipated capital
expenditures; and expectations regarding inventory
balances, liquidity and adequacy of cash resources under
the sub-headings "Results of Operations" and "Liquidity and
Capital Resources". Actual results could differ materially
from those projected in any forward-looking statements for
the reasons detailed below and in other sections of this
Report on Form 10-QSB.
All forward-looking statements included in this Form 10-QSB
are based on information available to the Company on the
date of this Report on Form 10-QSB, and the Company assumes
no obligation to update the forward-looking statements.
Investors should also consult the risks factors listed from
time to time in the Company's Reports on Form 10-K and
Annual Report to Stockholders.
Results of Operations
The results of operations over the nine months ended
September 30, 1997 show steady sales and profitability, as
compared to the first nine months of 1996. The Company's sales
revenues increased by 5%, from $5,254,200 to $5,518,558. Gross
profit percentage of 44% was down from 47% for the same period
in 1996. Gross profit went down from $2,487,000 to $2,423,271.
Increased revenues sales were mainly attributable increases in
Bend-a-light, electro-surgical devices, and cauteries sales.
The sales of cauteries accounted for 42% of all sales in the
nine months ended September 30, 1997.
Operating salaries and related expenses increased by 28%
from $824,200 to $1,055,795, in the nine months ended September
30, 1997 as compared to the same period in 1996. The increase
in salaries was largely attributable to the employment of a new
quality control manager staffing of a new research and
development department, and increased salaries for sales
personnel.
Research and development costs increased from $31,000 to
$60,290 (by 94%) in the three quarters ended September 30, 1996
in 1997. In 1997, the Company set up a staffed research and
AN-CON GENETICS, INC.
PART I. FINANCIAL INFORMATION (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
development department which is improving the existing products
and developing new products.
Expenses for professional services increased by 18% to
$262,645 in the nine months ended September 30, 1997, as
compared to $221,700 in the same period of the previous year.
The main reason for this increase was the fees associated with
the Megadyne lawsuit and SEC filings.
Selling, General and Administrative expenses decreased by
11%. These expenses were $811,183, in the nine month period
ended September 30, 1997 as compared to $902,600 for the nine
months ended September 30, 1996.
Interest expense decreased from $104,700 in the nine
months ended September 30, 1996 to $59,468 in 1997. The $45,232
(76%) decrease in interest expense 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 $262,630 for the nine months
ended September 30, 1997 as compared to $270,500 in 1996 for the
same period. The decrease of $274,142 in the operating income
(54%) and net income of $7,870 (3%) were mainly because of the
increase in cost of goods sold and additional salaries for
quality control, research and development, and sales personnel.
Operating income was $233,358 in the nine months of 1997 as
compared to $507,500 in the same period in 1996. The
extraordinary revenue of $70,600 from a voluntary waiver of
bonuses by the officers of the Company for the year 1996
contributed additional 1% to the revenues, in 1997.
The Company sells its products through distributors 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 nine months of 1997, international sales
of the Aaron Medical product line continued to increase. These
sales were $1,297,454 which represented 23% of total sales. This
compares favorably to the first nine months of 1996 where total
international sales were $1,031,623 representing 20% of total
AN-CON GENETICS, INC.
PART I. FINANCIAL INFORMATION (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
sales. The increase from the first nine months of 1997 to the
first nine months of 1996 represents a 26% 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 will amount to $550,000. These expenditures will be
and have been funded primarily through internal cash flow and
bank financing. 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 $424,998 as of September 30, 1997.
Financial Condition
As of September 30, 1997, the amount of cash was $124,456
as compared to $120,904 at December 31, 1996. Cash provided by
(applied to) operating activities was $176,515 in the first nine
months of 1997 as compared to $327,400 in the first nine months
of 1996. Net working capital of the company on September 30,
1997 was $715,029 as compared to ($859,100) in 1996.
Investing activities utilized $206,031 in cash during the
first nine months of 1997, compared to $505,400 in the first
nine months of 1996. In 1997, the Company continued its policy
of investing 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 nine months of
1997. At September 30, 1997, the same ten customers accounted
for approximately 53% of outstanding accounts receivable.
Cash flow provided $386,098 and $66,500 from financing
activities in the first nine months of 1997 and 1996,
respectively. The most significant items of financing activity
in the first nine months ended September 30, 1997 were the
reduction of notes payable and bonds payable by $141,018 and the
use of bank term loan of $150,000 and a line of credit of
$425,000. The repayments of the term and the line of credit
loans were $25,002 and $85,000, over the first three quarters
of 1997.
AN-CON GENETICS, INC.
PART I. FINANCIAL INFORMATION (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Financial Condition(Continued)
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
Electrosurgery
Electrosurgery will be the area of growth for the Company in the
next few years.
The Company, over the past two years has chosen to expand its
line of electrosurgical products and believes this will be the
area of growth for the Company over the next few years.
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 and believes this area will allow the most significant
growth.
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 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 (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Outlook (Continued)
Electrosurgery (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.
Other Medical Projects
The Company has been approved by at least two major
medical device companies to manufacture certain medical products
under a private label agreement. There can be no guarantee that
these negotiations will result in actual purchase orders or that
they would have a material impact.
Non-Medical Products
The Company during the first half 1997 sold $547,000 of
its non medical products to one customer. The Company is
expanding this market with its flexible lighting products for
use primarily in the automotive and locksmith industries.
Approximately $350,000 of sales of non medical products was from
the addition of a higher quality flexible light unit. The
higher quality version of the Bend-A-Light will be sold in 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 September 30, 1997 the Company had
$464,998 outstanding on its bank loans.
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
offers.
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: _________________
_________________________
President Andrew Makrides,
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