AN-CON GENETICS, INC.
734 WALT WHITMAN ROAD
SUITE 207
MELVILLE, NY 11747
(516) 421-5452
DEFINITIVE PROXY MATERIALS
Notice of Special Meeting of Shareholders
To be Held September 8, 1998
At 10:00 A.M.
To our Shareholders:
A Special Meeting of the Shareholders of An-Con Genetics, Inc.
(the "Company") will be held at the Holiday Inn, 215 Sunnyside
Boulevard, (Exit 46N LI Expressway) Plainview, New York on
September 8, 1998 at 10:00 a.m. to consider and take action on
the following matters:
1. Authorize an amendment to the Company's Certificate of
Incorporation increasing the authorized capitalization of the
Company from a total of 15,000,000 shares of common stock
having a par value $.001 per share to 50,000,000 shares of
Common Stock having a par value of $.001 per share.
2. Authorize an amendment to the Company's Certificate of
Incorporation creating 10,000,000 blank preferred shares of
stock having $.001 par value per share.
3. Authorize an amendment to the Company's certificate of
incorporation to change the name of the Company to Bovie
Medical Corporation;
4. Ratify the Company's 1998 Non-Statutory Stock Purchase
and Option Plan.
5. Transact such other business as may properly come before
the meeting or any adjournments thereof.
Only holders of record of shares of common stock at the close
of business on July 31, 1998 are entitled to notice of and to
vote at the Special Meeting. A Proxy Statement explaining the
matters to be acted upon at the Special Meeting follows.
Please read it carefully.
WHETHER OR NOT YOU EXPECT TO BE PERSONALLY PRESENT AT THE
MEETING, PLEASE BE SURE THAT THE ENCLOSED PROXY IS PROPERLY
COMPLETED, DATED, SIGNED AND RETURNED WITHOUT DELAY IN THE
ENCLOSED ENVELOPE. ANY PROXY MAY BE REVOKED AT ANY TIME BEFORE
IT IS EXERCISED BY FOLLOWING THE INSTRUCTIONS SET FORTH ON PAGE
ONE OF THE ACCOMPANYING PROXY STATEMENT.
BY ORDER OF THE BOARD OF DIRECTORS
ANDREW MAKRIDES
PRESIDENT
AN-CON GENETICS, INC.
734 Walt Whitman Road
Suite 207
Melville, NY 11747
(516) 421-5452
PROXY STATEMENT
Special Meeting of Shareholders
To Be Held on September 8,1998
September 8, 1998
Solicitation and Voting of Proxies
This Proxy Statement is furnished in connection with the
solicitation on behalf of AN-CON GENETICS, INC. (the "Company"
or An-Con) of proxies to be voted at the Special Meeting of
Shareholders to be held on September 8, 1998, at the Holiday
Inn, 215 Sunnyside Boulevard, (Exit 46N Expressway) Plainview,
New York at 10 A.M.
The Board of Directors of the Company has fixed the
close of business on July 31, 1998 as the record date for the
determination of holders of shares of outstanding common stock
entitled to notice of and to vote at the Special Meeting. On
July 31, 1998, there were outstanding 13,629,693 shares of the
Company's common stock, the holders of which will be entitled
to one vote per share for each matter submitted to a vote at
the Meeting. The presence, in person or by proxy, of the
holders of a majority of the issued and outstanding shares
entitled to vote will constitute a quorum for the transaction
of business.
A proxy in the accompanying form which is properly
signed, dated and returned to the Company and not revoked will
be voted in accordance with the instructions contained therein.
If no instructions are indicated, proxies will be voted as
recommended by the Board of Directors. Shareholders who
execute proxies may revoke them at any time prior to their
being exercised by delivering written notice to the Secretary
of the Company or by subsequently executing and delivering
another proxy at any time prior to the voting. Mere attendance
at the Meeting will not revoke the proxy, but a shareholder
present at the Meeting may revoke his proxy and vote in person.
As of the date of this Proxy Statement, the only
business which the management of the Company intends to present
at the Meeting are the matters set forth in the accompanying
Notice of Special Meeting. Management has no knowledge of any
other business to be presented at the Meeting. If other
business is brought before the Meeting, the persons named in
the enclosed form of proxy will vote according to their
discretion.
The cost of soliciting proxies is estimated not to exceed
$20,000 and will be borne by the Company, including expenses in
connection with the preparation and mailing of this Proxy
Statement and all papers which now accompany or may hereafter
supplement it. The solicitation will be made by mail. The
Company will supply brokers or persons holding shares of record
in their names or in the names of nominees for other persons,
as beneficial owners, with such additional copies of proxies,
proxy materials and Annual Reports as may reasonably be
requested in order for such record holders to send one copy to
each beneficial owner, and will upon request of such record
holders, reimburse them for their reasonable expenses in
mailing such material.
Representatives of Bloom and Company, the independent
auditors and principal accountants for the current year, are
expected to be present at the securities holders meeting, will
have the opportunity to make a statement if they desire to do
so, and are expected to be available to respond to appropriate
questions.
Certain directors, officers and employees of the Company,
not especially employed for this purpose, may solicit proxies,
without additional remuneration therefor, by mail, telephone,
telegraph or personal interview.
Shareholders should note that this meeting is not the
annual meeting of shareholders, which will be scheduled
following this Special Meeting.
Shareholder Proposals:
Management plans to hold its annual meeting of shareholders for
1997 on December 14, 1998, and all shareholder proposals
intended to be presented at the next annual meeting must be
received by the Company by September 15, 1998 for inclusion in
the Company's next proxy statement. If the date of the next
annual meeting is subsequently advanced by more than 30
calendar days or delayed by more than 90 calendar days from the
date of the annual meeting to which the proxy statement
relates, the Company shall, in a timely manner, inform security
holders of such change, and the date by which proposals of
security holders must be received by any means reasonably
calculated to inform them.
Directors and Executive Officers
As of March 31, 1998, the Company s Executive Officers
and directors were as follows:
Name Age Position
Director since
J. Robert Saron 45 Chairman of the Board
August, 1994 Chief Executive
Officer, Director
Andrew Makrides 56 President, Director
December, 1982
Joseph F. Valenti 81 Director
October, 1995
George W. Kromer 56 Director
October, 1995
Delton Cunningham 33 Secretary, Treasurer
Vice President/CFO
Moshe Citronowicz 45 Executive Vice President
Chief Operating Officer
_________________________
On April 14, 1998 Alfred V. Greco, age 62, a principal
of Alfred V. Greco, P.C., counsel to the Company, was elected
an additional director of the Company to serve until the next
annual meeting of shareholders presently scheduled for December
14, 1998.
On May 8, 1998, Kenneth W. Davidson, age 51, Chairman
of the Board and Chief Executive Officer of Maxxim Medical,
Inc, a Delaware corporation the shares of which are traded on
the New York Stock Exchange was duly elected as an additional
director of the Company to serve until the next annual meeting
of shareholders.
On July 21, 1998, Joseph F. Valenti resigned as a
director of the Company due to his retirement from all business
activities.
J. Robert Saron, Chairman of the Board and Chief Executive
Officer, holds a Bachelors degree in Social and Behavioral
Science from the University of South Florida. From 1988 to
present Mr. Saron has served as President and director of Aaron
Medical Industries, Inc. (formerly Suncoast Medical
Manufacturing, Inc.). In March, 1995 Mr. Saron was elected
Chairman and Chief Executive Officer of An-Con Genetics, Inc.
Andrew Makrides, Esq., President, member of the Board of
Directors, and former Chairman, received a Bachelor of Arts
degree in Psychology from Hofstra University and a Juris Doctor
Degree from Brooklyn Law School. He is a member of the New
York Bar and has practiced law from 1968 until joining An-Con
Genetics, Inc. as Executive Vice President and director, in
1982. Mr. Makrides became President of the Company in 1985 and
served as such to date.
Joseph F. Valenti, filled a vacancy on the Board of Directors
and became a member of the Board of Directors on October 1,
1995. He is the former Vice-President of the International
Division of Aaron Medical Industries, Inc. and retired as of
January 1, 1995, from that position. He continues to be the
principal shareholder and chief executive officer of Valpex
International Corporation, a company, which is wholly owned by
him, and engaged in the import of products. This import
company has been a supplier of the Company's light bulbs
which, are used in the Company's various manufactured lighting
products. The prices paid by the company for the products are
competitive with those from other sources. He received a
Bachelor of Arts Degree in Languages from the College of the
City of New York in 1939. He has been associated with Aaron
Medical Industries, Inc. and its predecessor companies since
1980 and was charged with developing the international sales
department and increasing exports sales on behalf of Aaron.
See Certain Transactions .
George W. Kromer, Jr., filled a vacancy on the Board of
Directors and became a director on October 1, 1995. Mr. Kromer
is a Senior Financial Correspondent for "Today's Investor" and
is utilized as a consultant by other companies whose shares are
listed on the American Stock Exchange and Over-the-Counter
Exchange. An-Con has also retained Mr. Kromer on a month-to-
month basis as a consultant in addition to his capacity as a
director. He received a Master's Degree in 1976 from Long
Island University in Health Administration. He also holds a
Bachelor of Science Degree from Long Island University's
Brooklyn Campus and an Associate in Applied Science Degree from
New York City Community College, Brooklyn, New York. See
Certain Transactions .
Moshe Citronowicz, is a graduate of the University of Be'er
Sheva, Be'er Sheva, Israel, with a Bachelor of Science degree
in Electrical Engineering. He has also received certificates
from Worcester Polytech, Lowell University and the American
Management Association for completion of seminars in MRP,
master scheduling, purchasing SPC, JIT, accounting and plant
management. Since coming to the United States in 1978, Mr.
Citronowicz has worked in a variety of manufacturing and high
tech industries. In October 1993, Mr. Citronowicz joined the
Company as Vice President of Operations. He is responsible
for all areas of manufacturing, purchasing, product re-design,
as well as new product design. In September 1997, Mr.
Citronowicz was appointed by the board of directors to the
position of Executive Vice President and Chief Operating
Officer.
Delton N. Cunningham, Vice President and Chief Financial
Officer of the Company, holds a Bachelor of Science in
Accounting from the University of Florida. He is a Certified
Public Accountant and is a member of the American Institute of
Certified Public Accountants and the Florida Institute of
Certified Public Accountants. Mr. Cunningham began his career
with the Miami office of Arthur Anderson & Company. In June of
1991, Mr. Cunningham joined Aaron Medical Industries, Inc., as
the Company's Chief Financial Officer. In June of 1992 Mr.
Cunningham became Vice President of Aaron Medical Industries,
Inc. and in April of 1993, he was elected Corporate Secretary
of Aaron by the Board of Directors.
Alfred V. Greco, is President of Alfred V. Greco, P.C., counsel
to the Company. Mr. Greco is a member of the bar of the State
of New York and has been engaged in the practice of law for the
past 35 years in the City of New York. The main focus of Mr.
Greco's experience for the past 30 years has been in the area
of corporate and securities law during which he has represented
a large number of public companies, securities brokerage firms,
executives and registered representative and has developed a
broad range of experience in administrative, regulatory and
legal aspects of public companies. Mr. Greco graduated from
Fordham University School of Law with a Doctor of Law degree,
in June 1960. He was admitted to the New York State Bar in
March, 1961.
No Director has indicated to the Company that he intends
to oppose any action intended to be taken at this special
meeting of shareholders.
REMUNERATION
The following table sets forth the compensation paid to
the executive officers of the registrant for the three years
ended December 31, 1997:
Summary Compensation Table
Annual Compensation
Name and
Principal
Annual
Position Year SalaryBonus(a)
J.Robert Saron
CEO/Chairman 1997 $155,865 $ 2,460
1996 143,000 42,600
1995 116,000 39,600
Andrew Makrides
President 1997 103,382 1,784
1996 90,000 8,400
1995 77,000 11,800
Moshe Citronowicz
Executive Vice
President-
Chief Operating
Officer 1997 107,044 1,921
1996 104,600 11,200
1995 97,000 11,800
Delton Cunningham
Secretary, Treasurer,
Vice President/
CFO 1997 90,325 1,516
1996 86,000 8,400
1995 82,900 8,800
(a) In 1997, the officers waived their right to 1996
bonuses and the bonuses were cancelled. No bonuses were
declared for 1997 and all future bonuses shall be in the
discretion of the Board.
<PAGE>
REMUNERATION(CONTINUED)
Long Term Compensation
Awards Pay-outs Securities
Restricted Underlying
Other(b) Stock Option/
YearCompensationAwards SARS(#)Pay-outs
J.Robert Saron
CEO/Chairman 1997 $9,352 -- -- --
1996 8,100 -- 90,000 --
1995 23,700 -- -- --
Andrew Makrides
President 1997 9,598 -- -- --
1996 9,700 -- 70,000 --
1995 8,000 -- -- --
Moshe Citronowicz
Executive Vice
President-
Chief Operating
Officer 1997 9,352 -- -- --
1996 8,100 -- 25,000 --
1995 8,000 -- -- --
Delton Cunningham
Secretary,
Treasurer,
Vice President/
CFO 1997 9,262 -- -- --
1996 7,400 -- 55,000 --
1995 8,000 -- -- --
(b) Other compensation consists of medical insurance, life
insurance and automobile allowance. <PAGE>
Option/SAR Grants Table
Values of
securities
Number of underlying
shares unexercised
AcquiredOptions
on Value FY-End(#)sar/s at
Name and
Principal
Position Year Exercisable Realized Exercisable
J. Robert Saron
CEO 1997 -- -- --
1996 -- -- 101,250
1995 -- -- --
Andrew Makrides
President 1997 -- -- --
1996 -- -- 78,750
1995 -- -- --
Moshe Citronowicz
Vice President
Operations 1997 -- -- --
1996 -- -- 28,125
1995 -- -- --
Delton Cunningham
Vice, President/
CFO
Secretary,
Treasurer, 1997 -- -- --
1996 -- -- 61,875
1995 -- -- --
Outside Directors are compensated in their capacities as Board
members through option grants. Through the year 1997, the
Company's Board of Directors presently consisted of J.Robert
Saron, the CEO, Andrew Makrides, President, Joseph F. Valenti
and George W. Kromer, Jr. Mr. Saron is also President and CEO
of Aaron. Mr. Kromer has been retained on a month-to-month
basis pursuant to verbal agreement as a financial and public
relations consultant by An-Con for the past year at an average
monthly fee of $950.
In 1996 and 1997 George Kromer and Joseph Valenti were awarded
105,000 and 120,000 options, respectively, each for five to ten
years to purchase An-Con stock from $.75 to $1.125 per share.
There have been no changes in the pricing of any options
previously or currently awarded.
As of the 1st day of January, 1998, the Company cancelled its
prior employment agreements with its officers, and certain key
employees and entered into new employment agreements with them.
The agreements vary in terms over a period of between 2 and 5
years and provide for compensation in amounts varying from
$51,100 to $136,000 for the highest paid executive officer per
year, plus additional amounts for automobile allowance ($500 to
$600 per month). In addition to the foregoing, each agreement
for the company's executive officers provides for customary
executive benefits, indemnification for corporate accounts and
may be terminated (a) upon death, or (b) on thirty (30) days
notice by the officer to terminate, or (c) by the Company, (i)
without cause, upon the majority approval of the Board of
Directors on thirty (30) days written notice (wherein the
Company shall be obligated to pay the employee compensation
under the agreement for the balance term of the agreement) and
(ii) the employee may elect, in lieu of (i) above, to cancel
his agreement and obtain severance payments equal to three
times the annual salary and bonus in effect during the month
preceding such termination; or (d) by the Company for cause, if
during the time of employment, the employee violates the
covenant not to compete provisions of the agreement, or is
found guilty of a felony or crime of moral turpitude. The
agreement also provides for a covenant not to compete directly
or indirectly against the Company for a period of one year and
a 7 1/2 percent salary increase per year subject to approval of
the board.
In May of 1997 the officers as a group waived their right to
the bonuses as set forth in their contracts. The board of
directors will determine future bonuses.
Security Ownership of Certain Beneficial Owners and Management
of An-Con.
The following table sets forth certain information as of
December 31, 1997, with respect to the beneficial ownership of
the Company's common stock by all persons known by the Company
to be the beneficial owners of more than 5% of its outstanding
shares, by directors who own common stock and by all officers
and directors as a group.
Number ofNaturePercentage of
Name and Title Shares of outstanding
Address of Class ownedownership(i)shares(i)
5% Beneficial
Owners
Robert Speiser(iii) Common 753,333 Includes 5.3%
1340 Boca Ciega Stock shares only
Isle Drive
St. Petersburg,
Florida 33706
Directors
J. Robert Saron Common 523,805 Includes 3.7%
(iii) Stock 90,000 shares
Ashley Drive reserved for
Seminole, FL 34642 options
J.Valenti Common 177,205 Includes 1.3%
5700 Mariner Drive Stock shares 120,000
Tampa, Florida 33609 reserved
for options
G. Kromer Common 105,000 Includes .7%
P.O. Box 188 Stock 105,000 shares
Farmingdale, NY 11738 reserved for
options
A.Makrides Common 390,000 Includes .7%
(iv) Stock 70,000 shares
20 Damin Circle reserved for
St. James, NY 11780 options
Officers and Directors
as a Group Common 1,499,034 Includes10.6%
Stock 465,000 shares
reserved for
options
_______________________________
(i) Based on 14,116,274 shares outstanding on a fully diluted
basis. Officers and directors have 465,000 options to acquire
shares at March 31, 1998.
(ii) Mr. Robert Speiser resigned as the Company Chairman and
Chief Executive Officer on March 20, 1995.
(iii) Robert Saron, who replaced Mr. Speiser as Chairman, is
the President and a director of Aaron Medical Industries, Inc.
As a result of the exchange of shares pursuant to the Aaron
Acquisition Agreement, Mr. Saron is the beneficial owner of
408,805 additional shares of An-Con (in addition to the 25,000
shares he had received prior to the merger). Mr. Saron also
has the option to acquire an additional 90,000 shares.
(iv) Includes an option to acquire 70,000 shares at varying
prices.
(v) During 1996, one transaction took place that materially
changed shareholders' control of the Company: Aaron
shareholders received their shares on November 25, 1996 from
the escrow agent, which gave them 37.7% of the outstanding
shares of the Company at that time. (See "Certain Relationships
and Related Transactions").
Certain Relationships and Related Transactions
Valpex International Corporation ("Valpex"), a Company owned
and operated by Mr. Joseph Valenti, was a supplier of vacuum
and Krypton bulbs and vinyl pouches to Aaron for several years.
In 1996, Mr. Valenti joined An-Con as a director. On May 10,
1996, Valpex and Aaron entered a three year agreement that
allows Aaron to purchase products directly from Valpex's
manufacturers and suppliers. In exchange, Aaron agreed to pay
a commission to Valpex on purchases from the agreed upon list
of Valpex's suppliers. In 1997 and 1996, respectively, the
equivalent sales of Valpex to Aaron were $117,700 and $126,000,
respectively.
George Kromer, a director, also serves as a consultant to the
Company with average consulting compensation of approximately
$950 per month.
The aforesaid transactions were on terms no less favorable to
the Company than could have been obtained in arms-length
transactions with unrelated third parties.
Aaron Medical Industries, Inc. is a 100% owned subsidiary of
the Company. The Company's acquisition of Aaron in January,
1995, is deemed vital to the Company's potential for growth in
the medical device and electro-surgical products industry. The
Company's medical device and electro-surgical products are all
manufactured by Aaron and bear the Aaron trademark. Aaron is
the Company's sole operating subsidiary and an integral part of
the Company.
Directors' Compensation
Independent (unaffiliated) directors, who are not
employees, do not receive compensation for attending meetings.
However the company pays their expenses for attending meetings
of the Board. Approximately $5,000 was paid to cover expenses
of independent directors attending Board of Director meetings
during the year ended December 31, 1997. Independent directors
are compensated essentially in the form of stock options under
the Company s 1996 Employee and Consultant Stock Option Plan.
A total of 195,000 stock options were granted to directors in
fiscal 1997.
RECENT ASSET AND CORPORATE ACQUISITIONS
Maxxim Medical, Inc. Asset Acquisition, Supply and License
Agreement
On May 8, 1998, the Company entered into and
consummated a strategic alliance agreement with Maxxim Medical,
Inc., ( Maxxim ), a Delaware corporation the shares of which are
listed on the New York Stock Exchange, which agreement provided
for the acquisition by the Company of the tradename and the
trademark Bovie , a supply, license and distributorship
arrangement concerning electro-surgical devices and the
acquisition of Maxxim s electro-surgical generator product line
in exchange for 3,000,000 shares of common stock of An-Con.
More specifically, the agreement provides for (a) an
irrevocable royalty-free sub-license to Maxxim to use the
Bovie name on any electro-surgical products marketed by
Maxxim; (b) a 2-year exclusive distributorship in Maxxim to
resell the Bovie electro-surgical generator product line
anywhere in the world, and (c) a non-exclusive right to sell
An-Con products anywhere in the world. The distributorship
arrangement provides for anticipated cooperation between Maxxim
and An-Con with respect to research and development of new
products and Maxxim s option to become the exclusive
distributor thereof. Maxxim also agreed to certain minimum
purchase orders for the Bovie generator product line, the Aaron
1200 generators and other An-Con products and accessories
aggregating $3,000,000 during the initial 5-year term of the
agreement, subject to quality control and An-Con s ability to
meet commercially reasonable purchase orders of Maxxim.
Kenneth Davidson, the chairman of the Board of Maxxim, has been
appointed a member of the Board of Directors of An-Con.
As consideration for the foregoing, the Company agreed
to exchange 3,000,000 shares of common stock for the Bovie
Electrosurgical Generator line, the Bovie trademark and
tradename, and entered into agreements for the aforementioned
supply, license, and distributorship arrangement involving
Maxxim s commitments to purchase the Company s current and
future products. Due to the Company s lack of sufficient
authorized shares, in lieu of common stock, the Company has
issued a secured convertible promissory note to Maxxim in the
principal amount of $3,000,000 due on May 7, 2008, bearing
interest at the rate of 1% above the prime lending rate in
effect at Nations Banc Montgomery Securities LLC which provides
for ten annual payments of principal and interest commencing
May 7, 1999. Subject to approval of shareholders of Proposal
#1 below, this note is secured by the Company's equipment and
machinery and inventory. In the event, the shareholders fail
to authorize the increase as requested, the Company will be
forced to seek alternate financing to meet its obligations
under the note. No assurance can be given it will be
successful in such endeavor.
Advanced Refractory Technologies, Inc. ( ART ) and BSD
Development Beta Corporation ( BSD ) Asset and Corporate
Acquisitions
On February 9, 1998, the Company entered into a series
of contemporaneous agreements for the manufacturing and
licensing of a certain DYLYN coating technology ("DYLYN
Technology"), and exchange of shares, ( Contemporaneous
Agreements ) involving two non-affiliated companies, Advanced
Refractory Technologies, Inc. ("ART") a privately held New York
corporation engaged in research and development of a certain
patented diamond-like nanocomposite technology for the coating
of products ("DYLYN Technology"), and BSD Development Beta
Corporation, a privately held Delaware corporation. As a
result of the aforesaid transactions, the registrant acquired
certain jobcoating equipment valued at $2,000,000 and
consisting of two DYLYN deposition reactors inclusive of
components and two electro-blade surgical mounting fixtures
(the "Equipment") for coating electro-surgical blades and other
specified medical devices utilizing the DYLYN Technology. The
aforesaid, in addition to the acquisition by the Company of the
Equipment, resulted in the acquisition by it of an exclusive
10-year license to use the DYLYN Technology to jobcoat
specified medical products together with a manufacturing
arrangement with ART whereby ART will operate and maintain the
Equipment for the use of the DYLYN Technology under the License
Agreement at ART's location in Buffalo, New York. The Company
acquired all of the outstanding securities of BSD which is now
a wholly owned subsidiary of registrant.
Future Obligation of the Company
Pursuant to the Contemporaneous Agreements, ART is entitled to
exchange the 2,000,000 common shares of the Company for
2,000,000 shares of the Company s Series A Preferred Stock to
be designated by management to have the specified rights and
preferences (Preferred Stock) agreed upon in the
Contemporaneous Agreements, on or before September 6, 1998.
(Although the Board of Directors is not seeking shareholder's
approval for the exchange of stock with ART), subject to the
approval of shareholders of a Certificate of Amendment of
registrant's Certificate of Incorporation authorizing the
shares of Preferred Stock, management shall immediately issue
and exchange 2,000,000 preferred shares (for 2,000,000 common
shares previously issued to ART), which shall have the right
and designations agreed to in the Contemporaneous Agreements.
Among other things, the Preferred Stock to be issued to ART is
to be convertible into 2,000,000 shares of common stock of An-
Con and shall have certain preferences on liquidation and anti-
dilution aspects. In the event the Company is unable, for any
reason, to deliver the Preferred Stock to ART on or before
September 6, 1998, then, prior to September 15, 1998, An-Con is
to issue and deliver, without payment of any additional
consideration by ART, an additional number of shares of An-
Con's common stock having an aggregate fair market value of
$500,000. Furthermore, in the event An-Con should issue any
shares of any series or class of its preferred stock having
substantially the same rights and preferences as the Preferred
Stock without the prior consent of ART (which shall not be
unreasonably withheld), then An-Con is to issue and deliver to
ART, without payment of any additional consideration by ART, an
additional number of shares of An-Con's common stock having an
aggregate fair market value equal to $500,000
The approval sought in the proposal authorizing
10,000,000 blank preferred shares does not call for any
approval or ratification of the Company's decision to issue the
shares to ART, by the shareholders. The business decision by
the Board is now a contractual obligation to ART under the
Contemporaneous Agreements. However, as indicated heretofore,
subject to shareholder approval of the proposed amendment
authorizing 10,000,000 shares of Preferred Stock, shareholders
are advised that the Company will issue 2,000,000 shares of
preferred stock (the "Preferred Stock") to ART in exchange for
the 2,000,000 shares of common stock of the Company heretofore
issued to Art under the Contemporaneous Agreements. For further
information to shareholders, as specified in the
Contemporaneous Agreements, the Preferred Stock to be issued to
ART will have the following characteristics:
(a) While the Class A Preferred Stock issued to ART is
outstanding, An-Con will not authorize or issue any Preferred
Stock which will be entitled to any rights or preferences
senior to the Preferred Stock issued to Art.
(b) In the event An-Con issues Preferred Stock having
rights and preferences substantially equal to those of the
Preferred Stock to be granted to ART ( ART Preferred Stock ) it
will do so only on consent of ART or it shall issue to ART at
no additional cost to ART shares of An-Con s common stock
having a current market value equal to $500,000.
(c) The ART Preferred Stock will be entitled to
dividends and preference to dividends on any other class or
series of common stock or Preferred Stock on a fully
Participating basis with the common stock.
(d) The Preferred Stock will be convertible into
2,000,000 shares of An-Con s common stock unless pursuant to
its terms the number of shares of common stock into which it is
convertible is otherwise adjusted due to sales of common stock
at less than $1.00 per share, merger, acquisition, stock split,
subdivision of shares prior thereto. There will be anti-
dilution protection in the event of corporate reorganizations
and similar transactions. There will be anti-dilution
protection in the event the corporation issues common stock, or
securities convertible into common stock, at a price per share
less than the conversion rate applicable to the ART Preferred
Stock which is presently $1.00 per share.
(e) Subject to adjustment in conversion rate in the case
of sales by An-Con of common stock at prices less than $1.00
per share merger, consolidation, stock split or subdivision of
shares, the Preferred Stock shall be converted into common
stock at An-Con s option ("compulsory conversion") in the event
the aggregate fair market value of the common stock acquirable
upon conversion of the Preferred Stock exceeds four times the
then current fair market value of the common stock as evidenced
by the minimum bonafide bids at that time of at least one
independent market maker for a period of 45 consecutive days
immediately preceding the date of such compulsory conversion.
(f) Subject to adjustment of the conversion rate in the
case of conversion, or adjustment in the number of shares into
which the Preferred Stock would be entitled to be converted in
the event of merger, consolidation, stock split or subdivision
of shares, the Preferred Stock will be entitled to vote with
all the common stock of the corporation and will be entitled to
the number of votes to which it would be entitled assuming it
had been converted into common stock immediately prior to the
occasion of voting.
(g) The Preferred Stock shall have $2,000,000 minimum
liquidation value and have a preference on liquidation.
(h) The Preferred Stockholders will be entitled to
receive reports made generally available to common
stockholders.
Based upon the foregoing and in the light of Company's
acquisition program, the Company is seeking shareholder
approval to amend the certificate of incorporation to provide
for a total of 50,000,000 shares of common stock. The
increased authorized common stock, in addition to enabling the
Company s acquisition program to continue, will permit the
Company to complete the Maxxim asset acquisition and cancel the
Company's outstanding note in the amount of Three Million
($3,000,000) Dollars.
Subject to the approval of shareholders of the proposed
amendment to the Company's Certificate of Incorporation
authorizing 10,000,000 shares of preferred stock, a total of
2,000,000 preferred shares will be issued and exchanged for
2,000,000 shares of common stock heretofore issued by the
Company to ART pursuant to the agreement with ART and will have
the aforementioned designated rights and preferences. Although
the Company presently intends to issue and exchange 2,000,000
preferred shares having the designation, rights and preferences
outlined above for the 2,000,000 shares of Common Stock
previously issued to ART, the Company is presently seeking to
amend the Company's Certificate of Incorporation to provide for
a total 10,000,000 shares of blank preferred stock in order to
give management, without further approval of shareholders, the
necessary ability and flexibility to issue additional preferred
shares in future dealings with other potential candidates or
asset acquisitions. The Proposed amendment to the Company's
Certificate of Incorporation will enable management to fashion,
without approval of shareholders, the needed specified rights
and preferences that may be required to consummate a desirable
acquisition of assets or company, including rights and
preferences having characteristics which may be different in
nature and amount from the rights and preferences of the
preferred stock issuable to ART, described above. Although the
proposed amendment to the Certificate of Incorporation deals
with blank preferred stock, the Company will initially file an
appropriate Certificate of Designation of Rights and
Preferences for the 2,000,000 shares of such preferred stock as
required pursuant to the ART transaction, heretofore described.
The balance of 8,000,000 preferred shares will remain available
for future issuance by the Company (without further shareholder
approval) in connection with asset or company acquisitions.
Any future issuances, depending upon their terms votability,
conversion, preferences may have adverse effects upon existing
shareholder percentage voting, ownership dilution of book value
and participation rights in the event of future liquidation by
the Company.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Except to the extent that officers and directors of the
Company have become recipients of stock options pursuant to the
Company s 1998 Non-Statutory Stock Purchase and Option Plan,
and except to the extent that additional shares will be
required to be authorized to provide shares issuable on
exercise of options granted under the plan, no officer,
director or principal shareholder of the Company has any direct
or indirect interest in Proposal 3 and 4,with the exception of
Kenneth W. Davidson, the Chief Executive Officer of Maxxim and
A Director of the Company.
On May 8, 1998, Kenneth W. Davidson, Chief Executive
Officer of Maxxim Medical, Inc., a Delaware corporation the
shares of which are traded on the New York Stock Exchange, was
elected a director of the Company to serve until the next
annual meeting of shareholders. Pursuant to the Company s
asset acquisition agreement with Maxxim, hereinafter discussed,
the Company desires to deliver 3,000,000 shares of common stock
in exchange for and cancellation of the Company s outstanding
convertible promissory note for $3,000,000. Accordingly as CEO
of Maxxim, Mr. Davidson is For Proposal 1 increasing the
authorized Common Stock of the Company, which, among other
things, will enable the Company to deliver the 3,000,000 shares
of common stock (and convert and cancel the 3,000,000
promissory note) pursuant to the Maxxim agreement. See Maxxim
Medical Asset Acquisition, Supply and License Agreement.
Advanced Refractory Technologies, Inc., ("ART") a
principal shareholder of the Company's's Common Stock (as a
result of the acquisition of 2,000,000 shares pursuant to the
Contemporaneous Agreements), is For Proposal 2 which seeks to
amend the Certificate of Incorporation to authorize 10,000,000
shares of blank preferred stock. If Proposal 2 is approved by
shareholders, the Company will issue and exchange 2,000,000
shares of Preferred Stock (having rights and preferences
heretofore agreed upon by the Company and ART) for ART's
2,000,000 shares of Common Stock. In this manner the Company
will be able to avoid a penalty of having to issue additional
shares of Common Stock having a market value of $500,000. See
Recent Asset and Corporate Acquisitions .
MANAGEMENT POLICIES FOR GROWTH
As of July 31, 1998, there were 13,629,693 shares of
Common Stock issued and outstanding, 1,144,255 shares of Common
Stock reserved for issuance upon future exercise of outstanding
stock options and/or grants. A total of 14,773,948 shares will
be issued and outstanding if all of the aforementioned options
and grants are exercised.
The Company is currently seeking to increase its
authorized capitalization of Common Stock from 15,000,000
shares to 50,000,000 shares of Common Stock essentially in
order to enable it, (a) to effectively deliver 3,000,000 shares
of Common Stock (and cancel the Company's outstanding
promissory note in the amount of $3,000,000) pursuant to the
Company s existing agreement with Maxxim Medical, Inc.
discussed below; (b) to pursue its current acquisition policy
to acquire additional assets or companies having assets and/or
operations which are compatible with the Company's business;
and (c) to provide additional shares for funding and growth.
Management believes that this policy of growth through
operation and acquisition can best be pursued through
utilization of equity (Common Stock) as opposed to cash. The
Company is constantly in need of its cash reserves for
materials, operations and for internal growth as sales of its
products continue to increase and new products are brought to
market. The proposed increase in capitalization is deemed
necessary by management to provide a sufficient amount of
shares that will enable the Company to raise capital, to be
flexible in proposals to acquisition candidates and to consider
significant acquisitions. The increase will provide the
wherewithal for management to consider and aggressively pursue
a desirable acquisition candidate or asset situation (of
relatively significant size) without the necessity of further
requesting shareholders to authorize an increase in the
capitalization with the statutory and regulatory delays which
are usually occasioned thereby. In many instances, such a
delay could result in loss of opportunity. The proposed
increase in capitalization is deemed by management to enable it
to meet potential anticipated operational objectives by
providing shares for future funding, if necessary or warranted,
and to provide shares for continued growth by acquisition. The
Company plans to consider or pursue a desirable acquisition
candidates or asset situations. Although the Company will
enter into discussions with potential acquisition candidates or
asset acquisitions, there are no specific agreements in place
for any new acquisition candidate or asset acquisition at this
time. The Company is generally amenable and will confer with
and consider any potential asset or acquisition candidate that
will provide additional synergistic technology, cash and/or
revenue for the Company's future growth. In addition the
increased capitalization will give management the flexibility
to issue stock dividends to shareholders, as deemed
appropriate.
General Observations
Possible Adverse Aspects for Shareholders
An increase in the authorized shares of Common Stock (and
authorization of preferred stock) shall enable management to
make additional issuances of Common Stock (or preferred stock)
without approval of shareholders. Such issuances of common
stock will dilute the percentage ownership of the Company by
existing shareholders, and any issuances of preferred stock, if
convertible into common stock, may have similar dilutive
consequences. Furthermore, preferred stock may grant
preference in dividends to the preferred stockholder over the
common stockholder. In addition, a further consequence of
increasing the authorized shares of Common Stock (or creation
of a series of Preferred Stock) of the Company is that
management will have the potential ability, without approval of
shareholders to issue such common shares or create and issue
such preferred stock (convertible into common stock in
desirable conversion ratios) so as to make more difficult, or
to stave off hostile and/or friendly takeover attempts by third
parties. The foregoing will be applicable even if such a
transaction may appear, on its face, to be favorable to the
interests of the shareholders. Such anti-takeover measures may
include declaring a dividend and issuing shares to the existing
shareholders of the Company, or selling the shares, on
agreeable terms to a friendly investor (a person or other
entity whose interests are not opposed to those of the Company
and its shareholders) or taking other measures with its
authorized but unissued shares (without approval of
shareholders) within its corporate powers to stave off takeover
attempts. The use by management of anti- takeover measures
which may include the issuance of additional shares, share
dividends, and/or options to acquire shares at favorable
prices, may have a dilutive effect on the Company's book value
and further erode percentage ownership of shares by existing
shareholders. However, there are currently no "anti-takeover"
measures contemplated by the Company or included in any debt
agreement, By-law or provision of the Company's Certificate of
Incorporation or any amendment thereto and management does not
plan or presently contemplate seeking shareholder approval for
any such amendment to the By-Laws. The forgoing
notwithstanding, management believes shareholder approval will
not be necessary should it desire, in the future, to implement
the aforementioned anti-takeover measures heretofore discussed.
The increase in the authorized number of shares together
with other factors may also make the removal of management more
difficult even if such removal would appear to be beneficial to
shareholders generally, and may have the effect of limiting
shareholder participation in certain transactions such as
mergers or tender offers whether or not such transactions are
favored by incumbent management. However, it is essential to
note that whatever course of action management chooses to
pursue, it is required and has a fiduciary obligation to do so
in the best interests of the shareholders.
As of July 31, 1998 the Company had 13,629,693 shares of
Common Stock issued and outstanding without giving effect to
outstanding options or other derivative securities. The
Company's certificate presently authorizes 15,000,000 shares of
common stock. Accordingly, based upon the aforementioned
reasons and the Company s current acquisition policy,
Management has determined to request shareholder approval of
its resolution to amend its Certificate of Incorporation to
increase the authorized shares of Common Stock from 15,000,000
to 50,000,000 shares and provide for an additional 10 million
shares which shall be blank preferred stock. The foregoing
will, among other things, provide the necessary shares for the
Company to (a) issue and exchange 2,000,000 shares of preferred
stock, which shall have the rights and preferences previously
agreed upon with ART, for 2,000,000 shares of the Company's
Common Stock previously issued to ART, and (b) issue and
deliver 3,000,000 shares of Common Stock to Maxxim and thereby
cancel an outstanding note of the Company held by Maxxim in the
amount of Three Million ($3,000,000) Dollars. Although these
transactions have already been consummated and shareholder
approval of such agreements is not being sought, management
believes the foregoing issuances, exchange and note
cancellation, are in the best interests of the Company and its
shareholders.
PROPOSAL 1
PROPOSED AMENDMENT OF THE COMPANY'S
CERTIFICATE OF INCORPORATION TO INCREASE THE AUTHORIZED SHARES
OF COMMON STOCK FROM 15,000,000 SHARES TO 50,000,000 SHARES
Article Fourth of the Company's Certificate of Incorporation
presently reads:
FOURTH: The corporation shall be authorized to issue the
following shares:
Number of
Class Shares Par Value
Common 15,000,000 $0.001
Subject to the approval of shareholders, the Board of Directors
intends to amend the Company's Certificate of Incorporation to
provide for a new Article (Fourth) thereof, as follows:
"FOURTH: The corporation shall be authorized to issue
the following shares:
Number of
Class Shares Par Value
Common 50,000,000 $0.001
Possible Adverse Aspects to Stockholders
Since the present issued and outstanding shares of the
Company's Common Stock do not have any preemptive rights, the
present shareholders of the Company risk dilution of the book
value per share of their Common Stock should the newly
authorized stock be issued by the Company for a consideration
less than the Company's then current book value which was $.25
per share as of December 31, 1997. In addition, the percentage
ownership of the common stock of present shareholders will be
diminished with each future issuance of additional shares of
common stock. Furthermore, no shareholder approval may be
required by management to issue either the common stock or the
preferred stock sought to be authorized.
Any additional dilution factor is presently incalculable
in that it is not yet determined at what price the securities
will be issued by the Company (publicly or privately) in the
future, if issued at all, or for what price they will be
exchanged as consideration for an acquisition candidate, if one
is found. However, the increase in the number of authorized
shares of common stock, when and if issued, will not in any way
change the inherent rights of existing or future common
shareholders. If and when issued, each share of additional
authorized Common Stock will continue to: (1) entitle the
holder to one vote per share on matters to be voted upon by the
shareholders; (2) not entitle the holder to any cumulative
voting, cumulative dividends, preemptive, subscription or
redemption rights; (3) entitle the holder to receive dividends
from available funds, if and when declared by the Company's
Board of Directors; (4) entitle the holder to share ratably in
the assets of the Company legally available for distribution to
shareholders in the event of liquidation, dissolution or
winding up of the Company. (See "General Observation Possible
Adverse Aspects for Shareholders").
Required Vote for Adoption
Under Delaware Law the affirmative vote of a majority of
the outstanding shares of the Company's Common Stock is
required for the approval of Proposal 1, the proposed
amendment to the Company's Certificate of Incorporation which
increases the authorized shares of Common Stock available for
issuance. Once given effect, a majority vote of the Company's
Common Stock at a properly called meeting at which a quorum is
present will be required to repeal or modify the amendment.
RECOMMENDATION OF MANAGEMENT
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ADOPTION
OF THE PROPOSED AMENDMENT OF THE COMPANY'S CERTIFICATE OF
INCORPORATION INCREASING THE AUTHORIZED COMMON STOCK OF THE
COMPANY FROM FIFTEEN MILLION (15,000,000) SHARES OF COMMON
STOCK TO FIFTY MILLION SHARES OF COMMON STOCK, PAR VALUE $.001
PER SHARE.
PROPOSAL 2
PROPOSED AMENDMENT OF THE COMPANY'S
CERTIFICATE OF INCORPORATION TO CREATE 10,000,000 SHARES OF
BLANK PREFERRED STOCK
Article Fourth of the Company's Certificate of Incorporation
presently only provides for the issuance of Common Stock and
makes no provision for the issuance of any other class of stock
or any preferred stock.
Subject to the approval of shareholders and IN ADDITION TO THE
AMENDMENT OF ARTICLE FOURTH CONTAINED IN PROPOSAL NUMBER 1
(ABOVE), management proposes to amend Article Fourth of the
Company's Certificate of Incorporation to provide for the
creation of 10,000,000 shares of blank preferred stock, to read
as follows:
"FOURTH: The corporation shall be authorized to
issue the following shares:
Class Shares Par Value
Common (*) $0.001
Preferred 10,000,000 0.001
"The total number of shares of capital stock of all
classifications which the Corporation shall have the
authority to issue is (*) shares, of which (i) (*)
shares shall be designated common stock, having a par
value of $.001 per share, and (ii) TEN MILLION
(10,000,000) shares shall be designated "Preferred
Stock" having a par value of $.001 per share.
(a) All shares of common stock will be equal to each
other and shall have all the rights granted to
stockholders under the General Corporation Law of the
State of Delaware, as amended, and the Certificate of
Incorporation, including, without limitation, one vote
for each share outstanding in the name of each holder,
the power to elect directors or consent or dissent to
any action to take place at any regular or special
meeting of stockholders, and the right to receive
dividends and distributions subject to the rights and
preferences of any outstanding shares of Preferred Stock
authorized hereby.
(b) The Preferred Stock may be issued from time to time
in one or more classes and one or more series of each
class with specified serial designations, shares of each
series of any class shall have equal rights and shall be
identical in all respects, and (1) may have specified
voting powers, full or limited or may be without voting
power, (2) may be subject to redemption at such time or
times as may be designated, and at designated prices;
(3) may be entitled to receive dividends (which may be
cumulative or non-cumulative) at designated rates, on
such conditions and specified times, and payable in any
other class or classes of stock; (4) may have such
rights upon the dissolution of, or upon any distribution
of the assets of, the corporation; (5) may be made
convertible into, or exchangeable for shares of any
other class or classes or of any other series of the
same or any other class or classes of stock of the
Corporation, at such price or prices or at specified
rates of exchange and with specified designated
adjustments; and (6) may contain such other special
rights and qualification, as shall hereafter be stated
and expressed in the resolution or resolutions providing
for the issue of such Preferred Stock from time to time
adopted by the Board of Directors pursuant to the
authority so to do which is hereby granted and expressly
vested in the Board of Directors.
The Board of Directors shall have authority to cause the
Corporation to issue from time to time, without any vote
or other action by the stockholders, any or all shares
of stock of the corporation of any class or series at
any time authorized, and any securities convertible into
or exchangeable for any such shares, and any options,
rights or warrants to purchase or acquire any such
shares, in each case to such persons and on such terms
(including as a dividend or distribution on or with
respect to, or in connection with a split or combination
of, the outstanding shares of stock of the same or any
other class or series) as the Board of Directors from
time to time in its discretion lawfully may determine;
provided, that the consideration for the issuance of
shares of stock of the corporation (unless issued as
such a dividend or distribution or in connection with
such a split or combination) shall not be less than the
par value of such shares. Shares so issued shall be
full-paid stock, and the holders of such stock shall not
be liable to any further calls or assessments thereon."
(*) To be determined based upon approval or disapproval
of proposal 1.
Subject to the approval of the proposed amendment to the
Certificate of Incorporation by shareholders, upon the filing
of such Certificate of Amendment, the Board of Directors will
cause a Certificate of Designation of Rights and Preferences to
be filed, outlining the rights and preferences of the class of
Preferred Stock issuable to ART as heretofore described.
Effect on Future Shareholder Rights and Possible Adverse
Aspects to Existing Shareholders
The proposed 2,000,000 shares of Preferred Stock to be
authorized and issued to ART, subject to shareholder approval,
shall give the holder a priority in liquidation of the Company,
up to $2,000,000. If such liquidation were to occur shortly
after approval by shareholders, a substantial amount of the net
proceeds derived from such liquidation would be allocable to
the Preferred Stockholder (approximately $2,000,000) prior to
any funds being allocable to common stockholders.
In the event Proposal 2 is adopted by shareholders, in
as much as ART is exchanging its Common Stock for preferred
stock (which has similar voting rights), the existing
percentage of voting control of common stockholders will not be
affected by the exchange. In addition by virtue of the
conversion privilege and the anti-dilution aspects of the
Preferred Stock, it is not likely that ART will convert the
Preferred Stock into common stock unless ART has a need to
avail itself of liquidation of its investment or the market
value of the common stock is otherwise at a level deemed
favorable to ART to convert into common stock.
The proposed amendment also authorizes the Board of
Directors to issue Preferred Stock of different classes (in
addition to those heretofore discussed in connection with the
ART transaction). The proposed authority gives the Board of
Directors maximum discretion to fashion rights and preferences
for future Preferred Stock to be issued and to issue such
shares without further approval of shareholders. This is
deemed necessary by management to give it the broad latitude to
act quickly when an acquisition opportunity presents itself and
be able to fashion preferred stock containing rights and
preferences in a variety of ways. Such possible future
issuances (with no requirement to obtain shareholder approval
prior thereto) may be specifically fashioned by management in a
manner which will increase the likelihood of achieving the
corporate objective for an acquisition of assets or acquisition
of another company and may contain rights and preferences which
are different to those granted to ART. However such newly
issued preferred stock may also have an adverse effect on the
interests of common stockholders due to provisions therein
which may provide for voting, anti-dilution, conversion,
priority in liquidation and possibly other factors not yet
predictable or calculable. (See "General Observation Possible
Adverse Aspects For Shareholders").
Required Vote for Adoption
Under Delaware Law the affirmative vote of a majority of
the outstanding shares of the Company's Common Stock is
required for the approval of Proposal 2, the proposed amendment
to the Company's Certificate of Incorporation which authorizes
the Company to issue 10,000,000 shares of common stock and
thereby increases the total authorized shares available for
issuance. Once given effect, a majority vote of the Company's
Common Stock and outstanding preferred stock (if the preferred
stock is subject to repeal or modification)at a properly called
meeting at which a quorum is present will be required to repeal
or modify the amendment.
RECOMMENDATION OF MANAGEMENT
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL
OF THE PROPOSED AMENDMENT OF THE COMPANY'S CERTIFICATE OF
INCORPORATION AUTHORIZING 10,000,000 SHARES OF BLANK PREFERRED
STOCK PAR VALUE $.001.
PROPOSAL 3
AMEND THE CERTIFICATE OF INCORPORATION
TO CHANGE OF NAME OF CORPORATION
Since the Company has not engaged in any aspect of genetic
analysis for number of years, management proposes that the name
of the Company be changed. As all shareholders are aware, the
Company is currently engaged in the manufacture and sale of a
line of electro-surgical and other medical products together
with industrial lighting. In addition the Company has recently
acquired a new surgical generator product line sold under the
tradename Bovie , a highly respected and well known name in the
electro medical device industry. Accordingly management
believes that the name "Bovie Medical Corporation" will provide
the benefits of a well known and highly respected name in the
medical device field, preserve the product identity of the
corporation and remove the misleading characteristic of it
being a genetics company.
Management anticipates a need to change the Company's
trading symbol for its shares which are presently traded on the
OTC electronic bulletin board under the symbol "AGNT" and,
subject to shareholder approval for the change of name, will
propose a new symbol for the OTC Bulletin Board. As of the
date hereof no symbol has been determined nor has any
application therefor been submitted to the OTC Bulletin Board.
Amendment of Certificate of Incorporation
Article "First" of the Company's certificate of
incorporation presently reads:
"First: the name of the corporation is "An-Con Genetics,
Inc."
Subject to the approval of shareholders, the Board of
Directors has resolved to amend the Company's certificate of
incorporation to provide for a new article First thereof to
read as follows:
"First: the name of the corporation is: Bovie Medical
Corporation .
Required Vote for Adoption
Under Delaware Law the affirmative vote of a majority of
the outstanding shares of the Company's Common Stock is
required for the approval of the Proposal 2, the proposed
amendment to the Company's Certificate of Incorporation which
authorizes the Company to issue 10,000,000 shares of common
stock and thereby increases the total authorized shares
available for issuance. Once given effect, a majority vote of
the Company's Common Stock and outstanding preferred stock (if
rights of the preferred stock are subject to repeal or
modification at a properly called meeting at which a quorum is
present will be required to repeal or modify the amendment.
Recommendation of Management
THE BOARD OF DIRECTORS RECOMMENDS A VOTE APPROVING THE PROPOSED
AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION TO
CHANGE THE NAME OF THE CORPORATION FROM AN-CON GENETICS, INC.
TO "BOVIE MEDICAL CORPORATION".
PROPOSAL 4
RATIFICATION OF COMPANY S 1998 NON-STATUTORY STOCK PURCHASE AND
OPTION PLAN
In January, 1998, the Board of Directors adopted a new
stock option plan for the purpose of acquiring, retaining and
incentivizing executive and other key employees and consultants
of the Company and its subsidiary, Aaron Medical Industries,
Inc. The Company s 1998 Non-Statutory Stock Purchase and
Option Plan (the Plan ) authorizes the issuance of options to
employees and consultants of the corporation to purchase up to
a total of 1,200,000 shares thereunder.
The Plan requires that options may be issued at an
exercise price equal to at least 80% of the market price for
the Company s shares in the over-the-counter market (on the
Electronic Bulletin Board). Any options issuable to officers
or directors under the Plan must be issued at an exercise price
equal to no less than the then current market price for the
shares in the over-the-counter market. The determination for
grant of options is made by the Board of Directors under the
Plan. The options are non-transferable. The Option shall
terminate and expire on the expiration date of the option. In
addition each option shall automatically terminate upon the
earlier of:
(i) The termination of the Optionee's employment with the
Company for cause (as defined under the Plan);
(ii) The expiration of twelve (12) months from the date of
termination of the Optionee's employment with the company for
any reason other than death, without cause; provided, that if
the Optionee dies within such twelve-month period, subclause
(iii) below shall apply; or
(iii) The expiration of fifteen (15) months after the date of
death of the Optionee.
Potential Adverse Aspects of the Plan:
Although management believes it is in the interests of
shareholders that the Plan be approved in order to attract and
retain qualified employees and consultants, since the Plan
authorizes the grant of options to purchase up to 1,200,000
shares, the future grant and exercise of the options would tend
to dilute the percentage ownership of shareholders in the
Company. Furthermore, the nature of the options is such that
the options would be exercised at a time that the Company would
be able to derive a higher price for Company shares than the
exercise price.
Recommendation of Management
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS
VOTE TO RATIFY AND APPROVE THE COMPANY S 1998 NON-STATUTORY
STOCK PURCHASE AND OPTION PLAN.
Other Matters
The Board of Directors of the Company knows of no other
matters to come before the Meeting, other than that which is
set forth herein and in the accompanying Notice of Special
Meeting. However, if any other matters should properly come
before the Meeting, it is the intention of the persons named in
the accompanying Proxy to vote such Proxies as in their
discretion they may deem advisable.
Rights of Dissenting Shareholders
Dissenting shareholders do not have any rights of
appraisal with respect to the proposals to which this Proxy
Statement relates. Any negative vote with respect to any
specific proposal, will, of course, be duly noted and recorded
in the computation to determine whether majority approval has
been obtained.
By Order of the Board of Directors
President
Melville, New York
August 25, 1998
PROXY CARD
AN-CON GENETICS, INC.
PROXY SOLICITED ON BEHALF OF BOARD OF DIRECTORS
The undersigned hereby appoints Andrew Makrides and Delton
Cunningham each with the power to appoint his or her
substitutes, and hereby authorizes them to represent and to
vote, as designated above, all the shares of common stock of
An-Con Genetics, Inc. held of record by the undersigned on ,
1998, at the meeting of shareholders to be held on September 8,
1998 or any adjournment thereof.
In their discretion the proxies are authorized to vote upon
such other business as may properly come before the meeting.
This proxy, when properly executed will be voted in the manner
directed herein by the undersigned shareholder. If no
direction is made, this proxy will be voted FOR Proposals 1, 2
and 3. Please sign exactly as your name appears on the reverse
side. When shares are held by joint tenants, both should
sign.*
*When signing as attorney, as executor, administrator, trustee
or guardian, please give full title as such. If shareholder is
a corporation, please sign in full corporate name by President
or other authorized officer. If shareholders is a partnership,
please sign in partnership name by authorized person.
(To Be Signed on Reverse Side.)
FRONT OF CARD
<PAGE>
PROXY CARD
AN-CON GENETICS, INC.
A Please mark your
votes as in this example.
Vote For Against Withhold
1. Proposal to increase
the authorize
capitalization from
15,000,000 shares common
stock par value $.001 per
share to 50,000,000 shares
of common stock par value
$.001.
2. Proposal to create a
class of blank preferred
stock having a par value
of $.001 per share.
3. Proposal to change
the name of the
corporation to "Bovie
Medical Corporation".
4. Proposal to ratify
the Company's 1998 Non-
Statutory Stock Purchase
and Option Plan.
SIGNATURE(S) Date
NOTE: Please sign exactly as name appears hereon.
joint owners should each sign. When signing as
attorney, administrator trustee or guardian, please
give full title as such.
BACK CARD
<PAGE>
Management's Discussion and Analysis.
Results of Operations
An-Con's net revenues for 1997 were approximately $7.3 million
as compared to $7.5 million for 1996, respectively. Sales of
Aaron Medical accounted for substantially all of 1997 and 1996
sales. The decrease in sales of $114,619 (1.5%) was the net
result of $194,770 (3%) increase in revenues from sale of
medical products and $309,389 (24%) decrease in sales of non-
medical products. The sales for medical products represented
approximately 87% of total sales in 1997 as compared to 83% in
1996. This was due to a decrease in non-medical lighting
products of $309,517 which is directly attributable to one
customer decreasing purchases from the Company. The Company
believes this trend by this customer will continue in 1998 but
at a lower rate. Percentage of gross profit from sales
decreased from 45% in 1996 to 44% in 1997 principally due to
slightly higher cost of materials.
Because the Company's sales volume and gross profit percentage
, for the two years was approximately the same, cost of goods
sold did not materially change from 1996 to 1997. During 1997
and 1996, Aaron's family of cauteries accounted for 43% and 39%
of sales, and 39% and 33% of cost of goods sold, respectively.
In early 1998 the Company increased pricing on certain medical
products by 10%. This should cause sales and margins to
increase slightly in 1998.
Research and development expenses decreased by 8.5% from
$105,700 to $96,738 from 1996 to 1997, respectively. The
Company continued to invest in the development of ECU devices,
and other Aaron products which is evidenced by acquisition
costs in 1997 of $11,925. Research and development costs are
made up of materials costs, engineering costs and payroll.
Research and development costs of the Company will increase in
1998 by the depreciation expense on the reactors the Company
purchased from BSD (see note 18 to the financial statements
subsequent events ( acquisition of BSD development Beta
Corporation ). The Company is developing DYLYN coated products
with these reactors. When the products being developed are
marketed and the reactors are used for manufacturing,
depreciation will be charged to operations. The Company
estimated the lives of the reactors to be 10 years.
The increase in net interest of 16% amounting to $11,896 was
mainly attributable to the Company's decision to utilize a bank
line of credit and a term loan to finance its working capital
needs.
The trend in interest costs should remain at 1997 levels or
higher because the Company intends to maintain its credit line
and refinance the first mortgage on its building.
The Company's effective income tax rate would have been 30%
except that An-Con has loss carryforwards. For 1997 the
Company recognized $8,577 in tax benefit for the current year.
General and administrative expenses of the Company increased by
$141,249 (10.5%) from $1.3 million in 1996 to $1.5 million in
1997. This was mainly attributable to the settlement of the
Megadyne lawsuit of $261,585.
Salaries increased by 9.6% from $1.1 million in 1996 to $1.2
million in 1997. The increase in salaries were in part because
of hiring additional engineering and quality control personnel.
Total other costs as a percentage of sales were 38% in 1996 as
compared to 43% in 1997. Total other costs increased due to
the Megadyne lawsuit. For 1998 the Company believes total
other costs should not be significantly higher than they were
in 1997.
Income from operations decreased to $77,994 in 1997, from
$480,360 in 1996, a 84% decrease. Income from operations as
measured by a percentage of sales was 6.4% in 1996 and 1.1% in
1997. The decrease of $402,366 from 1996 to 1997 was mainly
attributable to a decrease in sales and gross profit of
$309,517 and $183,441, respectively, on non-medical lighting
sales and the Megadyne lawsuit.
Net income of the Company in 1997 was $28,591 as compared to
$407,243 in 1996. Income decreased by $378,652 from 1996 to
1997. The primary reason for reduction of the net income was a
$261,585 loss due to the settlement of a patent infringement
lawsuit.
Cost of professional services increased by 15% from $259,400 in
1996 to $298,156 in 1997. Additional professional fees were
related to the consulting and legal costs of acquiring new
technologies and products. Legal fees in 1998 will increase
because the Company has completed the BSD transaction and is
negotiating to purchase the Bovie brand-name from Maxxim.
The Company sells its products through distributors both in the
international market and in the USA. The distributors are
contacted through response to company advertising in
international medical journals or at domestic or international
trade shows. The Company began attending trade shows in
foreign countries in 1993. Since that time, international
sales have more than doubled from the 1993 sales 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.
During 1997, international sales of the Aaron Medical product
line continued to increase. These sales were $1.78 million,
which represented 24% of total sales. This compares favorably
to 1996 where total international sales were $1.51 million,
representing 20% of total sales. The increase from 1996 to
1997 represents a 19%($281,867) increase in international sales
volume.
Though consolidation in U.S. distribution continued in 1997,
Aaron retained all distributor relationships and acquired
preferred vendor status with industry leaders such as McKesson,
General Medical, Owens & Minor, and Physician Sales & Service.
Preferred vendor status denotes participation in a variety of
sales and marketing programs whereby the Company grants
preferred pricing and/or rebates to a customer and the customer
provides a variety of benefits such as preferred marketing
advertising, and distribution of the Company's products. Aaron
entered into a vendor focus agreement with Owens & Minor and
an exclusive U.S. sales agreement with Physician Sales &
Services for the Aaron 800. Additional sales were generated by
electrosurgical product OEM agreements.
An adequate supply of raw materials is available from both
domestic and international suppliers. The relationship between
the Company and its suppliers is generally limited to
individual purchase order agreements, supplemented by
contractual arrangements with key vendors to ensure
availability of certain products. The Company has developed
multiple sources of supply where possible.
New product development and improvements to the Company's
facility required by regulatory agencies in 1997 amounted to
$86,909. These expenditures were 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.
Discontinued Operations
As part of a lawsuit settlement with a competitor of the
company, the company agreed to discontinue sales of its coated
blade products. Sales and gross profits from this product for
1996 and 1997 were $370,677 - $489,582 and $203,131 - $332,916,
respectively. The company is developing a new line of coated
blade products, that the Company believes is proprietary, which
the Company believes will be marketed in the second half of
1998. The cost of the discontinued operations in 1997 was
$261,585.
Financial Condition
As of December 31, 1997, cash totaled $48,246 down from
$120,900 at December 31, 1996. Cash used by operating
activities was $98,793 in 1997 compared to $425,300 cash
generated from operating activities in 1996. Net working
capital of the Company on December 31, 1997 was $557,237 as
compared to $666,600 in 1996.
The amount of cash used in investing activities was $257,733 in
1997, compared to $456,200 in 1996. 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 1997. At December 31, 1997, the same
ten customers accounted for approximately 47% of outstanding
accounts receivables.
The net cash inflow from financing was $283,868 in 1997 as
compared to $14,000 in 1996. The most significant items of
financing activity in 1996 were the reduction of notes payable
of $125,900 and the $79,700 in professional fees associated
with the Aaron purchase.
Sources of funds were the receipt of subscriptions receivable
of $10,600 and issuance of 427,778 common shares for services
valued at $181,000.
In 1997, the major sources of financing were $485,000 gross,
borrowing from the bank line of credit and $150,000 term loan
from the bank. The cash used in financing activities were
principally to repay the line of credit and long term debt,
$225,000 and $41,936 respectively.
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. heretofore. Because of these factors, the
Company has designed certain disposable products to be
reusable. The Company presently has a significant portion of
the U.S. cautery market and does not expect a dramatic growth
in sales of cautery-related products domestically unless an OEM
arrangement can be obtained with a co-leader in this market.
The Company has focused on expanding its line of
electrosurgical products. Electrosurgical products sold by the
Company are the standard stainless steel electrodes, the
patented Multi-Function Cautery, and the Aaron 800 high
frequency desiccator and the as Aaron 1200. The Aaron 1200
will be introduced in the second quarter of 1998.
From 1996 to 1997, the Company's electrosurgical sales
increased by more than 3% from $1,331,523 to $1,377,029.
This increase was attributable to a 50% increase in Resistick
sales and a 22% decrease in sales of generators. In 1998
Resistick sales ceased due to the settlement of the Company
lawsuit with MegaDyne. Except for the possible introduction of
new electrosurgical products the Company does not expect
electrosurgical sales to increase in 1998. Aaron through its
private label capability sees unique opportunities in the
domestic market as its competitors do not private label. The
electrosurgical product line is a larger market than the
Company has normally sold into and is dominated by two main
competitors, ValleyLab and Conmed. The combined markets for the
Company's electrosurgical products exceed $100 million
annually. Electrosurgical product sales moved from fifth place
to second in total Company sales by product line in 1997.
Non-Medical Products
The Company for 1997, sold $.962 million of its flexible
lighting products used primarily in the automotive and
locksmith industries. Approximately $.627 million was sold to
one customer. The Company is expanding this market line with
the addition of a higher quality flexible light unit. The
higher quality version of the Bend-A-Lite will be sold into the
same markets as the Company presently sells its less expensive
unit.
The Company no longer intends to manufacture a fiber optic
flexible scope to compete in the automotive, aircraft and
quality maintenance markets. The Company sold its rights in
this product to a customer.
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.
In order to continue its strong international sales growth and
maintain its ability to sell in Europe, management is
implementing an ISO9000/EN46001 quality system and expects to
be certified and have its CE mark (International Quality
control) by the third quarter of 1998. 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.
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.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
ASSETS
Current assets:
Cash $ 48,246
Trade accounts
receivable, net 791,825
Inventories 953,125
Prepaid expenses 67,930
Deferred tax asset 175,010
Other Assets 57,263
Total current assets 2,093,399
Property and equipment, net 1,439,500
Other assets:
Goodwill, net 40,000
Patent rights, net 257,552
Deposits 7,150
304,702
Total Assets $3,837,601
The accompanying notes are an integral part of the
financial statements.
<PAGE>
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Current liabilities:
Accounts payable $ 399,090
Accrued expenses 235,790
Notes payable - current portion 804,762
Due to shareholders 99,154
Total current liabilities 1,538,796
Long-term debt 74,107
Stockholders' equity:
Common stock par value $.015;
15,000,000 shares authorized,
issued and outstanding 8,279,948
Shares, on December 31, 1997 124,071
Additional paid in capital 13,030,962
Accumulated deficit (10,930,335)
Total stockholders' equity 2,224,698
Total liabilities and
Stockholders' equity$ 3,837,601
The accompanying notes are an integral part of the
financial statements.
AN-CON GENETICS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
Sales $ 7,371,281$ 7,485,900
Cost of sales 4,138,774 4,134,434
Gross Profit 3,232,507 3,351,466
Other costs:
Research and development 96,738 105,681
Professional services 298,156 259,406
Salaries and related costs1,280,370 1,168,019
Selling, general and
administration 1,479,249 1,338,000
Total other costs 3,154,513 2,871,106
Income from operations 77,994 480,360
Other income and (expense):
Interest income 4,005 --
Interest expense ( 87,696) ( 75,820)
Miscellaneous 34,288 11,003
( 49,403) 64,817
Income before income tax 28,591 415,543
Income taxes:
Current ( 8,577) ( 158,300)
Deferred -- ( 8,300)
Tax benefit 8,577 158,300
Net income (loss) $ 28,591 $ 407,243
<PAGE>
AN-CON GENETICS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(CONTINUED)
Earnings per share 1997 1996
Net income:
Basic N/S $ .0531
Diluted N/S $ .0521
Weighted average number
of shares outstanding 8,186,256 7,663,872
Weighted average number
of share assuming
conversion of securities 8,443,972 7,817,205
N/S - Not Significant
The accompanying notes are an integral part of the
financial statements.
<PAGE>
AN-CON GENETICS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
Common
Warrantsnumber ofCommon Paid-in
OutstandingShares Stock Capital
Balance
January 1,
1996 80,000 4,305,340 $64,591 $11,541,144
Private
placement
of Shares
at $1 per
share plus
1 warrant
per share 120,000 120,000 1,800 118,200
Shares issued
for cash at
$.45 per
share -- 57,778 867 19,133
Shares issued
for cash and
notes at
$.42 per
share -- 200,000 3,000 81,000
Shares
issued for
cash at $.42
per share -- 50,000 750 20,250
Shares isssued
in exchange
for Aaron
shareholders
at $.39
per share -- 3,352,530 50,288 1,306,812
Stock issue
costs -- -- -- --
Shares issued
for services at
$.40 per
share -- 25,000 3759,625
Collection
of stock
subscriptions
receivable -- -- -- --
Employee
warrants921,000 -- -- --
Income for
year 1996 -- -- -- --
Balance as
of December
31,1996 $1,121,000 $8,110,648 $ 121,671 $ 12,921,364
The accompanying notes are an integral part of the financial
statements. (Continued on next page)
AN-CON GENETICS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
(CONTINUED)
Subscriptions
Deficit Receivable Total
Balance
January 1,
1996 $(11,366,169) $ ( 10,600) $228,966
Private
placement of
Shares at $1
per share plus
1 warrant per
share -- -- 120,000
Shares issued
for cash at
$.45 per share -- -- 20,000
Shares issued
for cash and
notes at $.42
per share-- ( 64,000) 20,000
Shares issued
for cash at
$.42 per share -- -- 21,000
Shares issued
in exchange
for Aaron
shareholders
at $.39 per share -- -- 1,357,100
Stock
issue costs -- -- (174,800)
Shares issued
for services
at $.40 per
share -- -- 10,000
Collection
of stock
subscriptions
receivable -- 10,600 10,600
Employee
warrants -- -- --
Income for
year 1996 -- -- --
Balance as
of December
31,1996$( 10,958,926) $ ( 64,000)$ 2,020,109
The accompanying notes are an integral part of the financial
statements. (Continued on next page)
<PAGE>
AN-CON GENETICS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
(Continued)
Common
Warrantsnumber of Common Paid in
Outstandingshares stock Capital
Balance
January
1, 1997 $1,121,000 $8,110,648 $121,671$12,921,364
Shares
exchanged
for warrants (200,000) 100,000 1,500 ( 1,500)
Shares
issued
to retire
debts -- 51,800 637 33,761
Shares
issued for
services-- 17,500 263 6,737
Warrants
issued 143,000 -- -- --
Collection
of
subscriptions
receivable -- -- -- --
Employee
contribution
of Bonus-- -- -- 70,600
Net
income -- -- -- --
Balance as
of December 31,
1997 $1,064,000 $8,279,948 $124,071 $13,030,962
The accompanying notes are an integral part of the financial
statements. (Continued on next page)
<PAGE>
AN-CON GENETICS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
(Continued)
Subscriptions
Deficit Receivable Total
Balance
January 1,
1997 (10,958,926)$ (64,000) $2,020,109
Shares
exchanged
for warrants -- -- --
Shares
issued to
retire debts -- -- 34,398
Shares
issued for
services -- -- 7,000
Warrants
issued -- -- --
Collection
of
subscriptions
receivable -- 64,000 64,000
Employee
contribution
of Bonus -- -- 70,600
Net income 28,591 -- 28,591
Balance as of
December 31,
1997 $(10,930,335) $ -- $2,224,698
The accompanying notes are an integral part of the financial
statements. (Continued on next page)
<PAGE>
AN-CON GENETICS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
Cash flows from operating
activities:
Net income $ 28,591 $ 407,249
Adjustments to reconcile
net income (loss) to net
cash provided by
operating activities:
Depreciation and
amortization 311,138 260,600
Shares issued for services 7,000 10,000
Deferred income taxes --8,300
Change in assets and
liabilities:
(Increase) decrease in
receivables 64,565 ( 204,100)
(Increase) decrease in
prepaid expenses ( 11,876) 17,724
Increase in inventories ( 109,925) ( 247,769)
Increase in other
receivables( 7,738) --
Increase (decrease) in
accounts payable ( 388,126) 112,400
Increase in accrued
expense 7,578 60,900
Total adjustments ( 127,384) 18,055
Net cash provided by
(used in)operations $( 98,793) $ 425,304
The accompanying notes are an integral part of the
financial statements.
<PAGE>
AN-CON GENETICS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(Continued)
1997 1996
Net cash provided by (used in)
operating activities $ ( 98,793)$ 425,304
Cash flows from investing
activities:
Increase in fixed assets (244,352) (300,200)
Increase in security deposits ( 10) 600
Acquisition of patent rights ( 13,371) --
Purchase of Technology -- (156,600)
Net cash used in
investing activities (257,733) (456,200)
Cash flows from
financing activities:
Receipt of common stock
subscription 64,000 10,600
Common shares issued -- 181,000
Loans from shareholders 2,736 --
Cost of issuing common
stock - Purchase of Aaron --( 79,700)
Increase in long term
borrowing 69,534 --
Payment of long term
borrowing (220,466) (125,900)
Term loan 150,000 --
Repayment of term loan ( 41,936) --
Borrowing - line of credit 485,000 --
Repayment - line of credit (225,000) --
Net cash used in financing
activities 283,868 ( 14,000)
Net increase (decrease) in cash(72,658) (44,896)
Cash at beginning of year 120,904 165,800
Cash at end of year $ 48,246 $ 120,904
Cash paid during the twelve
months ended December 31:
1997 1996
Interest$ 71,651 $ 70,000
Income Taxes -0- -0-
The accompanying notes are an integral part of these financial
statements.
AN-CON GENETICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
FOR THE YEAR ENDED DECEMBER 31, 1997 AND 1996
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
1. In February of 1997, 10 year convertible subordinated
debentures of the Company 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
accrued interest on the converted bonds were $19,000 and
$10,826 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.
The Company exchanged its patent for Baroscope
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.
The Company accepted $70,600 from management as
a contribution to capital for an outstanding
liability for bonuses earned in 1996.
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
1. During 1996, the Company sold 200,000 common shares, at $.42
per share for $64,000 of subscription receivables and $20,000
cash. The subscription is due in August 1997, and bears
interest at 6% per annum.
2. The Company issued 25,000 restricted shares for sales
services valued at $.40 per share or $10,000 which was 50% of
the market value of the Company's unrestricted shares at the
time of issuance.
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
FOR THE YEAR ENDED DECEMBER 31, 1997 AND 1996
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996(Continued)
3. In November 1996, 99% of Aaron's shareholders accepted
3,352,530 shares of An-Con's common stock and rejected the cash
recession offer of $1,357,100 made by the Company. The common
stock issue costs of $95,000, associated with the purchase of
Aaron, were charged to capital in excess of par value when An-
Con shares were released to the Aaron shareholders in December
1996.
4. The registration statement related to 3,399,096 of shares
issued to the previous shareholders of Aaron became effective
on November 8, 1996, as amended on November 27, 1996. As of
January 11, 1997, the previous shareholders of Aaron may seek
to remove restrictions pursuant to Rule 144.
The accompanying notes are an integral part of the financial
statements.
<PAGE>
AN-CON GENETICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates in the Preparation of Financial Statements
The preparation of consolidated 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.
Consolidated Financial Statements
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.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined principally on the average actual cost method.
Inventory at fiscal year-end was as follows:
1997
Raw materials $ 528,547
Work in process 244,772
Finished goods 179,806
Total $ 953,125
AN-CON GENETICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Long-lived Assets
Long-lived and assets consist of property plant and equipment,
intangible assets.
Property, plant and equipment are recorded at cost less
depreciation and amortization. Depreciation and amortization
are 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 expenses as
incurred. The estimated useful lives are: machinery and
equipment, 7-15 years; buildings, 30 years; and leasehold
improvements 10-20 years.
Intangible assets consist of patent rights and goodwill.
Goodwill represents the excess of the cost of assets of the
acquired companies over the values assigned to net tangible
assets. These intangibles are being amortized by the straight-
line method over a 5-year period.
Effective January 1, 1996, the Company adopted Statement of
Financial Accounting Standards (SFAS) No.121, Accounting for
the Impairment of Long-lived Assets and for Long-lived Assets
to be Disposed Of. In accordance with SFAS No.121, the Company
reviews long-lived assets for impairment whenever events or
changes in business circumstances occur that indicate that the
carrying amount of the assets may not be recovered. The
Company assesses the recoverability of long-lived assets held
and to be used based on undiscounted cash flows and measures
the impairment, if any, using discounted cash flows. Adoption
of SFAS No.121 did not have a material impact on the Company's
consolidated financial position, operating results or cash
flows.
Revenue Recognition and Product Warranty
Revenue from sales of products is generally recognized upon
shipment to customers. The Company warrants its products for
one year. The estimated future costs of warranties are not
material.
AN-CON GENETICS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Earnings Per Common and Common Equivalent Share (Continued)
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
expenses as incurred. Certain environmental costs are
capitalized based on estimates and depreciated over their
useful lives.
Earnings Per Common and Common Equivalent Share
In February 1997, the Financial Accounting Standards Board
issued SFAS 128. "Earnings Per Share." SFAS 128 establishes
new standards for computing and presenting earnings per share
("EPS"). Specifically, SFAS 128 replaces the previously
required presentation of primary EPS with a presentation of
basis EPS, requires dual presentation of basic and diluted EPS
on the face of the income statement for all entities with
complex capital structures, and requires a reconciliation of
the numerator and denominator of the basic EPS computation to
the financial statements issued for periods ending after
December 15, 1997. In 1997, the Company adopted SFAS 128.
Research and Development Costs
Only the development costs that are purchased from another
enterprise and have alternative future use are capitalized and
are amortized over five years.
Income Taxes
The Company and its wholly-owned subsidiary file a consolidated
federal income tax return.
AN-CON GENETICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes (Continued)
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that
includes the enactment date.
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.
AN-CON GENETICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued
SFAS 130, "Reporting Comprehensive Income". SFAS 130
establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses,
gains, and losses) in a full set of general purpose financial
statements. Specifically, SFAS 130 requires that all items
that meet the definition of components of comprehensive income
be reported in a financial statement for the period in which
they are recognized. However, SFAS 130 does not specify when
to recognize or how to measure the items that make up
comprehensive income. SFAS 130 is effective for fiscal years
beginning after December 15, 1997, and early application is
permitted.
Management believes the application of SFAS 130 will not have a
material effect on the Company's future financial statements.
In June 1997, the Financial Accounting Standards Board issued
SFAS 131, "Financial Reporting for Segments of Business
Enterprise." SFAS 131 supersedes the "industry segment"
concept of SFAS 14 with a "management approach" concept as the
basis for identifying reportable segments. SFAS 131 is
effective for fiscal years beginning after December 15, 1997
and early application is permitted. Management believes the
application of SFAS 131 will not have a material effect on the
Company's future financial statements.
NOTE 2. DESCRIPTION OF BUSINESS
An-Con Genetics, Inc. ("the Company") was incorporated in 1982,
under the laws of the State of Delaware and has its principal
executive office at 1 Huntington Quadrangle, Melville, New York
11747.
Currently, the Company is actively engaged in the business of
manufacturing and marketing medical products and developing
related technologies.
Aaron Medical Industries, Inc.
On January 11, 1995 the Company acquired a 100% ownership
interest in Aaron Medical Industries, Inc. a St. Petersburg,
Florida based Company engaged in the manufacturing and
AN-CON GENETICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. DESCRIPTION OF BUSINESS (Continued)
Aaron Medical Industries, Inc.(Continued)
distributing of medical products. Total assets acquired were
valued at $2,012,800 and liabilities assumed were valued at
$681,000. The assets were valued at $335,800 more than their
cost basis which created goodwill.
The goodwill is being written off over 5 years using the
straight-line method. Because a registration statement was not
timely filed the Aaron shareholders have been given the choice
of accepting cash at $.22 cents per share for their Aaron
shares, $1,331,800, or taking the An-Con shares in exchange.
The Aaron shareholders had 30 days from the effective day of
the registration statement (November 8, 1996) to accept the
shares offered or receive cash.
The $.22 cents per share valuation for the Aaron shares
exchanged was determined by (a) a separate fair valuation of
current assets, which included (i) discounted value of
receivables (ii) market value of inventory at estimated selling
price, less cost of disposal and reasonable profit allowance,
(iii) pre-paid expenses and security deposits at present value;
(b) non-current assets of plant, property and equipment at
current replacement cost; (c) intangible assets at present
value of future benefits; (d) present value of liabilities,
accounts and note payable and long term debt. The amount of
goodwill was determined by comparing the financial position of
Aaron at December 31, 1994 with the financial position of
similar companies in the same industry.
Aaron's largest current product line is battery operated
cauteries. Cauteries were originally designed for precise
hemostasis in ophthalmology. Today they have a variety of uses
including sculpting woven grafts in bypass surgery,
vasectomies, evacuation of subungual hematoma (smashed
fingernail) and for stopping bleeding in many types of surgery.
Aaron manufactures many types of cauteries.
Aaron additionally manufactures a variety of specialty lighting
instruments for use in ophthalmology, as well as a patented
flexible lighting instrument for general surgery, hip
replacement surgery, and for the placement of endotracheal
tubes. An industrial version of this light is distributed
through a large automotive tool distributor, and various retail
AN-CON GENETICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. DESCRIPTION OF BUSINESS (Continued)
Aaron Medical Industries, Inc.(Continued)
outlets and stores.
Aaron Medical Industries, Inc. manufactures and sells its
products under the Aaron label worldwide and has private label
arrangements.
ECU Technology
On December 15, 1995 the Company's subsidiary, Aaron, purchased
design rights for the technology to manufacture a 30 watt
electrosurgical coagulation device (ECU) for $185,000. The
purchase price was paid with $100,000 in cash and $85,000 in
notes. The notes were payable over eighteen months and bear
10% interest per annum. Monthly payment on the note was
$5,105.85. The notes were paid and retired in 1997.
The ECU was being made by a third party manufacturer. The
Company had a one year contract with the manufacturer to
produce the unit at a fixed price with a provision for a second
year extension at an agreed upon price. The Company has hired
an electrical engineer to head up the project and has relocated
the production to the St. Petersburg facility.
Aaron has also hired a former director of sales for a
physicians office products Company. As part of his arrangement
he has loaned the Company $30,000 to be paid back over 2 years
at 10% interest. The note was retired in 1997.
The Company has developed a 120 watt electrosurgical
coagulation device (ECU) to be marketed in 1998. Through
December 31, 1997 the Company has spent $94,372 in its
development.
NOTE 3. TRADE ACCOUNTS RECEIVABLE
As of December 31, 1997 the trade accounts receivable were as
follows:
Trade accounts receivable$ 805,755
Less: allow for doubtful accounts ( 13,930)
Trade accounts receivable, net$ 791,825
AN-CON GENETICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
As of December 31, 1997 property, plant and equipment consisted
of the following:
Equipment$ 1,422,180
Building 637,485
Furniture & Fixtures229,189
Leasehold Improvements230,109
Molds 56,742
2,575,705
Less: Accumulated
depreciation (1,136,205)
Net property, plant,
and equipment$ 1,439,500
Depreciation expenses for the years ended December 31, 1997 and
1996 were $216,000 and $166,400 respectively.
Plant, property and equipment, includes the capitalized lease
of the Company's telephone equipment. The lease agreement
expired in May 1997, and the assets were retired. The assets
and liabilities under capital leases are recorded at the lower
of the present value of the minimum lease payments or the fair
value of the assets.
The assets are amortized over their estimated productive lives.
Amortization of assets under capital leases is included in
depreciation expense for 1997 and 1996. This amortization
amounted to $0 and $3,200 for 1997 and 1996 respectively.
NOTE 5. RENTAL AGREEMENTS
On May 6, 1997, an agreement was entered into with the landlord
of 734 Walt Whitman Rd., Melville, New York for a new lease on
premises beginning May 6, 1997 and extending for three years to
May 5, 2000. The annual rental is $14,722 payable $1,226.83
per month.
AN-CON GENETICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. RENTAL AGREEMENTS (CONTINUED)
The following is a schedule of future minimum rental payments
as of December 31, 1997:
Amount
1998 $ 14,722
1999 14,722
2000 4,907
$ 34,351
Total consolidated rent expense for the Company was $19,294 in
1997 and $24,000 in 1996.
NOTE 6. ACCRUED BONUS
For the year 1996 accrued bonuses earned by the officers and
employees of the Company amounted to $65,600. The bonus
arrangement based on employment contracts called for the
payment to certain employees of 10% of the profits in excess of
$200,000 and 1% of the profits over $300,000.
During 1997, the Board of Directors of the Company requested
officers of the Company to waive their rights to contract
bonuses. All officers agreed and waived their contract
bonuses.
NOTE 7. DUE TO SHAREHOLDERS
A former Chief Executive Officer (CEO) and past President made
cash loans to the Company during the period October 12, 1990 to
December 31, 1993 of $180,500. In addition to these loans, the
past CEO advanced his own cash of $76,100 in the form of loans
for product development, travel and other expenses. Interest
on these loans were at 9% to 12% and had been accrued from
inception. His loan balance at December 31, 1996 was $ -0- and
accrued interest amounted to $73,800. Accrued interest has not
been paid and the Company has been negotiating to settle this
matter.
AN-CON GENETICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. DUE TO SHAREHOLDERS(CONTINUED)
In response to the recission offer made by An-Con to Aaron's
former shareholders, certain shareholders owning 46,800 shares
have not contacted the Company. The recession price owed to
these shareholders, including $6,566 of accrued interest is
$25,353.
NOTE 8. INTANGIBLE ASSETS
At December 31, 1997, the intangible assets consisted of the
following:
Classification:
Patents, Trademarks, Patent Rights, Technologies and
Copyrights
Balance Balance Accum-
BeginningAdditionsDispos-at end ulated.
of Periodat cost itionsof PeriodAmort.
ECU Aaron
1200 $ 93,000$ 1,372 $ --$ 94,372 $ --
Multifunction
Cautery 59,400 -- -- 59,400 32,637
Patent rights
(Cauteries) 71,500 -- -- 71,500 71,213
ECU Aaron
800 210,900 11,923 -- 222,823 86,693
Boroscope
Technology 37,700 -- 37,700 -- --
$472,500 $13,295 $(37,700) $448,095 $190,543
During 1996 the Company purchased the technology for two
electro-surgical products from a non-affiliated third party
manufacturer, the Aaron 800 for $25,900 and the Aaron 1200 for
$93,000. The Company also purchased the rights to a product
called the BoroScope for $37,700, which the Company
subsequently sold in 1997 for $49,525, the above costs have
been capitalized.
The cost of patents, trademarks, patent rights, technologies
and copyrights acquired are being amortized on the straight-
line method over their remaining lives, ranging from 2 to 5
years. Amortization expense charged to operations in 1997 and
1996 was $60,1570 and $67,700 respectively.
AN-CON GENETICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. INTANGIBLE ASSETS (CONTINUED)
Balance
Beginning and Accumulated
End of PeriodAmortization
Goodwill (Purchase Aaron) $152,500 $132,000
Goodwill (Purchase Suncoast
Covenant not to compete) 15,5006,800
(Purchase Suncoast) 20,000 9,200
$188,000 $148,000
Goodwill represents the excess of the cost of Companies
acquired over the fair value of their net assets at dates of
acquisition and is being amortized on the straight-line method
over 5 years. Amortization expense charged to operations for
1997 and 1996 were $22,700 and $37,600, respectively.
NOTE 9. LONG-TERM DEBT
The long-term debt of the Company includes the mortgages,
convertible debentures and notes payable of the Company.
Bonds payable $ 20,000
Mortgage payable 460,610
Term loan 108,064
Borrowing-line of credit260,000
7% Note payable 23,966
9% Note payable 6,229
878,869
Less: Current portion 804,762
Long-term debt$ 74,107
Convertible Debenture
As of April 21, 1987, the Company had sold 1,711 convertible
debenture units. Each unit consisted of $1,000 subordinated
debentures and 50 common stock warrants.
As of December 31, 1997, 1,691 units of debentures had been
converted into common shares of An-Con Genetics, Inc. or have
been redeemed. The remaining number of outstanding debentures
was 20 units.
AN-CON GENETICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. LONG-TERM DEBT(Continued)
Convertible Debenture(Continued)
In February of 1997, the 10-year notes of $78,000 and accrued
interest of $42,580 turned over to New York State 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.
Mortgage Payable
10% - Mortgage payable to former landlord for purchase of
property at 7100 30th Avenue North, St. Petersburg, Florida
secured on June 26, 1995 for $500,000 payable in monthly
installments of $5,673.06 inclusive of interest until July
1,1998 when a balloon payment of $ 442,733 is due.
Notes Payable to a Commercial Bank
The notes payable is for a term loan of $150,000. The interest
on the term loan is the bank's prime rate plus 1%. The loan is
repaid in equal monthly payments plus accrued interest based on
a three year amortization. The bank has a security interest in
inventory, accounts receivable and equipment of the Company
(the collaterals).
Line of Credit - Commercial Bank
The advances under-line of credit is limited to the lesser of
$400,000 or 65% of accounts receivable from non affiliated
parties. The annual interest rate on the loan is the bank's
prime rate plus one percent. The line expires March 31, 1998.
The bank has a security interest in inventory, accounts
receivable and equipment of the Company (the collateral).
7% Note Payable
7% - Note payable in connection with the purchase of a probe
scope technology payable $779.14 per month for 48 months self-
liquidating beginning November 1996 with the last payment due
October, 2000.
AN-CON GENETICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9% Note Payable
9% - Note payable to insurance premium to finance the Company
at $5,661.00 per month for 2 months.
The following are maturities of long term debt for each of the
next 5 years:
1998 $ 804,762
1999 59,235
2000 14,872
$ 878,869
NOTE 10. DISCONTINUED OPERATIONS
The Company's unconsolidated subsidiaries, Automated
Diagnostics and Xenetics Biomedical, discontinued operations in
1987 and 1989, respectively. Automated and Xenetics were
majority owned subsidiaries of the Company, the minority shares
of which were owned by supportive private investors, many of
whom also owned shares of the Company. Automated was formed to
fund development of technologies owned by the Company which
proved to be not commercially viable and Automated discontinued
operations, Xenetics acquired Omnifix, a technology for a
biodegradable tissue fixative, which was assigned to An-Con as
part of a repayment of indebtedness in connection with
Xenetics' discontinuance of operations. On information and
belief, prior to the discontinuance of each of the operations
of Automated and Xenetics, the Company agreed to merge with
them and consolidate operations. In view of the above and the
Company's lack of finances at the required time, the previously
agreed upon mergers have not taken place. However, the Company
has continued the development of OmniFix. In consideration of
the Company's failure to consummate its agreement to merge, the
board of directors of the Company has resolved to deliver
153,333 shares of its common stock to Automated and Xenetic
shareholders on an adjusted basis, having given effect to the
one-for-fifteen reverse stock split declared in 1994. When the
Company issues the 153,333 restricted shares the Company will
dilute present shareholders by .0115% due to its obligation to
Automated Diagnostics and Xenetics shareholders)
AN-CON GENETICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. OPTIONS
As of December 31, 1997, outstanding options were as follows:
Number of OptionsExercise
Currently ExercisablePrice
677,000 $ 0.750 up to $1.15
387,000 $ 1.125
1,064,000 $ .8064 weighted average
In 1996 the Company issued 921,000 10 year non-statutory stock
options to employees exercisable at from $.75 to $1.15 a share.
In 1997, the Company issued 100,000 shares of common stock in
exchange for 200,000 options. Also, 143,000 warrants were
issued to the Company's employees as a part of the employee
benefit plan (Note 16).
The options became exercisable in 1996 and 1997 and expire at
various dates through December, 2007. At December 31, 1997,
1,064,000 shares of stock were reserved for that purpose.
1,064,000 options are currently exercisable with a weighted
average life of 9.6-years and a weighted average exercise price
of $.8064.
The Company used the Black-Scholes Model to determine the value
of the options with the following weighted average assumptions,
zero dividend yield; expected volatility of 26%; and risk free
interest rate of 6%. (See Note 16 - Employee Benefit Plans)
NOTE 12. NET OPERATING LOSS CARRYFORWARDS
The tax effects of temporary differences that gave rise to the
deferred tax assets are as follows:
1997
Deferred tax assets - current:
Net operating loss carry-forwards $ 175,000
Deferred tax assets - non-current:
Net operating loss carry-forwards 2,460,115
Patent rights, primarily due to
amortization ( 63,200)
Total gross deferred tax assets 2,523,315
Less: Valuation allowance (2,523,315)
Net deferred tax assets
- non-current $ --
AN-CON GENETICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. NET OPERATING LOSS CARRYFORWARDS (CONTINUED)
The Company had NOLs of approximately $7,028,900 at December 31,
1997, primarily because of the past operating losses associated
with discontinued businesses. These NOLs and corresponding
estimated tax assets, computed at 35% tax rate, expire as
follows:
Year loss Expiration Loss Estimated
incurred Date Amount Tax Asset
1984 1999 $ 671,900 $ 235,165
1985 2000 764,000 267,000
1986 2001 301,000 105,000
1987 2002 730,000 255,000
1988 2003 757,000 265,000
1989 2004 374,000 131,000
1990 2005 382,000 134,000
1991 2006 246,000 86,000
1992 20071,004,000 352,000
1993 2008 465,000 163,000
1994 20091,197,000 419,000
1995 2010 637,000 223,000
Total 7,528,900 2,635,165
Current 500,000 175,000
$ 7,028,900 $ 2,460,165
Under the provisions of SFAS 109, NOLs represent temporary
differences that enter into calculation of deferred tax assets.
Realization of deferred tax assets associated with the NOL is
dependent upon generating sufficient taxable income prior to
their expiration.
Management believes that there is a risk that certain of these
NOLs may expire unused and, accordingly, has established a
valuation allowance against them. Although realization is not
assured for the remaining deferred tax assets, based on the
historical trend in sales and profitability, sales backlog, and
budgeted sales of the Company's wholly owned and consolidated
subsidiary, Aaron Medical Industries, Inc., management believes
it is more likely than not they will be realized through future
taxable earnings. However, the net deferred tax assets could
be reduced in the near term if management's estimates of
AN-CON GENETICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. NET OPERATING LOSS CARRYFORWARDS (CONTINUED)
taxable income during the carryforward period are significantly
reduced.
The valuation allowance of $2,506,700, as of January 1, 1997
was reduced as a consequence of recognizing deferred tax assets
of $8,577 and NOL carry-forward benefit of $28,591. If an
ownership change occurs in the future, Internal Revenue Code,
Section 382 limits the annual use of a corporation's NOL but
does not eliminate the carry-forward. In each post-ownership
change year, the corporation can use its NOL carry forwards, up
to the amount of the "Section 382 Limitation," to offset annual
income. The amount of tax assets expired in 1997 was $8,577.
Pursuant to Section 382(b), the "Section 382 Limitation" equals
the value of the corporation (immediately before the ownership
change, Sec. 382(e), multiplied by the long term tax exempt
rate (the highest Long Term AFR in effect for any month in the
three calendar month period ending with the month of the
change, Sec. 382(f)). If the corporation does not have income
for the year at least equal to Section 382 limitation, the
unused portion of the limitation is carried forward to the
following year.
Pursuant to the Internal Revenue Code, IRC. Sec. 368(a), the
acquisition of Aaron by An-Con is a considered Type B
reorganization. The transaction should not limit the net
operating loss carry-forward of An-Con.
Income before taxes and provisions for income tax expense
(benefit) from continuing operations at December 31, are:
Current Federal income tax$ 6,262
Current State income tax2,315
Total$ 8,577
The actual income tax expense attributable to earnings from
continuing operations for the year ended December 31, 1997
differed from the amounts computed by applying the US Federal
tax rate of 30% to pretax earnings from continuing operations
as a result of the following:
Benefit of operating loss carryforwards (8,577)
AN-CON GENETICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. RETIREMENT PLANS
The Company and or its subsidiary provides a tax-qualified
profit-sharing retirement plan under sec.401k of the IRC. (the
"Qualified Plans") for the benefit of eligible employees with
an accumulation of funds for retirement on a tax-deferred basis
and provides for annual discretionary contribution to
individual trust funds.
All employees are eligible to participate if they have one year
of service to the Company. The employees may make voluntary
contribution to the plan up to 15% of their annual
compensation. The Company's contributions to the plan are
discretionary but may not exceed 25% of the first 4% of the
annual compensation that an employee contributes to the plan.
Vesting is graded and depends on the years of service. After
six years of service the employees are 100% vested.
The Company has made a contribution during 1997 and 1996 of
$10,557 and $14,000 respectively, for the benefit of its
employees.
The Company also maintains a group health and dental insurance
plan. The employees are eligible to participate in the plan
after three months of full-time service to the Company.
NOTE 14. RELATED PARTY TRANSACTIONS
During 1997, a company that was controlled by a board member
received commissions from the purchase of materials the Company
used in the production of certain of the Company's products.
The value of these materials sold to the Company for 1997 and
1996 was $117,700 and $126,000, respectively. In May of 1996,
the Company signed a termination agreement with the supplier of
these products, which allows the Company to purchase these
products directly from the manufacturer. In exchange, the
Company will pay commissions to the board member for a period
of 3 years based on the amount of material purchased from
certain vendors.
AN-CON GENETICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. PROPERTIES
The Company had moved its executive offices to the Aaron
facility located at 7100 30th Avenue N., St. Petersburg,
Florida 33710-2902, during the first quarter of 1995.
The Company has additional executive office space at 734 Walt
Whitman Road, Melville, which it leases for $1,226.83 per
month.
The lease runs through the year 2000.
As part of the purchase of 7100 30th Avenue North, St.
Petersburg, Florida (manufacturing facility) the seller
acknowledged it had previously conducted assessments to
document environmental conditions existing on the property, the
results of which are set forth in a June 23, 1994 Contamination
Assessment Report (CAR) and a January 27, 1995 Contamination
Assessment Addendum (CARA). The Florida Department of
Environmental Protection (FDEP) stated in a letter, dated March
31, 1995, that based on their review of the CARA, the CAR could
not be approved and that additional work was needed to be
performed.
In February of 1998, the environmental engineering firm Geo-
Ambient conducted a second addendum to the CAR, (CAR Addendum
II) to complete the additional work requested by the FDEP.
Based on the results of CAR Addendum II, Geo-Ambient
recommended to the FDEP that a "no further action" status be
granted for the site. However, as of the date of filing the
FDEP has not yet issued a Site Completion Rehabilitation Order
(SCRO).
The Company has received a report and recommendations on the
results of the water tests performed. As a result of previous
sampling that showed that one on-site monitoring well still had
groundwater exceedances for vinyl chloride and total xylene,
the state Department of Environmental Protection has placed the
site on a "monitoring-only" plan. The plan includes 4 quarters
of sampling, concluding in May, 1999. The first quarter report
was issued this past July. Because the exceedances were very
slight, the mortgagee has requested a "no further action".
DEP disagreed, instead requiring the monitoring plan. At the
end of the period, DEP will likely approve a "no further
action" unless the well concentrations have not declined. In
that case, DEP could ask for further monitoring or some type of
groundwater treatment. The SCRO is on hold and the Company
believes it will not be issued for more than a year pending
action on the above issue.
AN-CON GENETICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. PROPERTIES(CONTINUED)
Based on the above paragraph and the "no further action" finding
by Geo-Ambient and the future issuance of an SCRO by the FDEP
management of An-Con has estimated the present value of the cost
of environmental work to be zero.
NOTE 16. COMMITMENTS AND CONTINGENCIES
Environmental conditions -Purchase of Building
(See Note 15 - properties)
Leases
The Company leases administrative facilities under an operating
lease that expires in 2000. Rental expense was $19,294 in 1997
and $24,400 in 1996. Minimum rental commitments under all non-
cancelable leases with an initial term in excess of one year are
payable as follows: 1998 - $14,722; 1999 - $14,722; 2001 and
beyond $4,907. Commitments for construction or purchase of
property, plant, and equipment approximated $50,000 at December
31, 1997.
Employment Agreements
The Company has employment agreements with six key employees.
These agreements are for terms from 2-5 years and call for
salaries of $35,000 to $118,335. Bonus arrangements call for 10%
of the profits over $200,000 for the Chairman to 1% of the
profits over $300,000 for the international sales representative
for profits of the Company.
During 1997 officers waived their right to 1996 bonuses and
allowed the board of directors to determine future bonuses.
These bonuses valued at $70,600 were shown as a contribution to
paid in capital.
Employee Benefit Plans
In 1996, the Company established stock option plans under which
officers, key employees and non-employee directors may be granted
options to purchase shares of the Company's authorized but
unissued Common Stock. Under Employee Stock Warrant Plans, the
Company issued warrants for the purchase of 1,064,000 shares of
restricted common stock at exercise prices ranging from $.75 to
$1.125, in 1997, 1996.
The Company has adopted the disclosure-only provision of
Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for
AN-CON GENETICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. COMMITMENTS AND CONTINGENCIES(Continued)
Stock-Based Compensation." Accordingly, no compensation cost has
been recognized for the common stock option plans.
Had the compensation cost for the Company's two stock option
issuances been determined based on the fair value at the grant
date for awards in 1996 consistent with the provisions of SFAS
No.123,
the Company's net earnings and earnings per share would have been
reduced to the pro forma amounts indicated below:
1997 1996
Net earnings-as reported$ 99,191$407,300
Net earnings-pro forma 65,151 347,300
Earnings per share before
extraordinary items-as reported .0352 .053
Earnings per share before
extraordinary items-pro forma .008 .045
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option pricing model with the
following weighted average assumptions, zero dividend yield;
expected volatility of .26%; risk-free interest rate of 6%; and
expected lives of 3 years.
Options currently expire no later than ten years from the grant
date. When proceeds are received by the Company from
exercises, they are credited to Common Stock and Capital in
excess of par value.
Speiser
On December 29, 1992, Robert Speiser, the then, Chief Executive
Officer of An-Con, obtained a confession of judgement in the
Supreme Court, State of New York, counties of Suffolk and
Westchester for amounts due on loans to the Company of $92,239
and $190,957 inclusive of interest at 12% to May 27, 1992 and
9% thereafter.
These loans represent amounts claimed by Mr. Speiser to have
been expended on behalf of the Company and funds loaned to the
Company. As reported to the Board of Directors, Mr. Speiser's
actions were motivated solely to deter threatened action by a
landlord to file a judgement at that time of $41,700 in rental
arrears on the Melville, NY lease.
Mr. Speiser has indicated that he does not intend to enforce
this judgement. On March 29, 1993 and in subsequent letters of
instruction to the Sheriff of Suffolk County, Mr. Speiser
requested
AN-CON GENETICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. COMMITMENTS AND CONTINGENCIES (CONTINUED)
that the execution of the above-mentioned judgements be held in
abeyance for a 60-day period, until August 30, 1993. On
February 28, 1994, the executive order expired. As of December
31, 1997, the Company had repaid $235,100 of the principal
amount upon which the aforesaid judgements were based. The
Company has accrued a liability for $73,800 to Mr. Speiser
which was the balance of his loan to the Company and accrued
interest on that loan. Mr. Speiser is disputing this amount
because he feels he is due additional interest and back wages
he estimated to be an additional $80,000. See "certain
Relationships and Related Transactions". Presently there is no
lawsuit between the Company and Mr. Speiser .
The Company is pursuing a settlement of this matter.
Product Liability
The Company currently has product liability insurance which, it
believes to be adequate for its business. The Company's
existing policy expires in May 1998.
Regulation
In June 1995 pursuant to an inspection of the facilities of the
Company's subsidiary Aaron, the FDA issued a warning letter
advising of federal good manufacturing practices ("GMP")
deficiencies. The letter cited, among other things, the
Company's failure; (a) to follow its own complaint handling
procedure, to immediately review, evaluate, investigate and
document the complaint; (b) to evaluate significant equipment
changes in manufacturing processes and the quality assurance
tests; (c) to have and implement documented formal change
control procedures for changes made to devices or manufacturing
processes; (d) to have, follow and document conformance with
appropriate written finished device test procedures assuring
devices and meet all finished specifications prior to
distribution; (e) to have, follow and document conformance with
written procedures for acceptance of components; (f) to conduct
a plan in periodic orders of the quality assurance and good
manufacturing practice programs in accordance with written
procedures; (g) to establish and implement adequate record
keeping procedures. Until such deficiencies were removed the
FDA indicated it was in no position to restore GMP standing to
the Company or permit approval of any pending pre-market
submissions by the Company.<PAGE>
AN-CON GENETICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Regulation (Continued)
On July 12, 1995, the FDA indicated that while the Company's
response appeared adequate, further verification was needed
before the FDA would be in a position to support the approval
of any pending pre-market submissions, or related Export
Certificates for the Company's products. After follow-up
correspondence, on December 15, 1995, the FDA acknowledged that
the Company's corrective action plan dated November 27, 1995,
appeared adequate.
However, the FDA determined that it was necessary to set
another evaluation date for May 1996 to ascertain whether the
Company was meeting GMP guidelines. This date was extended to
March 1997 when the FDA made its inspection. The FDA has
cleared the Company and the Company is presently submitting
applications for new products to the FDA.
Bank Line of Credit and Term Loan
The bank line of credit and term loan require the Company:
1. To maintain a current ratio of not less than 1.10 to one,
senior debt to net worth ratio of not more than 1.5 to one, and
an interest coverage ratio of not less than eight to one.
2. Not to expend more than $400,000 for acquisition of fixed
assets, in the course of the year.
3. To submit its audited financial statements, forms C, and
10Q, and accounts payable and receivable aging schedules.
4. Maintain its depository and cash management accounts with
the bank.
5. Not to guarantee obligations of any other person or
encumber its assets with any mortgage, security deed, or lien
other than security interests required by the bank loan
agreement.
6. Not to default in any material contract with third parties.
<PAGE>
AN-CON GENETICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17. EARNING PER SHARE
The earnings per share were as follows:
For the Year Ended 1997
Income Share Per Share
Basic Earning Per Share
Income before extraordinary
items $ 28,5918,186,256 N/S
Effect of Dillutive securities
Convertible shares of Xenetics
Biomedical, Inc. and Automated
Diagnostics, Inc. 153,333
Warrants 104,383
Diluted Earnings per Share
Income before extraordinary
items assuming conversion of
Securities $28,591 8,443,972 N/S
For the Year Ended 1996
Income Share Per Share
Basic Earning Per Share
Income before extraordinary
items $415,5437,663,872 $.0542
Effect of Dillutive securities
Convertible shares of Xenetices
Biomedical, Inc. and Automated
Diagnostics, Inc. 153,333
Diluted Earnings per Share
Income before extraordinary
items assuming conversion of
securities $415,543 7,817,205 $ .0531
Warrants to purchase 387,000 shares of common stock at $11/8
during 1997 and 921,000 to purchase shares of common stock at
various prices in 1996 were not included in the computation of
diluted earnings per share because warrants' exercise prices
were greater than the average price of common shares in 1997
and 1996, respectively.
N/S - Not Significant
AN-CON GENETICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18. SUBSEQUENT EVENTS
Bank Line of Credit
On January 29, 1997 the Company signed notes which effectively
set up a term loan credit line with a commercial bank for
$550,000. The line of credit terminates on April 30, 1998
unless renewed or extended by the bank in writing. The
agreement required the Company pay-off the $260,000 outstanding
balance of the loan by April 1, 1998 and subsequently apply for
the renewal of the line of credit. However, since the
repayment of the loan has been delayed the Company is in
technical default. The management plans to renew the loan.
The bank has taken a security interest in accounts receivable,
inventories and equipment.
Acquisition of BSD Development Beta Corporation
On February 9, 1998, the Company exchanged 5,000,000 shares of
its common stock for all preferred and common shares of BSD
Development Beta Corporation (BSD)and assumed an 8% Convertible
Debenture of BSD, in principal amount of $750,000. As a part
of the agreement with the sellers, the Company acquired through
BSD $250,000 cash, a secured note receivable of $750,000, due
in May 1998, and certain equipment valued at $2,000,000. The
equipment will be used for coating electro-surgical blades and
other medical devices using DYLYN technology under a management
agreement with Advance Refractory Technologies (ART), the
seller of the equipment which has agreed to operate and
maintain the equipment.
As a part of the agreement with ART, the Company obtained an
exclusive ten-year renewable license to use the DYLYN
Technology for coating specified medical products.
2,000,000 of the 5,000,000 shares exchanged were with ART for
the shares they held in BSD. As part of the agreement An-con
contracted to exchange ARTs 2,000,000 shares for 2,000,000
shares of preferred An-con stock yet to be authorized. An-con
has until September 9, 1998 to deliver the preferred stock or
they will have to issue to ART an additional $500,000 worth of
shares of common stock as a late penalty.
Patent Infringement Lawsuit
On January 22, 1998, Aaron and MegaDyne Medical Products,
Inc.(MMP), a Utah Corporation, entered an agreement to settle
an action that MMP had brought against the Company, in District
court of Utah, for infringing a patent for an electro-surgical
product.
AN-CON GENETICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18. SUBSEQUENT EVENTS
(the Patent). Aaron agreed to pay $150,000 for damages
resulting from the patent infringement, for a period, of six
months not to manufacture or sell any electro-surgical
instrument that infringes the Patent, and to provide MMP with a
list of customers who had purchased the infringing product.
Additional costs associated with the settlement were legal fees
of $92,038, write down or inventory of $12,047 and estimated
future sales refunds of $7,500. Total costs charged as Selling,
General and Administrative, were $261,585.
Restated Statement of Operations
The Company's financial statements were restated to capitalize
$70,600 of forgiveness of debt, by the Company's managers, and
to include $261,585 paid for the settlement of a patent
infringement lawsuit in selling, general, administration
expenses. The forgiveness of debt and the loss from a lawsuit
were previously presented as extraordinary items.
NOTE 19. INDUSTRY SEGMENT REPORTING
The Company's principal markets are the United States, Europe,
and Latin America, with the U.S. and Europe being the largest
markets based on revenues. The Company's major products
include cauteries, Benda-A-lights, nerve locators, reusable pen
lights and electrodes. Cauteries, disposable and replaceable,
account for 40% and 50% of Company's sales for 1996 and 1996,
respectively.
One significant customer accounted for 9% and 14% of revenues
in 1997 and 1996, respectively. In 1997 that customer
accounted for $.6 million of non-medical sales which is 65% of
that segments sales. The Company's ten largest customers
accounted for approximately 51% of net revenues for 1997. At
December 31, 1997, the same ten customers accounted for
approximately 47% of outstanding accounts receivable.
Summary information by geographic area and significant industry
segment for years ended December 31,1997 and 1996 were as
follows:
<PAGE>
AN-CON GENETICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19. INDUSTRY SEGMENT REPORTING
Operating
Identifiable Sales Income Assets
1997 - (in thousands)
Geographic Area
United States$ 5,602 $ 259 $ 3,731
Europe1,769 81 107
$ 7,371 $ 340 $ 3,838
Segment
Medical Products $ 6,409 $ 302 $ 3,282
Non medical products 962 38 556
$ 7,371 $ 340 $ 3,838
<PAGE>
AN-CON GENETICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19. INDUSTRY SEGMENT REPORTING (Continued)
Operating
Identifiable Sales Income Assets
1996-(in thousands)
Geographic Area
United States $ 5,980 $ 384 $ 3,803
Europe 1,406 86 96
Latin America 100 10 --
$ 7,486 $ 480 $ 3,899
Segment
Medical Products $ 6,181 $ 451 $ 3,236
Non medical products 1,305 29 663
$ 7,486 $ 480 $ 3,899
1997 1996
Total assets $ 102 $ 96
Total liabilities -0- -0-
Net property, plant
and equipment -0- -0-
The Company had no assets (other than certain trade
receivables) or liabilities outside the United States, in the
two years ended December 31, 1997.
During 1997, a substantial portion of the Company's
consolidated net sales and consolidated income from operations
was derived from foreign operations. Foreign operations are
subject to certain risks inherent in conducting business
abroad, including price and exchange controls, limitations on
foreign participation in local enterprises, possible
nationalization or expropriation, potential default on the
payment of government obligations with attendant impact on
private enterprise, political instability and health care
regulation and other restrictive governmental actions. Changes
in the relative value of currencies take place from time to
time and could adversely affected the Company's results of
operations and financial condition. The future effects of
these fluctuations on the operations of the Company's and its
subsidiaries are not predictable.
CONSENT OF CERTIFIED PUBLIC ACCOUNTANT
We consent to the incorporation by reference in this Annual
Report on Form 10-KSB of An-Con Genetics, Inc. of our report
dated August 20, 1998, included in the Annual Report to
Stockholders of An-Con Genetics, Inc.
Bloom and Company
Hempstead, New York
August 20, 1998
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
and Shareholders of
An-Con Genetics, Inc.
We have audited the accompanying consolidated balance sheet of
An-Con Genetics, Inc. and subsidiary as of December 31, 1997
and the related consolidated statements of operations and
shareholders' equity, and cash flows for the years ended
December 31, 1997 and 1996. These consolidated financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion the financial statements referred to above
present fairly, in all material respects, the financial
position of An-Con Genetics, Inc. and subsidiary as of December
31, 1997 and the results of their operations, and their cash
flows for the years ended December 31, 1997 and 1996 in
conformity with generally accepted accounting principles.
BLOOM AND COMPANY
Hempstead, New York
April 10, 1998
Except for the notes 8,10, 12, 16, 17 and 18 to the Financial
Statements for which the date is August 20, 1998 and all other
notes April 23, 1998.
