-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I+luQ3kXbNdieyMz6+kdTHmzRvO4zxyCQzVV0oH6yDtBU21bFsvAeWPnTvpV0tk8 bPGyq29HV5UNwM8TroWe4w== 0000719135-98-000017.txt : 19980827 0000719135-98-000017.hdr.sgml : 19980827 ACCESSION NUMBER: 0000719135-98-000017 CONFORMED SUBMISSION TYPE: 10KSB/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980826 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: AN CON GENETICS INC CENTRAL INDEX KEY: 0000719135 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL ORGANIC CHEMICALS [2860] IRS NUMBER: 112644611 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB/A SEC ACT: SEC FILE NUMBER: 000-12183 FILM NUMBER: 98698242 BUSINESS ADDRESS: STREET 1: ONE HUNTINGTON QUADRANGLE STREET 2: STE 1N11 CITY: MELVILLE STATE: NY ZIP: 11747 BUSINESS PHONE: 5166948470 MAIL ADDRESS: STREET 1: ONE HUNTINGTON QUADDRANGLE CITY: MELVILLE STATE: NY ZIP: 11747 10KSB/A 1 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-KSBA-2 (Mark One) [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required] For the fiscal year ended December 31,1997 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] Commission file number 0-12183 AN-CON GENETICS INC. (Name of small business issuer in its charter) Delaware 11-2644611 (State or other (IRS Employer jurisdiction) of incorporation or organization) Identification No.) 734 Walt Whitman Road, Melville, NY 11747 (Address of principal executive offices) (Zip Code) Issuer's telephone number (516) 421-5452 Securities registered under Section 12(b) of the Exchange Act: Title of each class Name of each exchange on which registered N/A Securities registered under Section 12(g) of the Exchange Act: Common (Title of class) Check whether the issuer (I) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No[ ] Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB any amendment to this Form 10-KSB. [ X ] Issuer's revenues for its most recent fiscal year were $7,371,281 The aggregate market value of the voting stock held by non-affiliates computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of April 3,1998 was $17,396,732. (INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS) N/A (APPLICABLE ONLY TO CORPORATE REGISTRANTS) State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 13,279,948. DOCUMENTS INCORPORATED BY REFERENCE There are no documents incorporated by reference. An-Con Genetics, Inc. 1997 Form 10-KSB Annual Report Table of Contents Part I Page Item 1. Description of Business Item 2. Properties Item 3. Legal Proceedings Item 4. Submission of Matters to a Vote of Security Holders Part II Item 5. Markets and Market Prices Item 6. Management's Discussion and Analysis Item 7. Financial Statements (See Financial Section) Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Part III Item 9. Directors, Executive Officers, Promoters and Control Persons Item 10. Remuneration Item 11. Security Ownership of Certain Beneficial Owners and Management of An- Con Item 12. Certain Relationships and Related Transactions Item 13. Exhibits and Reports on Form 8- k AN-CON GENETICS, INC. Item 1. Description of Business. Background An-Con Genetics, Inc. ("the Company") was incorporated in 1982, under the laws of the State of Delaware and has its principal executive office at 734 Walt Whitman Road, Melville, New York 11747. Currently, the Company is actively engaged in the business of manufacturing and marketing medical products and developing related technologies. On January 11, 1995 the Company acquired a 100% ownership interest in Aaron Medical Industries, Inc. ("Aaron") a St. Petersburg, Florida based Company engaged in the manufacturing and distributing of medical products. Although, Aaron's largest current product line is battery operated cauteries, the Company has shifted its focus to the manufacture and marketing of electrosurgical generators and electrosurgical disposables. This new focus is evident in the development of the Aaron 800 and 1200 electrosurgical generators (see below). Aaron also manufactures a variety of specialty lighting instruments for use in ophthalmology, general surgery, hip replacement surgery, and for the placement of endotracheal tubes. An industrial version of this light is distributed through a large automotive tool distributor, and various retail outlets and stores. Aaron manufactures and sells its products under the Aaron label to distributors worldwide and also private labels. Additionally, Aaron has many Original Equipment Manufacturing (OEM) agreements with other medical device manufacturers. These OEM arrangements combined with private label and the Aaron label allow the Company to gain greater market share for the distribution of its products. An-Con is a non-operating company while Aaron as a 100% owned subsidiary which accounts for 100% of operations. Licensed Products OmniFix II The Company is the holder of a U.S. license to manufacture and market OmniFix II which is formulated to replace formaldehyde in hospital and clinical pathology laboratories. The Company is currently seeking a joint venture partner or sublicensee to market and sell this product and is engaged in minimal marketing efforts. New Company Products Aaron 1200 Aaron has developed a 120 watts full-featured electrosurgical generator for outpatient surgical procedures for use in a variety of fields including dermatology, gynecology, and plastic surgery. Aaron 800 The Aaron 800 is a low powered office based generator designed primarily for dermatology. The unit is a 30 watts high frequency desiccator used mainly for removing small skin lesions and growths in the doctor's office. This unit was designed with sufficient base technology to move towards manufacturing more powerful office based generators without requiring the additional time consuming expense of total redesign. Sales in 1997 totaled in excess of $650,000. Electrosurgical Products The Company's subsidiary, Aaron, continues to expand its line of Electrosurgical products. Electrosurgical products include electrodes, electrosurgical pencils, and various ancillary disposable products. Electrosurgical products are used in surgery for the cutting and coagulation of tissues. Aaron's electrosurgical products are compatible with all major manufacturers' electrosurgical generator products. Battery Operated Cauteries Aaron's largest current product line is battery operated cauteries. Cauteries were originally designed for precise hemostasis (to stop bleeding) in ophthalmology. The current use of cauteries has been substantially expanded to include sculpting woven grafts in bypass surgery, vasectomies, evacuation of subungual hematoma (smashed fingernail) and for stopping bleeding in many types of surgery. Battery operated cauteries were originally designed, and are still primarily delivered, as a sterile one-time use product in the USA. The Company manufactures more types of cauteries than any other company in the world at its facility in St. Petersburg. The Company also manufactures a line of replaceable battery and tip cauteries, which are popular in overseas markets. Battery Operated Medical and Industrial Lights Aaron, manufactures a variety of specialty lighting instruments for use in ophthalmology as well as patented flexible lighting instruments for general surgery, hip replacement surgery and for the placement of endotracheal tubes in emergency situations and prior to surgery. The lighting instruments have also been adapted for commercial and industrial use. The industrial lighting instruments are sold to automotive mechanics through Companies such as Snap-On Tools, MAC and Matco. Nerve Locator Stimulator Aaron manufactures three different nerve locator stimulators which, are primarily used for identifying motor nerves in hand and facial reconstructive surgery. These nerve locator stimulators are self-contained, battery operated units, which are used for a single surgical procedure. The Company has a patent on the Neuro Pulse II, which has a pulsing variable design. Multi-Function Cautery The Multi-Function Cautery (MFC) is a patented device, developed by a group of California surgeons, and acquired by An-Con for Aaron. The device combines, in one instrument, the capability for the surgeon to cut and/or coagulate, while simultaneously evacuating the smoke associated with electrosurgery and to remove fluids from the surgical site. The procedure is accomplished with one hand and without assistance. Resistick The Company has discontinued its Resistick line of reduced stick electrodes used in electrosurgery. The reduced stick electrode market is dominated by MegaDyne Medical Products, Inc. which is believed by management to virtually control the entire existing market. The discontinuance of Resistick sales is a result of the settlement by Aaron with MegaDyne in a suit against Aaron for patent infringement. See legal proceedings and subsequent events in the financial statement. Manufacturing, Marketing and Distribution The Company manufactures the majority of its products on its premises in St. Petersburg, Florida. Labor intensive sub- assemblies and labor intensive products may be out-sourced to the Company's specification offshore. The Company markets its products through national trade journal advertising, direct mail, distributor sales representatives and trade shows. Aaron markets its products through general and specialty distributors across the country under both the Aaron name and private label. Some of Aaron's major distributors are Allegiance, Bergen Brunswig Medical, Burrows, McKesson, General Medical, Owens & Minor, and Physician Sales & Service. Competition The medical device industry is highly competitive. The Company's competitors in this field are well established, do a substantial amount of business, and have greater financial resources and facilities than the Company. Aaron's main competitors are Conmed in the electrosurgery market and Xomed in the battery operated cautery market. Management believes based upon recent developments that the Company has the ability to aggressively compete in these markets. Regulation Many medical products are subject to guidelines, regulations and testing requirements by federal and state authorities including the Food and Drug Administration ("the FDA"). In the United States, the FDA imposes standards, which may affect the clinical testing, manufacture and marketing of certain products. Compliance with the standards and requirements involving product safety, efficacy and labeling may prove to be very expensive and time consuming. No assurance can be given that the regulatory authorities will render the requisite approval of the marketing of some of the products that the Company plans to market. Other countries usually impose regulatory requirements concerning the development, testing, marketing and manufacture of certain products, which influence the overseas sales potential of these products. 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. 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 determined in its March 1997 inspection that the Company was in compliance with GMP guidelines and was now clear to submit new product applications. Patents and Trademarks The Company owns a total of fourteen patents. No assurance can be given that competitors will not infringe the Company's patent rights or otherwise create similar competing products that are technically patentable in there own right. (See competition) Liability Insurance. Management believes that general and product liability exposures are adequately covered by insurance. Research and Development The approximate amount expended by the Company on research and Aaron products during the years 1997 and 1996, totaled $96,738 and $105,681, respectively. The Company has not incurred any direct costs relating to environmental regulations or requirements. Employees In January 1995, the Company acquired Aaron, which then gave the Company approximately 60 employees. Presently the Company has a total of approximately 80 employees. These consist of 5 executives, 6 administrative, 5 sales, and 64 technical or factory employees. The Company employs an unsalaried Vice- President for Far Eastern affairs. SIGNIFICANT SUBSIDIARY - AARON MEDICAL INDUSTRIES, INC. The shareholders of Aaron Medical Industries, Inc., a Florida Corporation, agreed to exchange all of the outstanding shares of Aaron for shares of An-Con and upon issuance, the shares deliverable to Aaron shareholders would constitute 49% of an agreed amount of outstanding shares of An-Con Genetics, Inc. The Acquisition was consummated as of January 11, 1995 and 99% of Aaron shareholders, in the quarter of 1996, rejected a cash offer for their Aaron shares and accepted the An-Con shares. The transaction with Aaron is accounted for as a purchase for financial accounting purposes and as of the date hereof, Aaron is a 100% wholly owned subsidiary of An-Con. Background Aaron Medical Industries, Inc., is a Florida Corporation with offices and manufacturing facilities in St. Petersburg, Florida. It is principally engaged in the business of manufacturing and marketing medical products. Aaron manufactures and sells its products under its own label to distributors worldwide. Additionally, Aaron has contracts with hospital groups purchasing organizations such as Amerinet, Medecon, Magnet, and Purchase Connection. RECENT ACQUISITIONS BY THE COMPANY Item 2. 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). Based on the "no further action" finding by Geo-Ambient and the anticipated 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. At the request of the FDEP, GEO-Ambient will conduct an additional water test in July of 1998. The nature and extent of the environmental work or even if any is required has not yet been determined by the FDEP. Therefore, no work has been completed by the seller. 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 ("Contemporaneous") and transactions 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 job- coating 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. The license is an exclusive 10-year license to use the DYLYN technology to job-coat specified medical products for marketing anywhere in the world. It provides essentially for payment of a royalty to ART based upon net revenues derived by the registrant directly or indirectly from the sale of products or fees from sub-licensees utilizing the DYLYN Technology. The exclusivity of the license is contingent upon ART receiving minimum job-coating fees of $200,000 in the first contract year (estimated to commence August 1, 1998) and increasing by $100,000 per year for each succeeding contract year up to a minimum of $500,000 in the fourth contract year and each succeeding year thereafter. The 10-year license is renewable for an additional 10-year period upon notice prior to 180 days of expiration, plus the payment by the registrant of $2 Million in cash or in shares of common stock of registrant having a fair market value aggregating $2 Million. The license may be terminated by ART in the event of (a) registrant's failure to pay any fee due, (b) breach or default by registrant of any material term of the License Agreement or other related agreements between ART, BSD and or registrant; (c) breach or default of the Manufacturing Agreement; (d) registrant files a petition in bankruptcy or for an arrangement under any federal or state bankruptcy laws or is adjudicated insolvent; or (e) a petition is filed proposing adjudication of registrant as bankruptcy or insolvent, and such petition is not dismissed within 90 days after filing thereof. Manufacturing Agreement Pursuant to the Contemporaneous Agreements, the Company was assigned a Manufacturing Agreement dated February 9, 1998, which provides that ART will job-coat products pursuant to the registrant's specifications for a fee based upon its base cost as defined plus a percentage thereof, unless otherwise agreed. The manufacturing Agreement which is for a term of 5-years and renewable for an additional 5-years at the option of the registrant also provides for minimum annual job-coating fees which are to be offset against fees payable by the registrant to maintain exclusivity under the License Agreement. Maintenance of exclusivity of the License will satisfy and obviate the minimum annual job-coating fees payable under the Manufacturing Agreement. Exchange of Shares Pursuant to the Contemporaneous Agreements, the Company issued 2,000,000 shares of its stock to ART and acquired all of the outstanding shares of common stock of BSD and an 8% convertible Debenture of BSD in the principal amount of $750,000 in exchange for 3,000,000 shares of common stock of the company. Upon completion of such transactions, the Company issued a total of 5,000,000 shares and owned all of the outstanding securities of BSD which had licensing and manufacturing rights to operate the Equipment (which rights have been assigned to the Company), $250,000 in cash and a $750,000 secured note receivable. 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 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. 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 authorize and issue 2,000,000 shares 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. Item 3. Legal Proceedings In February 1998 the Company settled its patent infringement lawsuit with MegaDyne by payment of $150,000 and a pledge not to sell coated blades in the electrosurgical market for six months. Item 4. Submission of Matters to a Vote of Security Holders No Meeting of the Shareholders was held during 1997. PART II Item 5. Markets and Market Prices An-Con's common stock is traded in the over-the-counter market on the National Associations of Securities Dealers, Inc. Bulletin Board ("NASD Bulletin Board"). The table shows the reported high and low bid prices for the common stock during each quarter of the last eight quarters as reported by the NASD Bulletin Board (symbol "AGNT"). These Prices do not represent actual transactions and do not include retail markups, markdowns or commissions. High Low 1997 1st Quarter 1 5/16 1 2nd Quarter 1 1/8 11/16 3rd Quarter 2 1/32 9/16 4th Quarter 13/16 9/16 1996 1st Quarter 1 3/16 1 1/8 2nd Quarter 1 7/16 1 3rd Quarter 1 1/4 1 1/16 4th Quarter 1 15/16 1 1/16 On March 31, 1998, the Closing bid for An-Con's Common Stock as reported by the NASD Bulletin Board was $1.31 per share. As of March 31, 1998, the total number of shareholders of An-Con's Common Stock was approximately 1,000 exclusive of shareholders whose shares are held in the name of their broker or stock depositories or the escrow agent holding shares for the benefit of An-Con shareholders which are estimated to be 1,000 additional shareholders. Item 6. 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. Item 7. Financial Statements. (See Attached) Item 8. Changes in and Disagreements with Accountants on There are no disagreements with or changes in accountants. PART III Item 9. Directors, Executive Officers, Promoters and Control Persons 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 Tsang Yang Tseng 51 Vice-President Far East Affairs Moshe Citronowicz 45 Executive Vice President Chief Operating Officer J. Robert Saron, age 45, President and Chairman of the Board, holds a Bachelors degree in Social and Behavioral Science from the University of South Florida. From 1971 through 1979 Mr. Saron served in various capacities with Saron Pharmaceutical Corporation and Home Breathing Care, Inc. In 1979 Saron Pharmaceutical Corporation and Home Breathing Care, Inc. were acquired by Key Energy Enterprises, Inc. and were renamed Key Medical, Inc. Mr. Saron was named Vice President of Key Medical, Inc. and served on the Board of Directors of Key Energy Enterprises, Inc. In 1983 Mr. Saron became President of Key Medical, Inc. In January 1984 Mr. Saron joined Suncoast Medical Manufacturing, Inc. In 1985 Suncoast acquired Key Technologies, Inc. and Mr. Saron became Vice President of the Corporation. From 1988 to present Mr. Saron has served as President and director of Aaron Medical Industries, Inc. (formerly Suncoast Medical Manufacturing, Inc.). In March, 1995 Mr. Saron was elected Chairman and Chief Executive Officer of An-Con Genetics, Inc. Andrew Makrides, Esq. age 56, President, member of the Board of Directors, and former Chairman, received a Bachelor of Arts degree in Psychology from Hofstra University and a JD Degree from Brooklyn Law School. He is a member of the New York Bar and has practiced law from 1968 until joining An-Con Genetics, Inc. as Executive Vice President and director, in 1982. Mr. Makrides became President of the Company in 1985 and served as such to date. Delton N. Cunningham, age 33, Vice President and Chief Financial Officer holds a Bachelor of Science in Accounting from the University of Florida. He is a Certified Public Accountant and is a member of the American Institute of Certified Public Accountants and the Florida Institute of Certified Public Accountants. Mr. Cunningham began his career with the Miami office of Arthur 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. Tsang Yang Tseng, age 51, is a medical doctor and the owner of several medical clinics in Taiwan and has other business operations in Far East Asia. Currently he also serves as the Vice President in charge of Far Eastern affairs for the Company. In the first quarter of 1998 Dr. Tseng resigned as an officer of the Company citing personal time restraints. Joseph F. Valenti, age 81 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, engaged in the import of products. This import company is a major supplier of the Company's light bulbs which, are used in the Company's various manufactured products. The prices paid by the company for the products are competitive with those from other sources. He received a Bachelor of Arts Degree in Languages from the College of the City of New York in 1939. He has been associated with Aaron Medical Industries, Inc. and its predecessor companies since 1980 and was charged with developing the international sales department and increasing exports sales on behalf of Aaron. George W. Kromer, Jr., age 56 filled a vacancy on the Board of Directors and became a director on October 1, 1995. Mr. Kromer is a Senior Financial Correspondent for "Today's Investor" and is utilized as a consultant by a number of companies whose shares are listed on the American Stock Exchange and 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 has been writing for financial publications since 1980. He received a Master's Degree in 1976 from Long Island University in Health Administration. He was engaged as a Senior Hospital Care Investigator for the City of New York Health & Hospital Corporation from 1966 to 1986. He also holds a Bachelor of Science Degree from Long Island University's Brooklyn Campus and an Associate in Applied Science Degree from New York City Community College, Brooklyn, New York. Moshe Citronowicz (45), 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 Executive Vice President and Chief Operating Officer. REMUNERATION Item 10. The following table sets forth the compensation paid to the executive officers of the registrant for the three years ended December 31, 1997: Summary Compensation Table Annual Compensation Name and Principal Annual Position Year Salary Bonus(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 1997 107,044 1,921 Officer 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. REMUNERATION(CONTINUED) Long Term Compensation Awards Pay-outs Securities Restricted Underlying Other (b) Stock Option/ Year Compensation Awards SARS (#) Pay-outs J. Robert Saron CEO/Chairman 1997 $9,352 -- -- -- 1996 8,100 -- 90,000 -- 199523,700 -- -- -- Andrew Makrides1997 9,598 -- -- -- 1996 9,700 -- 70,000 -- 1995 8,000 -- -- -- Moshe Citronowics Executive Vice President-Chief Operating 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. Option/SAR Grants Table Values of securities Number of underlying shares unexercised Acquired options on on Value FY-END(#) sar/s at Name and Principal Position Year Exerciseable 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 President/ Secretary, Treasurer, Vice, CFO 1997 -- -- -- 1996 -- -- 61,875 1995 -- -- -- (b) Other compensation consists of medical insurance and auto. Outside Directors are compensated in their capacities as Board members through option grants. The Company's Board of Directors presently consists of J. Robert Saron, the CEO, Andrew Makrides, President, Joseph F. Valenti and George W. Kromer, Jr. Mr. Saron is also CEO of Aaron. Mr. Kromer has been retained on a month- to-month basis pursuant to verbal agreement as a financial and public relations consultant by An-Con for the past year at an average monthly fee of $1,000. 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. On the 8th of September, 1995, the Company entered into an employment agreement which (a) J. Robert Saron, providing for Mr. Saron to act as an executive employee of the Company. The agreement was for a period of 5 years and provided for compensation in the amount of $118,335 per year plus additional amounts for automobile allowance ($600 per month) and a bonus equal to 10% of the Company's pre-tax profits in excess of the first $200,000 of profit in any given year. The agreement also provides for annual cost of living percentage increases as to salary and automobile allowance. In addition to the foregoing, the agreement provides for a vacation of three weeks per year, reimbursement of business expenses, group insurance and life insurance. The agreement may be terminated (a) upon the death of Mr. Saron, or (b) on thirty (30) days notice by Mr. Saron to terminate, or (c) by the Company, (i) without cause, upon the majority approval of the Board of Directors on thirty (30) days written notice (wherein the Company shall be obligated to pay the employee compensation under the agreement for the balance term of the agreement) and (ii) the employee may elect, in lieu of (i) above, to cancel his agreement and obtain severance payments equal to three times the annual salary and bonus in effect during the month preceding such termination; or (d) by the Company for cause, if during the time of employment, the employee violates the covenant not to compete provisions of the agreement, or is found guilty of a felony or crime of moral turpitude. The agreement provides for a covenant not to compete directly or indirectly against the Company for a period of one year. Such agreement also provides for indemnification of Mr. Saron for any liability while acting as an officer and director of the Company except in the instances where it is determined by a court of competent jurisdiction that (a) he has breached his duty of loyalty to the corporation or the shareholders, or (b) acted not in good faith or intentionally improperly, or (c) paid unlawful dividends or made unlawful stock purchases or redemptions, or (c) otherwise engaged in a transaction in which he received improper personal benefit against the interests of the corporation or its shareholders. On September 8, 1995, the Company also entered into a similar employment agreement with Andrew Makrides, President, for a period of 5 years and providing for annual compensation in the amount of $90,000, a monthly automobile allowance of $500 per month, and bonuses equal to 3% of the Company's pre-tax profits in excess of the first $300,000 of profits in An-Con Genetics, Inc. and annual cost of living percentage increases. In all other respects the agreement is similar to that of Mr. Saron set forth above. Effective September 8, 1995 the Company entered into a similar 3- year executive employment agreement (the "Agreement") with Delton N. Cunningham, as Vice-President and Secretary of the Company. Mr. Cunningham has also been appointed Treasurer and Chief Financial Officer of the Company. The Agreement provides for one year extensions unless written notice of termination is provided by the Company nine months prior to the termination date and contains termination provisions similar to those of Messrs. Saron and Makrides. The Agreement also provides for a salary of $75,000 per year, a monthly automobile allowance of $500, a bonus equal to 3% of the Company's pre-tax profits in excess of $300,000, 3-weeks paid vacation, reimbursement of expenses, group medical insurance and contains a one-year non-compete covenant commencing upon termination of employment. On September 8, 1995 the Company entered into a 5-year executive employment agreement (the "Agreement") with Moshe Citronowicz, as Vice-President of Operations. The Agreement provides for a salary of $95,000 per year, a monthly automobile allowance of $500, a bonus equal to 4% of the Company's pre-tax profits in excess of $300,000, 3-weeks paid vacation, reimbursement of expenses, group medical insurance and contains a one-year non- compete covenant commencing upon termination of employment. In all other respects the agreement is similar to that of Mr. Cunningham set forth above. In May of 1997 the officers as a group waived their right to the bonuses and set forth in their contracts. The board of directors will determine future bonuses. Item 11. 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 of Nature Percent. Name and Title Shares of of Address of Class ownedownership(i) shares(i) 5% Beneficial Owners Tsang Yang Tseng Common Stock 666,666 Includes 7.14% 190-1 Ming-Chun Shares only Road Chi-Yi, Taiwan Robert Speiser (ii)Common Stock 753,333 Includes 8.07% 1340 Boca Ciega Shares only Isle Drive St. Petersburg, Florida 33706 Directors J. Robert Saron (iii)(V) Common Stock 522,976 Includes5.60% Ashley Drive 90,000 shares Seminole, FL 34642 reserved for options J.Valenti Common Stock 177,205 Includes 1.90% 5700 mariner drive 120,000 shares Tampa, Florida 33609 reserved for options G. Kromer Common Stock 105,000 Includes 1.12% P.O. Box 188 105,000 shares Farmingdale, NY 11738 reserved for options A.Makrides Common Stock 420,667 Includes 4.50% 20 Damin Circle 70,000 shares St. James, NY 11780 reserved for options Officers and Directors as a Group Common Stock 1,528,497 Includes 16.37% 465,000 shares reserved for options (i) Based on 8,279,948 shares and 1,064,000 options outstanding to acquire shares. Officers and directors have 465,000 options to acquire shares at December 31, 1997. (ii) Mr. Robert Speiser resigned as the Company Chairman and Chief Executive Officer on March 20, 1995. (iii) Robert Saron, who replaced Mr. Speiser as Chairman, is the President and a director of Aaron Medical Industries, Inc. As a result of the exchange of shares pursuant to the Acquisition Agreement, Mr. Saron is the beneficial owner of 407,976 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) Mr. Makrides has the option to acquire 70,000 shares in addition to his shares of 350,667. (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. Item 12. Certain Relationships and Related Transactions On January 11, 1995, the Company acquired Aaron Medical Industries, Inc. which was accounted for by the purchase method. Total assets acquired were valued at $2,012,800 and liabilities assumed were valued at $681,000. In order to properly transfer the shares agreed upon to the Aaron shareholders the arrangement called for the shares to be registered so they could be freely traded. The assets were valued at $335,800 more than their cost basis, which created goodwill. 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. The related party transaction between the Company and Valpex International Corporation were on terms that were no less favorable than could have been obtained in an arms' length transaction with an unrelated third party. At the time the Company entered into its agreement with Valpex International Corporation the agreed upon pricing was substantially better than other pricing available in the market. Speiser On December 29, 1992, Robert Speiser, the then Chief Executive Officer of An-Con, obtained a Confession of Judgment in the Supreme Court, State of New York, Counties of Suffolk and Westchester, for amounts due on loans to the Company of $92,239 and $190,957, inclusive of interest at 12% to May 27, 1992 and 9% thereafter. These loans represent amounts claimed by Mr. Speiser to have been expended on behalf of the Company and funds loaned to the Company. As reported to the Board of Directors, of which Mr. Speiser was Chairman, Mr. Speiser's actions were motivated solely to deter threatened action by the landlord to file a judgment at that time of $41,700 in rental arrears on the then Melville, NY lease. Mr. Speiser has indicated that he does not intend to enforce this judgment. On March 29, 1993 and in subsequent letters of instruction to the Sheriff of Suffolk County, Mr. Speiser requested that the execution of the above-mentioned judgments be held in abeyance for a 60-day period, until August 30, 1993. On February 28, 1994, the execution order expired. As of December 31, 1997, the Company had repaid $235,100 of the principal amount upon which the aforesaid judgments 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. See "Certain Relationships and Related Transactions". The Company is presently trying to settle Mr. Speiser's claim. Item 13. Exhibits and Reports on Form 8-k No Form 8-k was filed in the fourth quarter of 1997. SIGNATURES Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of St. Petersburg, State of Florida, on March 29, 1997. An-Con Genetics, Inc. By: S/J.Robert Saron Robert Saron Chairman of the Board Chief Executive Officer POWER OF ATTORNEY Each person whose signature appears below, hereby appoints Robert Saron, Andrew Makrides, Joseph Valenti, George W. Kromer, and Delton Cunningham and any one of them, as his true and lawful attorneys-in-fact and agents with full power of substitution, for him and his name, in any and all capacities, to sign any or all amendments to this report, and to file the same with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant in the capacities and on the dates indicated. s/ J.Robert Saron Chairman of the Board J. Robert Saron Chief Executive Officer, Director April 14, 1998 S/Andrew Makrides President, Director Andrew Makrides April 14, 1998 S/Joseph F. Valenti Director Joseph F. Valenti April 14, 1998 S/George W. Kromer Director George W. Kromer April 14, 1998 S/Delton N. Cunningham Secretary, Treasurer Delton N. Cunningham Principal Accounting Officer April 14, 1998 PART II ITEM 7. FINANCIAL STATEMENT AN-CON GENETICS, INC. INDEX TO FINANCIAL STATEMENTS Contents Consolidated Balance Sheet at December 31, 1997 Consolidated Statements of Operations for the years ended December 31, 1997 and 1996 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1997 and 1996 Consolidated Statements of Cash Flows for the years ended December 31, 1997 and 1996 Notes to Consolidated Financial Statements Consent of Certified Public Accountant Independent Auditors' Report 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 $3,837,601 The accompanying notes are an integral part of the financial statements. AN-CON GENETICS, INC. CONSOLIDATED BALANCE SHEET DECEMBER 31, 1997 (Continued) LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Current liabilities: Accounts payable$ 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 debt74,107 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 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. AN-CON GENETICS, INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997 Common Warrantsnumber of Common 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 issued in exchange for Aaron shareholders at $.39 per share -- 3,352,530 50,288 1,306,812 Stock issue costs -- -- -- ( 174,800) Shares issued for services at $.40 per share -- 25,000 375 9,625 Collection of stock subscriptions receivable -- -- -- -- Employee warrants 921,000 -- -- -- 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) AN-CON GENETICS, INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997 (Continued) Common Warrants number of Common Paid in Outstanding Shares 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) 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) 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. 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 credit485,000 -- 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. 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 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. 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) New Accounting Standards(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 & Fixtures 229,189 Leasehold Improvements 230,109 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. In response to the recession 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. AN-CON GENETICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 endulated Periodat costs itionsof PeriodAmortiz- ation ECU Aaron 1200 $ 93,000 $ 1,372 $ -- $ 94,372 $ -- Multifunction Cautery 59,400 -- -- 59,400 32,637 Patent rights (Cauteries) 71,500 -- -- 71,50071,213 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. Balance Beginning and Accumulated End of PeriodAmortization Goodwill (Purchase Aaron) $152,500 $132,000 Goodwill (Purchase Suncoast Covenant not to compete) 15,500 6,800 (Purchase Suncoast) 20,000 9,200 $ 188,000 $148,000 AN-CON GENETICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8. INTANGIBLE ASSETS (CONTINUED) 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 loan108,064 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. 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. AN-CON GENETICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9. LONG-TERM DEBT 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. 9% Note Payable 9% - Note payable to insurance premium to finance the Company at $5,661.00 per month for 2 months. AN-CON GENETICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9. LONG-TERM DEBT(Continued) 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) NOTE 11. OPTIONS As of December 31, 1997, outstanding options were as follows: AN-CON GENETICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11. OPTIONS(Continued) Number of Options Exercise Currently ExercisablePrice 677,000 $ 0.750 up to $1.15 387,000 $ 1.125 1,064,000 $ 0.8064 weighted In 1996 the Company issued 921,000 10year 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-forwards2,460,115 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 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 764,000267,000 1986 2001 301,000105,000 1987 2002 730,000255,000 1988 2003 757,000265,000 1989 2004 374,000131,000 1990 2005 382,000134,000 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 taxable AN-CON GENETICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 12. NET OPERATING LOSS CARRYFORWARDS (CONTINUED) 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 tax6,262 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. 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. AN-CON GENETICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15. PROPERTIES (CONTINUED) 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. 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. AN-CON GENETICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 $1.125, in 1997, 1996. The Company has adopted the disclosure-only provision of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation." Accordingly, no compensation cost has been recognized for the common stock option plans. Had the compensation cost for the Company's two stock option issuances been determined based on the fair value at the grant date for awards in 1996 consistent with the provisions of SFAS No.123, AN-CON GENETICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 16. COMMITMENTS AND CONTINGENCIES(Continued) the Company's net earnings and earnings per share would have been reduced to the pro forma amounts indicated below: 1997 1996 Net earnings-as reported$ 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 the 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 that the execution of the above-mentioned judgements be held in abeyance for a 60-day period, until August 30, 1993. AN-CON GENETICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 16. COMMITMENTS AND CONTINGENCIES (CONTINUED) 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. 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. 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 $415,543 7,663,872 $.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 $415,5437,817,205 $ .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, Bend-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 $.6 million of non-medical sales which is 65% of that segments sales. The Company's ten largest customers accounted for approximately 51% of net revenues for 1997. At December 31, 1997, the same ten customers accounted for approximately 47% of outstanding accounts receivable. Summary information by geographic area and significant industry segment for years ended December 31,1997 and 1996 were as follows: AN-CON GENETICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Operating Identifiable Sales Income Assets 1997 - (in thousands) Geographic Area United States$ 5,602 $ 259$ 3,731 Europe 1,769 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 NOTE 19. INDUSTRY SEGMENT REPORTING 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. AN-CON GENETICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 19. INDUSTRY SEGMENT REPORTING 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. EX-27 2
5 YEAR DEC-31-1997 DEC-31-1997 48,246 0 791,825 0 953,125 2,093,399 2,575,705 1,136,205 3,837,601 1,538,796 20,000 0 0 124,071 2,100,627 3,837,601 7,371,281 7,371,281 4,138,774 4,138,774 3,154,513 0 87,696 28,591 8,577 28,591 0 0 0 28,591 0 0
EX-99 3 EMPLOYMENT AGREEMENT THIS AGREEMENT, effective as of the 1st day of January, 1998, by and between An-Con Genetics, Inc. a corporation, organized and existing under the laws of the State of Delaware, and Aaron Medical Industries, Inc. organized and existing under the laws of the State of Florida or any successor entity thereof (hereinafter referred to as ("the Company"), and J. Robert Saron (hereinafter referred to as "the Employee"). WITNESSETH: WHEREAS, the Company is a corporation existing and authorized to do business in the State of Delaware (An-Con); and Florida (Aaron) and WHEREAS, the Company is desirous of securing Employee's services and Employee is willing to provide such services. NOW, THEREFORE, for and in consideration of the mutual covenants contained herein, the parties hereto agree as follows: 1) EMPLOYMENT OF EMPLOYEE: The Company hereby agrees to employ the Employee, and the Employee hereby agrees to accept said employment pursuant to the terms and conditions of this Agreement. 2) DUTIES: The Employee shall render, as an employee, professional services as President and shall perform such additional duties as may be assigned to the Employee by the Board of Directors of the Company. The Employee agrees to devote all of his time and efforts to the performance of his duties, except for customary vacations and reasonable absences due to illness or other incapacity as set forth herein, and to perform all of his duties to the best of his professional ability and comply with such reasonable policies, standards, and regulations of the Company as are from time to time established by the Board of Directors of the Company. Nothing contained herein shall be construed so as to prohibit or prevent the Employee from engaging in any business activity as long as such activities do not conflict or interfere with the adequate performance of his duties hereunder. 3) TERM : The initial term of employment under this Agreement shall be effective as of the 1st day of January, 1998, and shall continue until December 31, 2002 or until terminated as hereinafter provided. After December 31, 2002 the term of this Agreement shall be automatically extended for continuous terms of one year each unless the Employer provides the Employee with written notice of termination by March 31st of the year the Employer plans to terminate. Employment Agreement J. ROBERT SARON January 1, 1998 PAGE 2 4) PLACE OF EMPLOYMENT : It is understood that the employee will permanently reside and work in the Tampa Bay, Florida area. 5) COMPENSATION : For all services rendered to the Company, the Employee agrees to accept as total compensation a sum computed as set forth in this section. a. During the employment of the Employee, the Employee shall receive the sum equal to ONE HUNDRED THIRTY SIX THOUSAND ONE HUNDRED TWENTY TWO DOLLARS AND 68/100 ($136,122.68) per year, payable in equal weekly installments. b. During the term of employment, Employee shall receive an automobile allowance in the amount of FIVE HUNDRED TWENTY FIVE AND 81/100 DOLLARS ($525.81) per month, payable in equal weekly installments.. c. Bonuses: Shall be determined from time to time by the Board of Directors at its discretion. d. During the term of employment, the Employee shall receive an Annual Raise in the amount of 7.5% on June 1 of every year, subject to review and adjustment by the Board of Directors. 6) VACATION/SICK: The Company agrees that the Employee shall be entitled to a vacation, with full pay, of three (3) weeks (fifteen working days), during each year of Employee's employment. The scheduling of any vacation shall be coordinated with the Company so that the staffing needs of the Company are met to the extent reasonably possible. The Employee may be entitled to such further paid vacation as is approved in writing by the Board of Directors of the Company. Any accrued vacation not taken by the Employee during a year shall be available for use in subsequent years. The employee may elect to receive cash payment for one weeks vacation every calendar year. The employee shall be granted sick time in accordance with the policy outlined in the company's policy manual. 7) REIMBURSEMENT OF BUSINESS EXPENSES : The Company agrees to pay, either directly, or indirectly by payment to the Employee, for all of the Employee's approved entertainment, travel and miscellaneous business expenses incurred by him during the course of his employment. Employee shall be entitled, on each business related travel to Coach Airline tickets on Domestic Travel and Business Class Airline tickets on International Travel and a full size rental automobile. Employment Agreement J. Robert Saron January 1, 1998 Page 3 As a prerequisite to any payment or reimbursement by the Company for business expenses, the Employee shall submit receipts of all such expenses to the Company; and the Company's obligation to effect payment or reimbursement of such expenses shall be only to the extent of such receipts. 8) ADDITIONAL BENEFITS : The Company shall obtain and pay for group medical and dental insurance for the Employee and his dependents under such group insurance program and plan that the Board of Directors of the Company deems appropriate. The Company shall obtain and pay for group term life insurance in the amount of $50,000.00 for the Employee under such group insurance program and plan that the Board of Directors of the Company deems appropriate. The Company shall further provide a disability plan upon such terms and conditions that are, at a minimum, equal to or better than those maintained by the Company as of the date of this agreement. 9) PROPERTY DEFINED : The Employee understands and agrees that all Company files, customer files, legal files, legal research files, form files, forms, examples, samples, and all briefs and memoranda, and other work product are the sole and exclusive property of the Company; and the same shall remain in the possession of the Company and shall constitute the property of the Company irrespective of who prepared the same. The Employee shall not remove, photocopy, photograph or in any other manner duplicate or remove said property of the Company. 10) DISPOSITION OF PROPERTY UPON TERMINATION OF EMPLOYMENT : In the event the employment of the Employee with the Company is terminated, the Employee agrees and understands that all files and all customers of the Company are the sole and exclusive property of the Company, and the Employee shall have no right, title or interest in the same. 11) TERMINATION OF EMPLOYMENT : The employment of the Employee may be terminated as follows: a) By the death of the Employee and the Employee's estate shall be paid the basic annual compensation due the Employee pro-rated through the date of termination. b) By the Employee at any time upon at least thirty (30) days prior written notice to the Company; and the Company shall be obligated to pay the Employee the basic annual compensation due him pro-rated to the effective date of termination. Employment Agreement J. Robert Saron January 1, 1998 Page 4 c) By the Company, without cause, with the majority approval of the Board of Directors of the Company at any time upon at least thirty (30) days prior written notice to the Employee: and the Company shall be obligated to pay the Employee compensation currently in effect including all bonuses, accrued or prorata, and expenses up to the date of termination. During any subsequent years remaining on the contract, the Employee shall be paid the salary in effect at the time of termination payable weekly. Employee shall not have to account for other compensation from other sources or otherwise mitigate his damages due to termination pursuant to this subparagraph. d) If the Company terminates this agreement, without cause, or fails to meet its obligations to the employee on a timely basis, of if there is a change in the control of the Company, the Employee may elect to terminate his employment agreement. Upon any such termination or breach of any of the Company's obligations hereunder, the Company shall pay the Employee a lump severance equal to three times the annual salary and bonus in effect the month preceding such termination or breach as well as any other sums which may be due under the terms hereof up to the date of termination. e) By the Company, if during the term of this Employment Agreement the Employee violates the provisions of Paragraph 12 hereof, or is found guilty in a court of law of any crime of moral turpitude. f) Employee agrees that the precise value of the covenants in this Section 11 are so difficult to evaluate that no accurate measure of liquidated damages could possibly be established and that, in the event of a breach or threatened temporary and permanent injunctive relief restraining Employee from such breach or threatened breach. In the event that any covenants made in this Section shall be more restrictive than permitted by applicable law, it shall be limited to the extent which is so permitted. 12) NON-COMPETITION AND PRESERVATION OF NON-TRADE SECRET PROTECTIVE BUSINESS INTERESTS: Upon the termination of Employee's employment relationship with Employer and for twelve (12) months thereafter, irrespective of the time, manner, or method of such termination, the Employee shall not, without the express written consent of the Employer, directly or indirectly, consult with, render services to, or otherwise participate or attempt to participate in any manner in a business which competes with the Employer within the geographic areas where the Employer and/or the Employee conducted business during the twenty-four Employment Agreement J. Robert Saron January 1, 1998 Page 5 (24) month period directly preceding his/her termination of employment with the Employer, and/or: a) Shall not use or disclose any Confidential Information to any person or entity without the written authorization of the Employer. Confidential Information includes, but is not limited to, information concerning Employer's customers; pricing information and methods; training and operational procedures; advertising, marketing, and sales information; financial information; and other data, concepts, strategies, methods, procedures or other confidential information that is not a Trade Secret as defined by Florida Statute Section 688.002; b) Shall not solicit, directly or indirectly, any existing or potential client or customer with whom the Employer has or may have a substantial relationship. A potential client or customer is defined as any person or entity that the Employer or Employee actively solicited during the twenty-four (24) month period directly preceding the Employee's termination of employment with the Employer; c) Shall not hire, recruit or attempt to recruit any person employed by the Employer at the time of the Employee's termination of employment with the Employer for any person or business entity which competes or plans to compete with the Employer. d) Shall not adversely affect the Employer's customer goodwill associated with (1) an ongoing business by way of trade name, trademark, service mark, trade dress and the like; (2) a specific geographic location; or (3) a specific marketing or trade area; and/or e) Shall not use extraordinary or specialized training received from the Employer. f) This Non-Competition and Protection of Non-Trade Secret Protectible Business Interest provision is expressly intended to benefit the Employer, its successors and assigns (the Third Party Beneficiaries) and the Employer and the Third Party Beneficiaries are expressly authorized to enforce this provision. 13) PRESERVATION OF TRADE SECRETS: Upon the termination of the Employee's employment relationship with the Employer the Employee shall not, directly or indirectly, use or disclose any trade secret, as that term is defined by Florida Statute Section 688.002, of the Employer or allow any such trade secret to be disclosed to or used by any person or entity, for any reason or purpose whatsoever. Employment Agreement J. Robert Saron January 1, 1998 Page 6 In addition, the Employee will not accept any employment or other business relationship which would, by the nature of the position, involve the inevitable disclosure of any trade secret. This Non-Disclosure of Trade Secrets provision is expressly intended to benefit the Employer and the Third Party Beneficiaries and the Employer and the Third Party Beneficiaries are expressly authorized to enforce this provision. 14) INDEMNIFICATION : The employee shall be indemnified from liability in connection with his acting as an officer and or director of both Aaron and An-Con including but not limited to indemnification for legal expenses and out-of-pocket disbursements in connection with defense of any claim or lawsuit against him based upon acts or omissions by him during the period that he was an officer and director of the corporation. However, the foregoing indemnification as to certain acts shall not apply in the event it is determined by a court of competent jurisdiction that the employee, during his tenure as an officer and director had a) breached his duty of loyalty to the corporation or the stockholders; b) acted not in good faith or had intentionally conducted himself improperly and had violated the law; c) paid unlawful dividends or made unlawful stock repurchases or redemptions; d) engaged in a transaction in which he had received an improper personal benefit against the interests of the corporation or its shareholders. 15) NOTICES: Any notice required or permitted to be given pursuant to the provisions of this hall be sufficient if in writing, and if personally delivered to the party to be notified or if sent by registered or certified mail to said party at the following addresses: If to the Company: An-Con Genetics, Inc./Aaron Medical Industries, Inc. 7100 - 30th Avenue North St. Petersburg, FL 33710 If to the Employee: J. Robert Saron 9807 Ashley Drive Seminole, FL 34642 16) UNREASONABLE COMPENSATION : It is agreed that in the event all or any part of the compensation paid to the employee shall be disallowed by the Internal Revenue Service as a deduction by the Company under section 162 of the Internal Revenue Code of 1986, as Employment Agreement J. Robert Saron January 1, 1998 Page 7 amended, (or shall be disallowed as a deduction for state or local income tax purposes) and such disallowance becomes final, the Federal, state or local income tax deficiency and interest or other tax "costs" to the Company, as the case may be, attributable to said disallowance shall be determined and shall be a debt payable on demand by the Employee to the Company which the Company may recover as a setoff against future compensation. 17) BYLAWS; MISCELLANEOUS : This Agreement is made subject to and with reference to the Bylaws of the Company, which are incorporated herein by reference and which the Employee accepts as binding upon him. 18) SEVERABILITY : In the event any portion of this Agreement is held to be invalid or unenforceable, the invalid or unenforceable portion or provision shall not affect any other provision hereof and this Agreement shall be construed and enforced as if the invalid provision had not been included. 19) BINDING EFFECT : This Agreement shall inure to the benefit of and shall be binding upon the Company and upon any person, firm or corporation with which the Company may be merged or consolidated or which may acquire all or substantially all of the Company's assets through sale, lease, liquidation or otherwise. The rights and benefits of Employee are personal to him and no such rights or benefits shall be subject to assignment or transfer by Employee. 20) GOVERNING LAW : This Agreement shall be construed and interpreted in accordance with the laws of the State of Florida. 21) ENTIRE AGREEMENT : This Agreement constitutes the entire agreement between the parties and supersedes and replaces any prior agreement; and there are no other agreements between the parties except as set forth herein. 22) AMENDMENT AND MODIFICATION : All terms, conditions and provisions of this Agreement shall remain in full force and effect unless modified, changed, altered or amended, in writing, executed by both parties. Employment Agreement J. Robert Saron January 1, 1998 Page 8 IN WITNESS WHEREOF, the parties hereto have set their hands and seals effective on the day and year first above written. An-Con Genetics, Inc. _________________________ J. Robert Saron, Employee _________________________ J. Robert Saron, Chief Executive Officer ________________________ Andrew Makrides, President Signed Sealed and delivered in the presence of: _________________________ Witness _________________________ Witness EMPLOYMENT AGREEMENT THIS AGREEMENT, effective as of the 1st day of January, 1998, by and between An-Con Genetics, Inc. a corporation, organized and existing under the laws of the State of Delaware, and Aaron Medical Industries, Inc. organized and existing under the laws of the State of Florida or any successor entity thereof (hereinafter referred to as ("the Company"), and Joel Moore (hereinafter referred to as "the Employee"). WITNESSETH: WHEREAS, the Company is a corporation existing and authorized to do business in the State of Delaware (An-Con); and Florida (Aaron) and WHEREAS, the Company is desirous of securing Employee's services and Employee is willing to provide such services. NOW, THEREFORE, for and in consideration of the mutual covenants contained herein, the parties hereto agree as follows: 1) EMPLOYMENT OF EMPLOYEE: The Company hereby agrees to employ the Employee, and the Employee hereby agrees to accept said employment pursuant to the terms and conditions of this Agreement. 2) DUTIES: The Employee shall render, as an employee, professional services as Vice President-U.S. Sales and shall perform such additional duties as may be assigned to the Employee by the Board of Directors of the Company. The Employee agrees to devote all of his time and efforts to the performance of his duties, except for customary vacations and reasonable absences due to illness or other incapacity as set forth herein, and to perform all of his duties to the best of his professional ability and comply with such reasonable policies, standards, and regulations of the Company as are from time to time established by the Board of Directors of the Company. Nothing contained herein shall be construed so as to prohibit or prevent the Employee from engaging in any business activity as long as such activities do not conflict or interfere with the adequate performance of his duties hereunder. 3) TERM : The initial term of employment under this Agreement shall be effective as of the 1st day of January, 1998, and shall continue until December 31, 1999 or until terminated as hereinafter provided. After December 31, 1999 the term of this Agreement shall be automatically extended for continuous terms of one year each unless the Employer provides the Employee with written notice of termination by March 31st of the year the Employer plans to terminate. Employment Agreement Joel Moore January 1, 1998 Page 2 4) PLACE OF EMPLOYMENT : It is understood that the employee will permanently reside and work in the Tampa Bay, Florida area. 5) COMPENSATION : For all services rendered to the Company, the Employee agrees to accept as total compensation a sum computed as set forth in this section. a. During the employment of the Employee, the Employee shall receive the sum equal to SIXTY THREE THOUSAND NINETY EIGHT DOLLARS AND 36 /100 ($63,098.36) per year, payable in equal weekly installments. b. Bonuses: Shall be determined from time to time by the Board of Directors at its discretion. c. During the term of employment, the Employee shall receive an Annual Raise on June 1 of every year, as determined by the Board of Directors. 6) VACATION/SICK: The Company agrees that the Employee shall be entitled to a vacation, with full pay, of two (2) weeks (ten working days), during each year of Employee's employment. The scheduling of any vacation shall be coordinated with the Company so that the staffing needs of the Company are met to the extent reasonably possible. The Employee may be entitled to such further paid vacation as is approved in writing by the Board of Directors of the Company. Any accrued vacation not taken by the Employee during a year shall be available for use in subsequent years. The employee may elect to receive cash payment for one weeks vacation every calendar year. The employee shall be granted sick time in accordance with the policy outlined in the company's policy manual. 7) REIMBURSEMENT OF BUSINESS EXPENSES : The Company agrees to pay, either directly, or indirectly by payment to the Employee, for all of the Employee's approved entertainment, travel and miscellaneous business expenses incurred by him during the course of his employment. Employee shall be entitled, on each business related travel to Coach Airline tickets on Domestic Travel and Business Class Airline tickets on International Travel and a full size rental automobile. As a prerequisite to any payment or reimbursement by the Company for business expenses, the Employee shall submit receipts of all such expenses to the Company; and the Company's obligation to effect payment or reimbursement of such expenses shall be only to the extent of such receipts. Employment Agreement Joel Moore January 1, 1998 Page 3 8) ADDITIONAL BENEFITS : The Company shall obtain and pay for group medical and dental insurance for the Employee and his dependents under such group insurance program and plan that the Board of Directors of the Company deems appropriate. The Company shall obtain and pay for group term life insurance in the amount of $50,000.00 for the Employee under such group insurance program and plan that the Board of Directors of the Company deems appropriate. The Company shall further provide a disability plan upon such terms and conditions that are, at a minimum, equal to or better than those maintained by the Company as of the date of this agreement. 9) PROPERTY DEFINED : The Employee understands and agrees that all Company files, customer files, legal files, legal research files, form files, forms, examples, samples, and all briefs and memoranda, and other work product are the sole and exclusive property of the Company; and the same shall remain in the possession of the Company and shall constitute the property of the Company irrespective of who prepared the same. The Employee shall not remove, photocopy, photograph or in any other manner duplicate or remove said property of the Company. 10) DISPOSITION OF PROPERTY UPON TERMINATION OF EMPLOYMENT : In the event the employment of the Employee with the Company is terminated, the Employee agrees and understands that all files and all customers of the Company are the sole and exclusive property of the Company, and the Employee shall have no right, title or interest in the same. 11) TERMINATION OF EMPLOYMENT : The employment of the Employee may be terminated as follows: a) By the death of the Employee and the Employee's estate shall be paid the basic annual compensation due the Employee pro-rated through the date of termination. b) By the Employee at any time upon at least thirty (30) days prior written notice to the Company; and the Company shall be obligated to pay the Employee the basic annual compensation due him pro-rated to the effective date of termination. c) By the Company, without cause, with the majority approval of the Board of Directors of the Company at any time upon at least thirty (30) days prior written notice to the Employee: and the Company shall be Employment Agreement Joel Moore January 1, 1998 Page 4 obligated to pay the Employee compensation currently in effect including all bonuses, accrued or prorata, and expenses up to the date of termination. During any subsequent years remaining on the contract, the Employee shall be paid the salary in effect at the time of termination payable weekly. Employee shall not have to account for other compensation from other sources or otherwise mitigate his damages due to termination pursuant to this subparagraph. d) If the Company terminates this agreement, without cause, or fails to meet its obligations to the employee on a timely basis, of if there is a change in the control of the Company, the Employee may elect to terminate his employment agreement. Upon any such termination or breach of any of the Company's obligations hereunder, the Company shall pay the Employee a lump severance equal to three times the annual salary and bonus in effect the month preceding such termination or breach as well as any other sums which may be due under the terms hereof up to the date of termination. e) By the Company, if during the term of this Employment Agreement the Employee violates the provisions of Paragraph 12 hereof, or is found guilty in a court of law of any crime of moral turpitude. f) Employee agrees that the precise value of the covenants in this Section 11 are so difficult to evaluate that no accurate measure of liquidated damages could possibly be established and that, in the event of a breach or threatened temporary and permanent injunctive relief restraining Employee from such breach or threatened breach. In the event that any covenants made in this Section shall be more restrictive than permitted by applicable law, it shall be limited to the extent which is so permitted. 12) NON-COMPETITION AND PRESERVATION OF NON-TRADE SECRET PROTECTIVE BUSINESS INTERESTS: Upon the termination of Employee's employment relationship with Employer and for twelve (12) months thereafter, irrespective of the time, manner, or method of such termination, the Employee shall not, without the express written consent of the Employer, directly or indirectly, consult with, render services to, or otherwise participate or attempt to participate in any manner in a business which competes with the Employer within the geographic areas where the Employer and/or the Employee conducted business during the twenty-four Employment Agreement Joel Moore January 1, 1998 Page 5 (24) month period directly preceding his/her termination of employment with the Employer, and/or: a) Shall not use or disclose any Confidential Information to any person or entity without the written authorization of the Employer. Confidential Information includes, but is not limited to, information concerning Employer's customers; pricing information and methods; training and operational procedures; advertising, marketing, and sales information; financial information; and other data, concepts, strategies, methods, procedures or other confidential information that is not a Trade Secret as defined by Florida Statute Section 688.002; b) Shall not solicit, directly or indirectly, any existing or potential client or customer with whom the Employer has or may have a substantial relationship. A potential client or customer is defined as any person or entity that the Employer or Employee actively solicited during the twenty-four (24) month period directly preceding the Employee's termination of employment with the Employer; c) Shall not hire, recruit or attempt to recruit any person employed by the Employer at the time of the Employee's termination of employment with the Employer for any person or business entity which competes or plans to compete with the Employer. d) Shall not adversely affect the Employer's customer goodwill associated with (1) an ongoing business by way of trade name, trademark, service mark, trade dress and the like; (2) a specific geographic location; or (3) a specific marketing or trade area; and/or e) Shall not use extraordinary or specialized training received from the Employer. f) This Non-Competition and Protection of Non-Trade Secret Protectible Business Interest provision is expressly intended to benefit the Employer, its successors and assigns (the Third Party Beneficiaries) and the Employer and the Third Party Beneficiaries are expressly authorized to enforce this provision. 13) PRESERVATION OF TRADE SECRETS: Upon the termination of the Employee's employment relationship with the Employer the Employee shall not, directly or indirectly, use or disclose any trade secret, as that term is defined by Florida Statute Section 688.002, of the Employer or allow any such trade secret to be disclosed to or used by any person or entity, for any reason or purpose whatsoever. In addition, the Employment Agreement Joel Moore January 1, 1998 Page 6 Employee will not accept any employment or other business relationship which would, by the nature of the position, involve the inevitable disclosure of any trade secret. This Non-Disclosure of Trade Secrets provision is expressly intended to benefit the Employer and the Third Party Beneficiaries and the Employer and the Third Party Beneficiaries are expressly authorized to enforce this provision. 14) INDEMNIFICATION : The employee shall be indemnified from liability in connection with his acting as an officer and or director of both Aaron and An-Con including but not limited to indemnification for legal expenses and out-of-pocket disbursements in connection with defense of any claim or lawsuit against him based upon acts or omissions by him during the period that he was an officer and director of the corporation. However, the foregoing indemnification as to certain acts shall not apply in the event it is determined by a court of competent jurisdiction that the employee, during his tenure as an officer and director had a) breached his duty of loyalty to the corporation or the stockholders; b) acted not in good faith or had intentionally conducted himself improperly and had violated the law; c) paid unlawful dividends or made unlawful stock repurchases or redemptions; d) engaged in a transaction in which he had received an improper personal benefit against the interests of the corporation or its shareholders. 15) NOTICES: Any notice required or permitted to be given pursuant to the provisions of this hall be sufficient if in writing, and if personally delivered to the party to be notified or if sent by registered or certified mail to said party at the following addresses: If to the Company: An-Con Genetics, Inc./Aaron Medical Industries, Inc. 7100 - 30th Avenue North St. Petersburg, FL 33710 If to the Employee: Joel Moore 14445 87th Avenue N. Seminole, FL 33776 Employment Agreement Joel Moore January 1, 1998 Page 7 16) UNREASONABLE COMPENSATION : It is agreed that in the event all or any part of the compensation paid to the employee shall be disallowed by the Internal Revenue Service as a deduction by the Company under section 162 of the Internal Revenue Code of 1986, as amended, (or shall be disallowed as a deduction for state or local income tax purposes) and such disallowance becomes final, the Federal, state or local income tax deficiency and interest or other tax "costs" to the Company, as the case may be, attributable to said disallowance shall be determined and shall be a debt payable on demand by the Employee to the Company which the Company may recover as a setoff against future compensation. 17) BYLAWS; MISCELLANEOUS : This Agreement is made subject to and with reference to the Bylaws of the Company, which are incorporated herein by reference and which the Employee accepts as binding upon him. 18) SEVERABILITY : In the event any portion of this Agreement is held to be invalid or unenforceable, the invalid or unenforceable portion or provision shall not affect any other provision hereof and this Agreement shall be construed and enforced as if the invalid provision had not been included. 19) BINDING EFFECT : This Agreement shall inure to the benefit of and shall be binding upon the Company and upon any person, firm or corporation with which the Company may be merged or consolidated or which may acquire all or substantially all of the Company's assets through sale, lease, liquidation or otherwise. The rights and benefits of Employee are personal to him and no such rights or benefits shall be subject to assignment or transfer by Employee. 20) GOVERNING LAW : This Agreement shall be construed and interpreted in accordance with the laws of the State of Florida. 21) ENTIRE AGREEMENT : This Agreement constitutes the entire agreement between the parties and supersedes and replaces any prior agreement; and there are no other agreements between the parties except as set forth herein. 22) AMENDMENT AND MODIFICATION : All terms, conditions and provisions of this Agreement shall remain in full force and effect unless modified, changed, altered or amended, in writing, executed by both parties. Employment Agreement Joel Moore January 1, 1998 Page 8 IN WITNESS WHEREOF, the parties hereto have set their hands and seals effective on the day and year first above written. An-Con Genetics, Inc. _____________________ Joel Moore, Employee ________________________ J. Robert Saron, Chief Executive Officer ________________________ Andrew Makrides,President Signed Sealed and delivered in the presence of: _________________________ Witness _________________________ Witness EMPLOYMENT AGREEMENT THIS AGREEMENT, effective as of the 1st day of January, 1998, by and between An-Con Genetics, Inc. a corporation, organized and existing under the laws of the State of Delaware, and Aaron Medical Industries, Inc. organized and existing under the laws of the State of Florida or any successor entity thereof (hereinafter referred to as ("the Company"), and Richard Kozloff (hereinafter referred to as "the Employee"). WITNESSETH: WHEREAS, the Company is a corporation existing and authorized to do business in the State of Delaware (An-Con); and Florida (Aaron) and WHEREAS, the Company is desirous of securing Employee's services and Employee is willing to provide such services. NOW, THEREFORE, for and in consideration of the mutual covenants contained herein, the parties hereto agree as follows: 1) EMPLOYMENT OF EMPLOYEE: The Company hereby agrees to employ the Employee, and the Employee hereby agrees to accept said employment pursuant to the terms and conditions of this Agreement. 2) DUTIES: The Employee shall render, as an employee, professional services as Vice President-Regulatory Affairs and Quality Assurance and shall perform such additional duties as may be assigned to the Employee by the Board of Directors of the Company. The Employee agrees to devote all of his time and efforts to the performance of his duties, except for customary vacations and reasonable absences due to illness or other incapacity as set forth herein, and to perform all of his duties to the best of his professional ability and comply with such reasonable policies, standards, and regulations of the Company as are from time to time established by the Board of Directors of the Company. Nothing contained herein shall be construed so as to prohibit or prevent the Employee from engaging in any business activity as long as such activities do not conflict or interfere with the adequate performance of his duties hereunder. 3) TERM : The initial term of employment under this Agreement shall be effective as of the 1st day of January, 1998, and shall continue until December 31, 1999 or until terminated as hereinafter provided. Employment Agreement Richard Kozloff January 1, 1998 Page 2 After December 31, 1999 the term of this Agreement shall be automatically extended for continuous terms of one year each unless the Employer provides the Employee with written notice of termination by March 31st of the year the Employer plans to terminate. 4) PLACE OF EMPLOYMENT : It is understood that the employee will permanently reside and work in the Tampa Bay, Florida area. 5) COMPENSATION : For all services rendered to the Company, the Employee agrees to accept as total compensation a sum computed as set forth in this section. a. During the employment of the Employee, the Employee shall receive the sum equal to SEVENTY FIVE THOUSAND DOLLARS AND 12 /100 ($75,000.12) per year, payable in equal weekly installments. b. Bonuses: Shall be determined from time to time by the Board of Directors at its discretion. c. During the term of employment, the Employee shall receive an Annual Raise on June 1 of every year, as determined by the Board of Directors. 6) VACATION/SICK: The Company agrees that the Employee shall be entitled to a vacation, with full pay, of two (2) weeks (ten working days), during each year of Employee's employment. The scheduling of any vacation shall be coordinated with the Company so that the staffing needs of the Company are met to the extent reasonably possible. The Employee may be entitled to such further paid vacation as is approved in writing by the Board of Directors of the Company. Any accrued vacation not taken by the Employee during a year shall be available for use in subsequent years. The employee may elect to receive cash payment for one weeks vacation every calendar year. The employee shall be granted sick time in accordance with the policy outlined in the company's policy manual. 7) REIMBURSEMENT OF BUSINESS EXPENSES : The Company agrees to pay, either directly, or indirectly by payment to the Employee, for all of the Employee's approved entertainment, travel and miscellaneous business expenses incurred by him during the course of his employment. Employee shall be entitled, on each business related travel to Coach Airline tickets on Domestic Travel and Business Class Airline tickets on International Travel and a full size rental automobile. As a prerequisite to any payment or reimbursement by the Company for business expenses, Employment Agreement Richard Kozloff January 1, 1998 Page 3 the Employee shall submit receipts of all such expenses to the Company; and the Company's obligation to effect payment or reimbursement of such expenses shall be only to the extent of such receipts. 8) ADDITIONAL BENEFITS : The Company shall obtain and pay for group medical and dental insurance for the Employee and his dependents under such group insurance program and plan that the Board of Directors of the Company deems appropriate. The Company shall obtain and pay for group term life insurance in the amount of $50,000.00 for the Employee under such group insurance program and plan that the Board of Directors of the Company deems appropriate. The Company shall further provide a disability plan upon such terms and conditions that are, at a minimum, equal to or better than those maintained by the Company as of the date of this agreement. 9) PROPERTY DEFINED : The Employee understands and agrees that all Company files, customer files, legal files, legal research files, form files, forms, examples, samples, and all briefs and memoranda, and other work product are the sole and exclusive property of the Company; and the same shall remain in the possession of the Company and shall constitute the property of the Company irrespective of who prepared the same. The Employee shall not remove, photocopy, photograph or in any other manner duplicate or remove said property of the Company. 10) DISPOSITION OF PROPERTY UPON TERMINATION OF EMPLOYMENT : In the event the employment of the Employee with the Company is terminated, the Employee agrees and understands that all files and all customers of the Company are the sole and exclusive property of the Company, and the Employee shall have no right, title or interest in the same. 11) TERMINATION OF EMPLOYMENT : The employment of the Employee may be terminated as follows: a) By the death of the Employee and the Employee's estate shall be paid the basic annual compensation due the Employee pro-rated through the date of termination. b) By the Employee at any time upon at least thirty (30) days prior written notice to the Company; and the Company shall be obligated to pay the Employee the basic annual compensation due him pro-rated to the effective date of termination. Employment Agreement Richard Kozloff January 1, 1998 Page 4 c) By the Company, without cause, with the majority approval of the Board of Directors of the Company at any time upon at least thirty (30) days prior written notice to the Employee: and the Company shall be obligated to pay the Employee compensation currently in effect including all bonuses, accrued or prorata, and expenses up to the date of termination. During any subsequent years remaining on the contract, the Employee shall be paid the salary in effect at the time of termination payable weekly. Employee shall not have to account for other compensation from other sources or otherwise mitigate his damages due to termination pursuant to this subparagraph. d) If the Company terminates this agreement, without cause, or fails to meet its obligations to the employee on a timely basis, or if there is a change in the control of the Company, the Employee may elect to terminate his employment agreement. Upon any such termination or breach of any of the Company's obligations hereunder, the Company shall pay the Employee a lump severance equal to three times the annual salary and bonus in effect the month preceding such termination or breach as well as any other sums which may be due under the terms hereof up to the date of termination. e) By the Company, if during the term of this Employment Agreement the Employee violates the provisions of Paragraph 12 hereof, or is found guilty in a court of law of any crime of moral turpitude. f) Employee agrees that the precise value of the covenants in this Section 11 are so difficult to evaluate that no accurate measure of liquidated damages could possibly be established and that, in the event of a breach or threatened temporary and permanent injunctive relief restraining Employee from such breach or threatened breach. In the event that any covenants made in this Section shall be more restrictive than permitted by applicable law, it shall be limited to the extent which is so permitted. 12) NON-COMPETITION AND PRESERVATION OF NON-TRADE SECRET PROTECTIVE BUSINESS INTERESTS: Upon the termination of Employee's employment relationship with Employer and for twelve (12) months thereafter, irrespective of the time, manner, or method of such termination, the Employee shall not, without the express written consent of the Employer, directly or indirectly, consult with, render services to, or otherwise participate or attempt to participate in any manner in a business which competes with the Employer within the geographic areas where the Employer and/or the Employee conducted business during the twenty-four Employment Agreement Richard Kozloff January 1, 1998 Page 5 (24) month period directly preceding his/her termination of employment with the Employer, and/or: a) Shall not use or disclose any Confidential Information to any person or entity without the written authorization of the Employer. Confidential Information includes, but is not limited to, information concerning Employer's customers; pricing information and methods; training and operational procedures; advertising, marketing, and sales information; financial information; and other data, concepts, strategies, methods, procedures or other confidential information that is not a Trade Secret as defined by Florida Statute Section 688.002; b) Shall not solicit, directly or indirectly, any existing or potential client or customer with whom the Employer has or may have a substantial relationship. A potential client or customer is defined as any person or entity that the Employer or Employee actively solicited during the twenty-four (24) month period directly preceding the Employee's termination of employment with the Employer; c) Shall not hire, recruit or attempt to recruit any person employed by the Employer at the time of the Employee's termination of employment with the Employer for any person or business entity which competes or plans to compete with the Employer. d) Shall not adversely affect the Employer's customer goodwill associated with (1) an ongoing business by way of trade name, trademark, service mark, trade dress and the like; (2) a specific geographic location; or (3) a specific marketing or trade area; and/or e) Shall not use extraordinary or specialized training received from the Employer. f) This Non-Competition and Protection of Non-Trade Secret Protectible Business Interest provision is expressly intended to benefit the Employer, its successors and assigns (the Third Party Beneficiaries) and the Employer and the Third Party Beneficiaries are expressly authorized to enforce this provision. 13) PRESERVATION OF TRADE SECRETS: Upon the termination of the Employee's employment relationship with the Employer the Employee shall not, directly or indirectly, use or disclose any trade secret, as that term is defined by Florida Statute Section 688.002, of the Employer or allow any such trade secret to be disclosed to or used by any person or entity, for any reason or purpose whatsoever. Employment Agreement Richard Kozloff January 1, 1998 Page 6 In addition, the Employee will not accept any employment or other business relationship which would, by the nature of the position, involve the inevitable disclosure of any trade secret. This Non-Disclosure of Trade Secrets provision is expressly intended to benefit the Employer and the Third Party Beneficiaries and the Employer and the Third Party Beneficiaries are expressly authorized to enforce this provision. 14) INDEMNIFICATION : The employee shall be indemnified from liability in connection with his acting as an officer and or director of both Aaron and An-Con including but not limited to indemnification for legal expenses and out-of-pocket disbursements in connection with defense of any claim or lawsuit against him based upon acts or omissions by him during the period that he was an officer and director of the corporation. However, the foregoing indemnification as to certain acts shall not apply in the event it is determined by a court of competent jurisdiction that the employee, during his tenure as an officer and director had a) breached his duty of loyalty to the corporation or the stockholders; b) acted not in good faith or had intentionally conducted himself improperly and had violated the law; c) paid unlawful dividends or made unlawful stock repurchases or redemptions; d) engaged in a transaction in which he had received an improper personal benefit against the interests of the corporation or its shareholders. 15) NOTICES: Any notice required or permitted to be given pursuant to the provisions of this hall be sufficient if in writing, and if personally delivered to the party to be notified or if sent by registered or certified mail to said party at the following addresses: If to the Company: An-Con Genetics, Inc./Aaron Medical Industries, Inc. 7100 - 30th Avenue North St. Petersburg, FL 33710 If to the Employee: Richard Kozloff 1658 Virginia Avenue Palm Harbor, FL 34683 Employment Agreement Richard Kozloff January 1, 1998 Page 7 16) UNREASONABLE COMPENSATION : It is agreed that in the event all or any part of the compensation paid to the employee shall be disallowed by the Internal Revenue Service as a deduction by the Company under section 162 of the Internal Revenue Code of 1986, as amended, (or shall be disallowed as a deduction for state or local income tax purposes) and such disallowance becomes final, the Federal, state or local income tax deficiency and interest or other tax "costs" to the Company, as the case may be, attributable to said disallowance shall be determined and shall be a debt payable on demand by the Employee to the Company which the Company may recover as a setoff against future compensation. 17) BYLAWS; MISCELLANEOUS : This Agreement is made subject to and with reference to the Bylaws of the Company, which are incorporated herein by reference and which the Employee accepts as binding upon him. 18) SEVERABILITY : In the event any portion of this Agreement is held to be invalid or unenforceable, the invalid or unenforceable portion or provision shall not affect any other provision hereof and this Agreement shall be construed and enforced as if the invalid provision had not been included. 19) BINDING EFFECT : This Agreement shall inure to the benefit of and shall be binding upon the Company and upon any person, firm or corporation with which the Company may be merged or consolidated or which may acquire all or substantially all of the Company's assets through sale, lease, liquidation or otherwise. The rights and benefits of Employee are personal to him and no such rights or benefits shall be subject to assignment or transfer by Employee. 20) GOVERNING LAW : This Agreement shall be construed and interpreted in accordance with the laws of the State of Florida. 21) ENTIRE AGREEMENT : This Agreement constitutes the entire agreement between the parties and supersedes and replaces any prior agreement; and there are no other agreements between the parties except as set forth herein. 22) AMENDMENT AND MODIFICATION : All terms, conditions and provisions of this Agreement shall remain in full force and effect unless modified, changed, altered or amended, in writing, executed by both parties. Employment Agreement Richard Kozloff January 1, 1998 Page 8 IN WITNESS WHEREOF, the parties hereto have set their hands and seals effective on the day and year first above written. An-Con Genetics, Inc. ________________________ Richard Kozloff, Employee ________________________ J. Robert Saron, Chief Executive Officer ______________________ Andrew Makrides, President Signed Sealed and delivered in the presence of: _______________________ Witness ______________________ Witness EMLOYMENT AGREEMENT EMPLOYMENT AGGREEMENT THIS AGREEMENT, effective as of the 1st day of January, 1998, by and between An-Con Genetics, Inc. a corporation, organized and existing under the laws of the State of Delaware, and Aaron Medical Industries, Inc. organized and existing under the laws of the State of Florida or any successor entity thereof (hereinafter referred to as ("the Company"), and Andrew Makrides (hereinafter referred to as "the Employee"). WITNESSETH: WHEREAS, the Company is a corporation existing and authorized to do business in the State of Delaware (An-Con); and Florida (Aaron) and WHEREAS, the Company is desirous of securing Employee's services and Employee is willing to provide such services. NOW, THEREFORE, for and in consideration of the mutual covenants contained herein, the parties hereto agree as follows: 1) EMPLOYMENT OF EMPLOYEE: The Company hereby agrees to employ the Employee, and the Employee hereby agrees to accept said employment pursuant to the terms and conditions of this Agreement. 2) DUTIES: The Employee shall render, as an employee, professional services as President and shall perform such additional duties as may be assigned to the Employee by the Board of Directors of the Company. The Employee agrees to devote all of his time and efforts to the performance of his duties, except for customary vacations and reasonable absences due to illness or other incapacity as set forth herein, and to perform all of his duties to the best of his professional ability and comply with such reasonable policies, standards, and regulations of the Company as are from time to time established by the Board of Directors of the Company. Nothing contained herein shall be construed so as to prohibit or prevent the Employee from engaging in any business activity as long as such activities do not conflict or interfere with the adequate performance of his duties hereunder. 3) TERM : The initial term of employment under this Agreement shall be effective as of the 1st day of January, 1998, and shall continue until December 31, 2002 or until terminated as hereinafter provided. After December 31, 2002 the term of this Agreement shall be automatically extended for continuous terms of one year each unless the Employer provides the Employee with written notice of termination by March 31st of the year the Employer plans to terminate. Employment Agreement Andrew Makrides January 1, 1998 Page 2 4) PLACE OF EMPLOYMENT : It is understood that the employee will permanently reside and work in the Long Island, New York Area. 5) COMPENSATION : For all services rendered to the Company, the Employee agrees to accept as total compensation a sum computed as set forth in this section. a. During the employment of the Employee, the Employee shall receive the sum equal to NINETY TWO THOUSAND SEVEN HUNDRED AND SEVENTY THREE AND 20/100 DOLLARS ($92,773.20) per year, payable in equal weekly installments. b. During the term of employment, Employee shall receive an automobile allowance in the amount of FIVE HUNDRED TWENTY FIVE AND 81/100 DOLLARS ($525.81) per month, payable in equal weekly installments.. c. Bonuses: Shall be determined from time to time by the Board of Directors at its discretion. d. During the term of employment, the Employee shall receive an Annual Raise in the amount of 7.5% on June 1 of every year, subject to review and adjustment by the Board of Directors. 6) VACATION/SICK: The Company agrees that the Employee shall be entitled to a vacation, with full pay, of three (3) weeks (fifteen working days), during each year of Employee's employment. The scheduling of any vacation shall be coordinated with the Company so that the staffing needs of the Company are met to the extent reasonably possible. The Employee may be entitled to such further paid vacation as is approved in writing by the Board of Directors of the Company. Any accrued vacation not taken by the Employee during a year shall be available for use in subsequent years. The employee may elect to receive cash payment for one weeks vacation every calendar year. The employee shall be granted sick time in accordance with the policy outlined in the company's policy manual. 7) REIMBURSEMENT OF BUSINESS EXPENSES : The Company agrees to pay, either directly, or indirectly by payment to the Employee, for all of the Employee's approved entertainment, travel and miscellaneous business expenses incurred by him during the course of his employment. Employee shall be entitled, on each business related travel to Coach Airline tickets on Domestic Travel and Business Class Airline tickets on International Travel and a full size rental automobile. Employment Agreements Andrew Makrides January 1, 1998 Page 3 As a prerequisite to any payment or reimbursement by the Company for business expenses, the Employee shall submit receipts of all such expenses to the Company; and the Company's obligation to effect payment or reimbursement of such expenses shall be only to the extent of such receipts. 8) ADDITIONAL BENEFITS : The Company shall obtain and pay for group medical and dental insurance for the Employee and his dependents under such group insurance program and plan that the Board of Directors of the Company deems appropriate. The Company shall obtain and pay for group term life insurance in the amount of $50,000.00 for the Employee under such group insurance program and plan that the Board of Directors of the Company deems appropriate. The Company shall further provide a disability plan upon such terms and conditions that are, at a minimum, equal to or better than those maintained by the Company as of the date of this agreement. 9) PROPERTY DEFINED : The Employee understands and agrees that all Company files, customer files, legal files, legal research files, form files, forms, examples, samples, and all briefs and memoranda, and other work product are the sole and exclusive property of the Company; and the same shall remain in the possession of the Company and shall constitute the property of the Company irrespective of who prepared the same. The Employee shall not remove, photocopy, photograph or in any other manner duplicate or remove said property of the Company. 10) DISPOSITION OF PROPERTY UPON TERMINATION OF EMPLOYMENT : In the event the employment of the Employee with the Company is terminated, the Employee agrees and understands that all files and all customers of the Company are the sole and exclusive property of the Company, and the Employee shall have no right, title or interest in the same. 11) TERMINATION OF EMPLOYMENT : The employment of the Employee may be terminated as follows: a) By the death of the Employee and the Employee's estate shall be paid the basic annual compensation due the Employee pro-rated through the date of termination. b) By the Employee at any time upon at least thirty (30) days prior written notice to the Company; and the Company shall be obligated to pay the Employee the basic annual compensation due him pro-rated to the effective date of termination. Employment Agreement Andrew Makrides January 1, 1998 Page 4 c) By the Company, without cause, with the majority approval of the Board of Directors of the Company at any time upon at least thirty (30) days prior written notice to the Employee: and the Company shall be obligated to pay the Employee compensation currently in effect including all bonuses, accrued or prorata, and expenses up to the date of termination. During any subsequent years remaining on the contract, the Employee shall be paid the salary in effect at the time of termination payable weekly. Employee shall not have to account for other compensation from other sources or otherwise mitigate his damages due to termination pursuant to this subparagraph. d) If the Company terminates this agreement, without cause, or fails to meet its obligations to the employee on a timely basis, or if there is a change in the control of the Company, the Employee may elect to terminate his employment agreement. Upon any such termination or breach of any of the Company's obligations hereunder, the Company shall pay the Employee a lump severance equal to three times the annual salary and bonus in effect the month preceding such termination or breach as well as any other sums which may be due under the terms hereof up to the date of termination. e) By the Company, if during the term of this Employment Agreement the Employee violates the provisions of Paragraph 12 hereof, or is found guilty in a court of law of any crime of moral turpitude. f) Employee agrees that the precise value of the covenants in this Section 11 are so difficult to evaluate that no accurate measure of liquidated damages could possibly be established and that, in the event of a breach or threatened temporary and permanent injunctive relief restraining Employee from such breach or threatened breach. In the event that any covenants made in this Section shall be more restrictive than permitted by applicable law, it shall be limited to the extent which is so permitted. 12) NON-COMPETITION AND PRESERVATION OF NON-TRADE SECRET PROTECTIVE BUSINESS INTERESTS: Upon the termination of Employee's employment relationship with Employer and for twelve (12) months thereafter, irrespective of the time, manner, or method of such termination, the Employee shall not, without the express written consent of the Employer, directly or indirectly, consult with, render services to, or otherwise participate or attempt to participate in any manner in a business which competes with the Employer within the geographic areas where the Employer and/or the Employee conducted business during the twenty-four Employment Agreement Andrew Makrides January 1, 1998 Page 5 (24) month period directly preceding his/her termination of employment with the Employer, and/or: a) Shall not use or disclose any Confidential Information to any person or entity without the written authorization of the Employer. Confidential Information includes, but is not limited to, information concerning Employer's customers; pricing information and methods; training and operational procedures; advertising, marketing, and sales information; financial information; and other data, concepts, strategies, methods, procedures or other confidential information that is not a Trade Secret as defined by Florida Statute Section 688.002; b) Shall not solicit, directly or indirectly, any existing or potential client or customer with whom the Employer has or may have a substantial relationship. A potential client or customer is defined as any person or entity that the Employer or Employee actively solicited during the twenty-four (24) month period directly preceding the Employee's termination of employment with the Employer; c) Shall not hire, recruit or attempt to recruit any person employed by the Employer at the time of the Employee's termination of employment with the Employer for any person or business entity which competes or plans to compete with the Employer. d) Shall not adversely affect the Employer's customer goodwill associated with (1) an ongoing business by way of trade name, trademark, service mark, trade dress and the like; (2) a specific geographic location; or (3) a specific marketing or trade area; and/or e) Shall not use extraordinary or specialized training received from the Employer. f) This Non-Competition and Protection of Non-Trade Secret Protectible Business Interest provision is expressly intended to benefit the Employer, its successors and assigns (the Third Party Beneficiaries) and the Employer and the Third Party Beneficiaries are expressly authorized to enforce this provision. 13) PRESERVATION OF TRADE SECRETS: Upon the termination of the Employee's employment relationship with the Employer the Employee shall not, directly or indirectly, use or disclose any trade secret, as that term is defined by Florida Statute Section 688.002, of the Employer or allow any such trade secret to be disclosed to or used by any person or entity, for any reason or purpose whatsoever. In addition, the Employment Agreement Andrew Makrides January 1, 1998 Page 6 Employee will not accept any employment or other business relationship which would, by the nature of the position, involve the inevitable disclosure of any trade secret. This Non-Disclosure of Trade Secrets provision is expressly intended to benefit the Employer and the Third Party Beneficiaries and the Employer and the Third Party Beneficiaries are expressly authorized to enforce this provision. 14) INDEMNIFICATION : The employee shall be indemnified from liability in connection with his acting as an officer and or director of both Aaron and An-Con including but not limited to indemnification for legal expenses and out-of-pocket disbursements in connection with defense of any claim or lawsuit against him based upon acts or omissions by him during the period that he was an officer and director of the corporation. However, the foregoing indemnification as to certain acts shall not apply in the event it is determined by a court of competent jurisdiction that the employee, during his tenure as an officer and director had a) breached his duty of loyalty to the corporation or the stockholders; b) acted not in good faith or had intentionally conducted himself improperly and had violated the law; c) paid unlawful dividends or made unlawful stock repurchases or redemptions; d) engaged in a transaction in which he had received an improper personal benefit against the interests of the corporation or its shareholders. 15) NOTICES: Any notice required or permitted to be given pursuant to the provisions of this hall be sufficient if in writing, and if personally delivered to the party to be notified or if sent by registered or certified mail to said party at the following addresses: If to the Company: An-Con Genetics, Inc./Aaron Medical Industries, Inc. 7100 - 30th Avenue North St. Petersburg, FL 33710 If to the Employee: Andrew Makrides 20 Damin Circle St. James, NY 11780 Employment Agreement Andrew Makrides January 1, 1998 Page 7 16) UNREASONABLE COMPENSATION : It is agreed that in the event all or any part of the compensation paid to the employee shall be disallowed by the Internal Revenue Service as a deduction by the Company under section 162 of the Internal Revenue Code of 1986, as amended, (or shall be disallowed as a deduction for state or local income tax purposes) and such disallowance becomes final, the Federal, state or local income tax deficiency and interest or other tax "costs" to the Company, as the case may be, attributable to said disallowance shall be determined and shall be a debt payable on demand by the Employee to the Company which the Company may recover as a setoff against future compensation. 17) BYLAWS; MISCELLANEOUS : This Agreement is made subject to and with reference to the Bylaws of the Company, which are incorporated herein by reference and which the Employee accepts as binding upon him. 18) SEVERABILITY : In the event any portion of this Agreement is held to be invalid or unenforceable, the invalid or unenforceable portion or provision shall not affect any other provision hereof and this Agreement shall be construed and enforced as if the invalid provision had not been included. 19) BINDING EFFECT : This Agreement shall inure to the benefit of and shall be binding upon the Company and upon any person, firm or corporation with which the Company may be merged or consolidated or which may acquire all or substantially all of the Company's assets through sale, lease, liquidation or otherwise. The rights and benefits of Employee are personal to him and no such rights or benefits shall be subject to assignment or transfer by Employee. 20) GOVERNING LAW : This Agreement shall be construed and interpreted in accordance with the laws of the State of Florida. 21) ENTIRE AGREEMENT : This Agreement constitutes the entire agreement between the parties and supersedes and replaces any prior agreement; and there are no other agreements between the parties except as set forth herein. 22) AMENDMENT AND MODIFICATION : All terms, conditions and provisions of this Agreement shall remain in full force and effect unless modified, changed, altered or amended, in writing, executed by both parties. Employment Agreement Andrew Makrides January 1, 1998 Page 8 IN WITNESS WHEREOF, the parties hereto have set their hands and seals effective on the day and year first above written. An-Con Genetics, Inc. _____________________ Andrew Makrides, Employee _____________________ J. Robert Saron, Chief Executive Officer ________________________ Andrew Makrides, President Signed Sealed and delivered in the presence of: _________________________ Witness ________________________ Witness EMPLOYMENT AGREEMENT THIS AGREEMENT, effective as of the 6th day of May, 1998, by and between An-Con Genetics, Inc. a corporation, organized and existing under the laws of the State of Delaware, and Aaron Medical Industries, Inc. organized and existing under the laws of the State of Florida or any successor entity thereof (hereinafter referred to as ("the Company"), and Genard McCualey (hereinafter referred to as "the Employee"). WITNESSETH: WHEREAS, the Company is a corporation existing and authorized to do business in the State of Delaware (An-Con); and Florida (Aaron) and WHEREAS, the Company is desirous of securing Employee's services and Employee is willing to provide such services. NOW, THEREFORE, for and in consideration of the mutual covenants contained herein, the parties hereto agree as follows: 1) EMPLOYMENT OF EMPLOYEE: The Company hereby agrees to employ the Employee, and the Employee hereby agrees to accept said employment pursuant to the terms and conditions of this Agreement. 2) DUTIES: The Employee shall render, as an employee, professional services as Electrosurgical Project Manager and shall perform such additional duties as may be assigned to the Employee by the Board of Directors of the Company. The Employee agrees to devote all of his time and efforts to the performance of his duties, except for customary vacations and reasonable absences due to illness or other incapacity as set forth herein, and to perform all of his duties to the best of his professional ability and comply with such reasonable policies, standards, and regulations of the Company as are from time to time established by the Board of Directors of the Company. Nothing contained herein shall be construed so as to prohibit or prevent the Employee from engaging in any business activity as long as such activities do not conflict or interfere with the adequate performance of his duties hereunder. 3) TERM : The initial term of employment under this Agreement shall be effective as of the 6th day of May, 1998, and shall continue until May 5, 2000 or until terminated as hereinafter provided. After May 5, 2000 the term of this Agreement shall be automatically extended for continuous terms of one year each unless the Employer provides the Employee with written notice of termination by March 31st of the year the Employer plans to terminate. Employment Agreement Genard McCualey January 1, 1998 Page 2 4) PLACE OF EMPLOYMENT : It is understood that the employee will permanently reside and work in the Tampa Bay, Florida area. 5) COMPENSATION : For all services rendered to the Company, the Employee agrees to accept as total compensation a sum computed as set forth in this section. a. During the employment of the Employee, the Employee shall receive the sum equal to SEVENTY THOUSAND DOLLARS AND 00 /100 ($70,000.00) per year, payable in equal weekly installments. b. Bonuses: Shall be determined from time to time by the Board of Directors at its discretion. 6) VACATION/SICK: The Company agrees that the Employee shall be entitled to a vacation, with full pay, of two (2) weeks (ten working days), during each year of Employee's employment. Such vacation shall accrue on a weekly basis. The scheduling of any vacation shall be coordinated with the Company so that the staffing needs of the Company are met to the extent reasonably possible. The Employee may be entitled to such further paid vacation as is approved in writing by the Board of Directors of the Company. Any accrued vacation not taken by the Employee during a year shall be available for use in subsequent years. The employee may elect to receive cash payment for one weeks vacation every calendar year. The employee shall be granted sick time in accordance with the policy outlined in the company's policy manual. 7) REIMBURSEMENT OF BUSINESS EXPENSES : The Company agrees to pay, either directly, or indirectly by payment to the Employee, for all of the Employee's approved entertainment, travel and miscellaneous business expenses incurred by him during the course of his employment. Employee shall be entitled, on each business related travel to Coach Airline tickets on Domestic Travel and Business Class Airline tickets on International Travel and a full size rental automobile. As a prerequisite to any payment or reimbursement by the Company for business expenses, the Employee shall submit receipts of all such expenses to the Company; and the Company's obligation to effect payment or reimbursement of such expenses shall be only to the extent of such receipts. 8) ADDITIONAL BENEFITS : The Company shall obtain and pay for group medical and dental insurance for the Employee and his dependents under such group insurance program and plan that the Board of Directors of the Company deems appropriate. The Company shall obtain Employment Agreement Genard McCualey January 1, 1998 Page 3 and pay for group term life insurance in the amount of $50,000.00 for the Employee under such group insurance program and plan that the Board of Directors of the Company deems appropriate. The Company shall further provide a disability plan upon such terms and conditions that are, at a minimum, equal to or better than those maintained by the Company as of the date of this agreement. 9) PROPERTY DEFINED : The Employee understands and agrees that all Company files, customer files, legal files, legal research files, form files, forms, examples, samples, and all briefs and memoranda, and other work product are the sole and exclusive property of the Company; and the same shall remain in the possession of the Company and shall constitute the property of the Company irrespective of who prepared the same. The Employee shall not remove, photocopy, photograph or in any other manner duplicate or remove said property of the Company. 10) DISPOSITION OF PROPERTY UPON TERMINATION OF EMPLOYMENT : In the event the employment of the Employee with the Company is terminated, the Employee agrees and understands that all files and all customers of the Company are the sole and exclusive property of the Company, and the Employee shall have no right, title or interest in the same. 11) TERMINATION OF EMPLOYMENT : The employment of the Employee may be terminated as follows: a) By the death of the Employee and the Employee's estate shall be paid the basic annual compensation due the Employee pro-rated through the date of termination. b) By the Employee at any time upon at least thirty (30) days prior written notice to the Company; and the Company shall be obligated to pay the Employee the basic annual compensation due him pro-rated to the effective date of termination. c) By the Company, without cause, with the majority approval of the Board of Directors of the Company at any time upon at least thirty (30) days prior written notice to the Employee: and the Company shall be obligated to pay the Employee compensation currently in effect including all bonuses, accrued or prorata, and expenses up to the date of termination. During any subsequent years remaining on the contract, the Employee shall be paid the salary in effect at the time of termination payable weekly. Employee shall not have to account for other compensation from other sources or otherwise mitigate his damages due to termination pursuant to this subparagraph. Employment Agreement Genard McCualey January 1, 1998 Page 4 d) If the Company terminates this agreement, without cause, or fails to meet its obligations to the employee on a timely basis, or if there is a change in the control of the Company, the Employee may elect to terminate his employment agreement. Upon any such termination or breach of any of the Company's obligations hereunder, the Company shall pay the Employee a lump severance equal to two times the annual salary and bonus in effect the month preceding such termination or breach as well as any other sums which may be due under the terms hereof up to the date of termination. e) By the Company, if during the term of this Employment Agreement the Employee violates the provisions of Paragraph 12 hereof, or is found guilty in a court of law of any crime of moral turpitude. f) Employee agrees that the precise value of the covenants in this Section 11 are so difficult to evaluate that no accurate measure of liquidated damages could possibly be established and that, in the event of a breach or threatened temporary and permanent injunctive relief restraining Employee from such breach or threatened breach. In the event that any covenants made in this Section shall be more restrictive than permitted by applicable law, it shall be limited to the extent which is so permitted. 12) NON-COMPETITION AND PRESERVATION OF NON-TRADE SECRET PROTECTIVE BUSINESS INTERESTS: Upon the termination of Employee's employment relationship with Employer and for twelve (12) months thereafter, irrespective of the time, manner, or method of such termination, the Employee shall not, without the express written consent of the Employer, directly or indirectly, consult with, render services to, or otherwise participate or attempt to participate in any manner in a business which competes with the Employer within the geographic areas where the Employer and/or the Employee conducted business during the twenty-four (24) month period directly preceding his/her termination of employment with the Employer, and/or: a) Shall not use or disclose any Confidential Information to any person or entity without the written authorization of the Employer. Confidential Information includes, but is not limited to, information concerning Employer's customers; pricing information and methods; training and operational procedures; advertising, marketing, and sales information; financial information; and other data, concepts, strategies, methods, procedures or other confidential information that is not a Trade Secret as defined by Florida Statute Section 688.002; Employment Agreement Genard McCualey January 1, 1998 Page 5 b) Shall not solicit, directly or indirectly, any existing or potential client or customer with whom the Employer has or may have a substantial relationship. A potential client or customer is defined as any person or entity that the Employer or Employee actively solicited during the twenty-four (24) month period directly preceding the Employee's termination of employment with the Employer; c) Shall not hire, recruit or attempt to recruit any person employed by the Employer at the time of the Employee's termination of employment with the Employer for any person or business entity which competes or plans to compete with the Employer. d) Shall not adversely affect the Employer's customer goodwill associated with (1) an ongoing business by way of trade name, trademark, service mark, trade dress and the like; (2) a specific geographic location; or (3) a specific marketing or trade area; and/or e) Shall not use extraordinary or specialized training received from the Employer. f) This Non-Competition and Protection of Non-Trade Secret Protectible Business Interest provision is expressly intended to benefit the Employer, its successors and assigns (the Third Party Beneficiaries) and the Employer and the Third Party Beneficiaries are expressly authorized to enforce this provision. 13) PRESERVATION OF TRADE SECRETS: Upon the termination of the Employee's employment relationship with the Employer the Employee shall not, directly or indirectly, use or disclose any trade secret, as that term is defined by Florida Statute Section 688.002, of the Employer or allow any such trade secret to be disclosed to or used by any person or entity, for any reason or purpose whatsoever. In addition, the Employee will not accept any employment or other business relationship which would, by the nature of the position, involve the inevitable disclosure of any trade secret. This Non-Disclosure of Trade Secrets provision is expressly intended to benefit the Employer and the Third Party Beneficiaries and the Employer and the Third Party Beneficiaries are expressly authorized to enforce this provision. 14) INDEMNIFICATION : The employee shall be indemnified from liability in connection with his acting as an officer and or director of both Aaron and An-Con including but not limited to indemnification for legal expenses and out-of-pocket disbursements in connection with defense of any claim or lawsuit Employment Agreement Genard McCualey January 1, 1998 Page 6 against him based upon acts or omissions by him during the period that he was an officer and director of the corporation. However, the foregoing indemnification as to certain acts shall not apply in the event it is determined by a court of competent jurisdiction that the employee, during his tenure as an employee had a) breached his duty of loyalty to the corporation or the stockholders; b) acted not in good faith or had intentionally conducted himself improperly and had violated the law; c) paid unlawful dividends or made unlawful stock repurchases or redemptions; d) engaged in a transaction in which he had received an improper personal benefit against the interests of the corporation or its shareholders. 15) NOTICES: Any notice required or permitted to be given pursuant to the provisions of this hall be sufficient if in writing, and if personally delivered to the party to be notified or if sent by registered or certified mail to said party at the following addresses: If to the Company: An-Con Genetics, Inc./Aaron Medical Industries, Inc. 7100 - 30th Avenue North St. Petersburg, FL 33710 If to the Employee: Genard McCualey 7100 30th Avenue North St. Petersburg, FL 33710 16) UNREASONABLE COMPENSATION : It is agreed that in the event all or any part of the compensation paid to the employee shall be disallowed by the Internal Revenue Service as a deduction by the Company under section 162 of the Internal Revenue Code of 1986, as amended, (or shall be disallowed as a deduction for state or local income tax purposes) and such disallowance becomes final, the Federal, state or local income tax deficiency and interest or other tax "costs" to the Company, as the case may be, attributable to said disallowance shall be determined and shall be a debt payable on demand by the Employee to the Company which the Company may recover as a setoff against future compensation. 17) BYLAWS; MISCELLANEOUS : This Agreement is made subject to and with reference to the Bylaws of the Company, which are incorporated herein by reference and which the Employee accepts as binding upon him. Employment Agreement Genard McCualey January 1, 1998 Page 7 18) SEVERABILITY : In the event any portion of this Agreement is held to be invalid or unenforceable, the invalid or unenforceable portion or provision shall not affect any other provision hereof and this Agreement shall be construed and enforced as if the invalid provision had not been included. 19) BINDING EFFECT : This Agreement shall inure to the benefit of and shall be binding upon the Company and upon any person, firm or corporation with which the Company may be merged or consolidated or which may acquire all or substantially all of the Company's assets through sale, lease, liquidation or otherwise. The rights and benefits of Employee are personal to him and no such rights or benefits shall be subject to assignment or transfer by Employee. 20) GOVERNING LAW : This Agreement shall be construed and interpreted in accordance with the laws of the State of Florida. 21) ENTIRE AGREEMENT : This Agreement constitutes the entire agreement between the parties and supersedes and replaces any prior agreement; and there are no other agreements between the parties except as set forth herein. 22) AMENDMENT AND MODIFICATION : All terms, conditions and provisions of this Agreement shall remain in full force and effect unless modified, changed, altered or amended, in writing, executed by both parties. Employment Agreement Genard McCualey January 1, 1998 Page 8 IN WITNESS WHEREOF, the parties hereto have set their hands and seals effective on the day and year first above written. An-Con Genetics, Inc. ________________________ Genard McCualey, Employee ________________________ J. Robert Saron, Chief Executive Officer ___________________ Delton N. Cunningham, Secretary Signed Sealed and delivered in the presence of: __________________________ Witness __________________________ Witness EMPLOYMENT AGREEMENT THIS AGREEMENT, effective as of the 1st day of January, 1998, by and between An-Con Genetics, Inc. a corporation, organized and existing under the laws of the State of Delaware, and Aaron Medical Industries, Inc. organized and existing under the laws of the State of Florida or any successor entity thereof (hereinafter referred to as ("the Company"), and Delton N. Cunningham (hereinafter referred to as "the Employee"). WITNESSETH: WHEREAS, the Company is a corporation existing and authorized to do business in the State of Delaware (An-Con); and Florida (Aaron) and WHEREAS, the Company is desirous of securing Employee's services and Employee is willing to provide such services. NOW, THEREFORE, for and in consideration of the mutual covenants contained herein, the parties hereto agree as follows: 1) EMPLOYMENT OF EMPLOYEE: The Company hereby agrees to employ the Employee, and the Employee hereby agrees to accept said employment pursuant to the terms and conditions of this Agreement. 2) DUTIES: The Employee shall render, as an employee, professional services as Vice President/Chief Financial Officer and shall perform such additional duties as may be assigned to the Employee by the Board of Directors of the Company. The Employee agrees to devote all of his time and efforts to the performance of his duties, except for customary vacations and reasonable absences due to illness or other incapacity as set forth herein, and to perform all of his duties to the best of his professional ability and comply with such reasonable policies, standards, and regulations of the Company as are from time to time established by the Board of Directors of the Company. Nothing contained herein shall be construed so as to prohibit or prevent the Employee from engaging in any business activity as long as such activities do not conflict or interfere with the adequate performance of his duties hereunder. 3) TERM : The initial term of employment under this Agreement shall be effective as of the 1st day of January, 1998, and shall continue until December 31, 2000 or until terminated as hereinafter provided. After December 31, 2000 the term of this Agreement shall be automatically extended for continuous terms of one year each unless the Employer provides the Employee with written notice of termination by March 31st of the year the Employer plans to terminate. Employment Agreement Delton N. Cunningham January 1, 1998 Page 2 4) PLACE OF EMPLOYMENT : It is understood that the employee will permanently reside and work in the Tampa Bay, Florida area. 5) COMPENSATION : For all services rendered to the Company, the Employee agrees to accept as total compensation a sum computed as set forth in this section. a. During the employment of the Employee, the Employee shall receive the sum equal to SEVENTY EIGHT THOUSAND EIGHT HUNDRED SEVENTY TWO AND 56/100 ($78,872.56) per year, payable in equal weekly installments. b. During the term of employment, Employee shall receive an automobile allowance in the amount of FIVE HUNDRED TWENTY FIVE AND 81/100 DOLLARS ($525.81) per month, payable in equal weekly installments.. c. Bonuses: Shall be determined from time to time by the Board of Directors at its discretion. d. During the term of employment, the Employee shall receive an Annual Raise in the amount of 7.5% on June 1 of every year, subject to review and adjustment by the Board of Directors. 6) VACATION/SICK: The Company agrees that the Employee shall be entitled to a vacation, with full pay, of three (3) weeks (fifteen working days), during each year of Employee's employment. The scheduling of any vacation shall be coordinated with the Company so that the staffing needs of the Company are met to the extent reasonably possible. The Employee may be entitled to such further paid vacation as is approved in writing by the Board of Directors of the Company. Any accrued vacation not taken by the Employee during a year shall be available for use in subsequent years. The employee may elect to receive cash payment for one weeks vacation every calendar year. The employee shall be granted sick time in accordance with the policy outlined in the company's policy manual. 7) REIMBURSEMENT OF BUSINESS EXPENSES : The Company agrees to pay, either directly, or indirectly by payment to the Employee, for all of the Employee's approved entertainment, travel and miscellaneous business expenses incurred by him during the course of his employment. Employee shall be entitled, on each business related travel to Coach Airline tickets on Domestic Travel and Business Class Airline tickets on International Travel and a full size rental automobile. As a prerequisite to any payment or reimbursement by the Company for business expenses, the Employee shall submit receipts of all such Employment Agreement Delton N. Cunningham January 1, 1998 Page 3 expenses to the Company; and the Company's obligation to effect payment or reimbursement of such expenses shall be only to the extent of such receipts. 8) ADDITIONAL BENEFITS : The Company shall obtain and pay for group medical and dental insurance for the Employee and his dependents under such group insurance program and plan that the Board of Directors of the Company deems appropriate. The Company shall obtain and pay for group term life insurance in the amount of $50,000.00 for the Employee under such group insurance program and plan that the Board of Directors of the Company deems appropriate. The Company shall further provide a disability plan upon such terms and conditions that are, at a minimum, equal to or better than those maintained by the Company as of the date of this agreement. 9) PROPERTY DEFINED : The Employee understands and agrees that all Company files, customer files, legal files, legal research files, form files, forms, examples, samples, and all briefs and memoranda, and other work product are the sole and exclusive property of the Company; and the same shall remain in the possession of the Company and shall constitute the property of the Company irrespective of who prepared the same. The Employee shall not remove, photocopy, photograph or in any other manner duplicate or remove said property of the Company. 10) DISPOSITION OF PROPERTY UPON TERMINATION OF EMPLOYMENT : In the event the employment of the Employee with the Company is terminated, the Employee agrees and understands that all files and all customers of the Company are the sole and exclusive property of the Company, and the Employee shall have no right, title or interest in the same. 11) TERMINATION OF EMPLOYMENT : The employment of the Employee may be terminated as follows: a) By the death of the Employee and the Employee's estate shall be paid the basic annual compensation due the Employee pro-rated through the date of termination. b) By the Employee at any time upon at least thirty (30) days prior written notice to the Company; and the Company shall be obligated to pay the Employee the basic annual compensation due him pro-rated to the effective date of termination. Employment Agreement Delton N. Cunningham January 1, 1998 Page 4 c) By the Company, without cause, with the majority approval of the Board of Directors of the Company at any time upon at least thirty (30) days prior written notice to the Employee: and the Company shall be obligated to pay the Employee compensation currently in effect including all bonuses, accrued or prorata, and expenses up to the date of termination. During any subsequent years remaining on the contract, the Employee shall be paid the salary in effect at the time of termination payable weekly. Employee shall not have to account for other compensation from other sources or otherwise mitigate his damages due to termination pursuant to this subparagraph. d) If the Company terminates this agreement, without cause, or fails to meet its obligations to the employee on a timely basis, or if there is a change in the control of the Company, the Employee may elect to terminate his employment agreement. Upon any such termination or breach of any of the Company's obligations hereunder, the Company shall pay the Employee a lump severance equal to three times the annual salary and bonus in effect the month preceding such termination or breach as well as any other sums which may be due under the terms hereof up to the date of termination. e) By the Company, if during the term of this Employment Agreement the Employee violates the provisions of Paragraph 12 hereof, or is found guilty in a court of law of any crime of moral turpitude. f) Employee agrees that the precise value of the covenants in this Section 11 are so difficult to evaluate that no accurate measure of liquidated damages could possibly be established and that, in the event of a breach or threatened temporary and permanent injunctive relief restraining Employee from such breach or threatened breach. In the event that any covenants made in this Section shall be more restrictive than permitted by applicable law, it shall be limited to the extent which is so permitted. 12) NON-COMPETITION AND PRESERVATION OF NON-TRADE SECRET PROTECTIVE BUSINESS INTERESTS: Upon the termination of Employee's employment relationship with Employer and for twelve (12) months thereafter, irrespective of the time, manner, or method of such termination, the Employee shall not, without the express written consent of the Employer, directly or indirectly, consult with, render services to, or otherwise participate or attempt to participate in any manner in a business which competes with the Employer within the geographic areas where the Employer and/or the Employee conducted business during the twenty-four Employment Agreement Delton N. Cunningham January 1, 1998 Page 5 (24) month period directly preceding his/her termination of employment with the Employer, and/or: a) Shall not use or disclose any Confidential Information to any person or entity without the written authorization of the Employer. Confidential Information includes, but is not limited to, information concerning Employer's customers; pricing information and methods; training and operational procedures; advertising, marketing, and sales information; financial information; and other data, concepts, strategies, methods, procedures or other confidential information that is not a Trade Secret as defined by Florida Statute Section 688.002; b) Shall not solicit, directly or indirectly, any existing or potential client or customer with whom the Employer has or may have a substantial relationship. A potential client or customer is defined as any person or entity that the Employer or Employee actively solicited during the twenty-four (24) month period directly preceding the Employee's termination of employment with the Employer; c) Shall not hire, recruit or attempt to recruit any person employed by the Employer at the time of the Employee's termination of employment with the Employer for any person or business entity which competes or plans to compete with the Employer. d) Shall not adversely affect the Employer's customer goodwill associated with (1) an ongoing business by way of trade name, trademark, service mark, trade dress and the like; (2) a specific geographic location; or (3) a specific marketing or trade area; and/or e) Shall not use extraordinary or specialized training received from the Employer. f) This Non-Competition and Protection of Non-Trade Secret Protectible Business Interest provision is expressly intended to benefit the Employer, its successors and assigns (the Third Party Beneficiaries) and the Employer and the Third Party Beneficiaries are expressly authorized to enforce this provision. 13) PRESERVATION OF TRADE SECRETS: Upon the termination of the Employee's employment relationship with the Employer the Employee shall not, directly or indirectly, use or disclose any trade secret, as that term is defined by Florida Statute Section 688.002, of the Employer or allow any such trade secret to be disclosed to or used by any person or entity, for any reason or purpose whatsoever. In addition, the Employment Agreement Delton N. Cunningham January 1, 1998 Page 6 Employee will not accept any employment or other business relationship which would, by the nature of the position, involve the inevitable disclosure of any trade secret. This Non-Disclosure of Trade Secrets provision is expressly intended to benefit the Employer and the Third Party Beneficiaries and the Employer and the Third Party Beneficiaries are expressly authorized to enforce this provision. 14) INDEMNIFICATION : The employee shall be indemnified from liability in connection with his acting as an officer and or director of both Aaron and An-Con including but not limited to indemnification for legal expenses and out-of-pocket disbursements in connection with defense of any claim or lawsuit against him based upon acts or omissions by him during the period that he was an officer and director of the corporation. However, the foregoing indemnification as to certain acts shall not apply in the event it is determined by a court of competent jurisdiction that the employee, during his tenure as an officer and director had a) breached his duty of loyalty to the corporation or the stockholders; b) acted not in good faith or had intentionally conducted himself improperly and had violated the law; c) paid unlawful dividends or made unlawful stock repurchases or redemptions; d) engaged in a transaction in which he had received an improper personal benefit against the interests of the corporation or its shareholders. 15) NOTICES: Any notice required or permitted to be given pursuant to the provisions of this hall be sufficient if in writing, and if personally delivered to the party to be notified or if sent by registered or certified mail to said party at the following addresses: If to the Company: An-Con Genetics, Inc./Aaron Medical Industries, Inc. 7100 - 30th Avenue North St. Petersburg, FL 33710 If to the Employee: Delton N. Cunningham 7500 Normandy Court Seminole, FL 33772 Employment Agreement Delton N. Cunningham Janauary 1, 1998 Page 7 16) UNREASONABLE COMPENSATION : It is agreed that in the event all or any part of the compensation paid to the employee shall be disallowed by the Internal Revenue Service as a deduction by the Company under section 162 of the Internal Revenue Code of 1986, as amended, (or shall be disallowed as a deduction for state or local income tax purposes) and such disallowance becomes final, the Federal, state or local income tax deficiency and interest or other tax "costs" to the Company, as the case may be, attributable to said disallowance shall be determined and shall be a debt payable on demand by the Employee to the Company which the Company may recover as a setoff against future compensation. 17) BYLAWS; MISCELLANEOUS : This Agreement is made subject to and with reference to the Bylaws of the Company, which are incorporated herein by reference and which the Employee accepts as binding upon him. 18) SEVERABILITY : In the event any portion of this Agreement is held to be invalid or unenforceable, the invalid or unenforceable portion or provision shall not affect any other provision hereof and this Agreement shall be construed and enforced as if the invalid provision had not been included. 19) BINDING EFFECT : This Agreement shall inure to the benefit of and shall be binding upon the Company and upon any person, firm or corporation with which the Company may be merged or consolidated or which may acquire all or substantially all of the Company's assets through sale, lease, liquidation or otherwise. The rights and benefits of Employee are personal to him and no such rights or benefits shall be subject to assignment or transfer by Employee. 20) GOVERNING LAW : This Agreement shall be construed and interpreted in accordance with the laws of the State of Florida. 21) ENTIRE AGREEMENT : This Agreement constitutes the entire agreement between the parties and supersedes and replaces any prior agreement; and there are no other agreements between the parties except as set forth herein. 22) AMENDMENT AND MODIFICATION : All terms, conditions and provisions of this Agreement shall remain in full force and effect unless modified, changed, altered or amended, in writing, executed by both parties. Employment Agreement Delton N. Cunningham January 1, 1998 Page 8 IN WITNESS WHEREOF, the parties hereto have set their hands and seals effective on the day and year first above written. An-Con Genetics, Inc. ______________________ Delton N. Cunningham, Employee ______________________ J. Robert Saron, Chief Executive Officer _______________________ Andrew Makrides, President Signed Sealed and delivered in the presence of: _________________________ Witness _________________________ Witness EMPLOYMENT AGREEMENT THIS AGREEMENT, effective as of the 1st day of January, 1998, by and between An-Con Genetics, Inc. a corporation, organized and existing under the laws of the State of Delaware, and Aaron Medical Industries, Inc. organized and existing under the laws of the State of Florida or any successor entity thereof (hereinafter referred to as ("the Company"), and Moshe Citronowicz (hereinafter referred to as "the Employee"). WITNESSETH: WHEREAS, the Company is a corporation existing and authorized to do business in the State of Delaware (An-Con); and Florida (Aaron) and WHEREAS, the Company is desirous of securing Employee's services and Employee is willing to provide such services. NOW, THEREFORE, for and in consideration of the mutual covenants contained herein, the parties hereto agree as follows: 1) EMPLOYMENT OF EMPLOYEE: The Company hereby agrees to employ the Employee, and the Employee hereby agrees to accept said employment pursuant to the terms and conditions of this Agreement. 2) DUTIES: The Employee shall render, as an employee, professional services as Executive Vice President/Chief Operating Officer and shall perform such additional duties as may be assigned to the Employee by the Board of Directors of the Company. The Employee agrees to devote all of his time and efforts to the performance of his duties, except for customary vacations and reasonable absences due to illness or other incapacity as set forth herein, and to perform all of his duties to the best of his professional ability and comply with such reasonable policies, standards, and regulations of the Company as are from time to time established by the Board of Directors of the Company. Nothing contained herein shall be construed so as to prohibit or prevent the Employee from engaging in any business activity as long as such activities do not conflict or interfere with the adequate performance of his duties hereunder. 3) TERM : The initial term of employment under this Agreement shall be effective as of the 1st day of January, 1998, and shall continue until December 31, 2002 or until terminated as hereinafter provided. After December 31, 2002 the term of this Agreement shall be automatically extended for continuous terms of one year each unless the Employer provides the Employee with written notice of termination by March 31st of the year the Employer plans to terminate. Employment Agreement Moshe Citronowicz January 1, 1998 Page 2 4) PLACE OF EMPLOYMENT : It is understood that the employee will permanently reside and work in the Tampa Bay, Florida area. 5) COMPENSATION : For all services rendered to the Company, the Employee agrees to accept as total compensation a sum computed as set forth in this section. a. During the employment of the Employee, the Employee shall receive the sum equal to NINETY NINE THOUSAND NINE HUNDRED FIVE DOLLARS AND 52/100 DOLLARS ($99,905.52) per year, payable in equal weekly installments. b. During the term of employment, Employee shall receive an automobile allowance in the amount of FIVE HUNDRED TWENTY FIVE AND 81/100 DOLLARS ($525.81) per month, payable in equal weekly installments.. c. Bonuses: Shall be determined from time to time by the Board of Directors at its discretion. d. During the term of employment, the Employee shall receive an Annual Raise in the amount of 7.5% on June 1 of every year, subject to review and adjustment by the Board of Directors. 6) VACATION/SICK: The Company agrees that the Employee shall be entitled to a vacation, with full pay, of three (3) weeks (fifteen working days), during each year of Employee's employment. The scheduling of any vacation shall be coordinated with the Company so that the staffing needs of the Company are met to the extent reasonably possible. The Employee may be entitled to such further paid vacation as is approved in writing by the Board of Directors of the Company. Any accrued vacation not taken by the Employee during a year shall be available for use in subsequent years. The employee may elect to receive cash payment for one weeks vacation every calendar year. The employee shall be granted sick time in accordance with the policy outlined in the company's policy manual. 7) REIMBURSEMENT OF BUSINESS EXPENSES : The Company agrees to pay, either directly, or indirectly by payment to the Employee, for all of the Employee's approved entertainment, travel and miscellaneous business expenses incurred by him during the course of his employment. Employee shall be entitled, on each business related travel to Coach Airline tickets on Domestic Travel and Business Class Airline tickets on International Travel and a full size rental automobile. As a prerequisite to any payment or reimbursement by the Company for business expenses, Employment Agreement Moshe Citronowicz January 1, 1998 Page 3 the Employee shall submit receipts of all such expenses to the Company; and the Company's obligation to effect payment or reimbursement of such expenses shall be only to the extent of such receipts. 8) ADDITIONAL BENEFITS : The Company shall obtain and pay for group medical and dental insurance for the Employee and his dependents under such group insurance program and plan that the Board of Directors of the Company deems appropriate. The Company shall obtain and pay for group term life insurance in the amount of $50,000.00 for the Employee under such group insurance program and plan that the Board of Directors of the Company deems appropriate. The Company shall further provide a disability plan upon such terms and conditions that are, at a minimum, equal to or better than those maintained by the Company as of the date of this agreement. 9) PROPERTY DEFINED : The Employee understands and agrees that all Company files, customer files, legal files, legal research files, form files, forms, examples, samples, and all briefs and memoranda, and other work product are the sole and exclusive property of the Company; and the same shall remain in the possession of the Company and shall constitute the property of the Company irrespective of who prepared the same. The Employee shall not remove, photocopy, photograph or in any other manner duplicate or remove said property of the Company. 10) DISPOSITION OF PROPERTY UPON TERMINATION OF EMPLOYMENT : In the event the employment of the Employee with the Company is terminated, the Employee agrees and understands that all files and all customers of the Company are the sole and exclusive property of the Company, and the Employee shall have no right, title or interest in the same. 11) TERMINATION OF EMPLOYMENT : The employment of the Employee may be terminated as follows: a) By the death of the Employee and the Employee's estate shall be paid the basic annual compensation due the Employee pro-rated through the date of termination. b) By the Employee at any time upon at least thirty (30) days prior written notice to the Company; and the Company shall be obligated to pay the Employee the basic annual compensation due him pro-rated to the effective date of termination. Employment Agreement Moshe Citronowicz January 1, 1998 Page 4 c) By the Company, without cause, with the majority approval of the Board of Directors of the Company at any time upon at least thirty (30) days prior written notice to the Employee: and the Company shall be obligated to pay the Employee compensation currently in effect including all bonuses, accrued or prorata, and expenses up to the date of termination. During any subsequent years remaining on the contract, the Employee shall be paid the salary in effect at the time of termination payable weekly. Employee shall not have to account for other compensation from other sources or otherwise mitigate his damages due to termination pursuant to this subparagraph. d) If the Company terminates this agreement, without cause, or fails to meet its obligations to the employee on a timely basis, or if there is a change in the control of the Company, the Employee may elect to terminate his employment agreement. Upon any such termination or breach of any of the Company's obligations hereunder, the Company shall pay the Employee a lump severance equal to three times the annual salary and bonus in effect the month preceding such termination or breach as well as any other sums which may be due under the terms hereof up to the date of termination. e) By the Company, if during the term of this Employment Agreement the Employee violates the provisions of Paragraph 12 hereof, or is found guilty in a court of law of any crime of moral turpitude. f) Employee agrees that the precise value of the covenants in this Section 11 are so difficult to evaluate that no accurate measure of liquidated damages could possibly be established and that, in the event of a breach or threatened temporary and permanent injunctive relief restraining Employee from such breach or threatened breach. In the event that any covenants made in this Section shall be more restrictive than permitted by applicable law, it shall be limited to the extent which is so permitted. 12) NON-COMPETITION AND PRESERVATION OF NON-TRADE SECRET PROTECTIVE BUSINESS INTERESTS: Upon the termination of Employee's employment relationship with Employer and for twelve (12) months thereafter, irrespective of the time, manner, or method of such termination, the Employee shall not, without the express written consent of the Employer, directly or indirectly, consult with, render services to, or otherwise participate or attempt to participate in any manner in a business which competes with the Employer within the geographic areas where the Employer and/or the Employee conducted business during the twenty-four Employment Agreement Moshe Citronowicz January 1, 1998 Page 5 (24) month period directly preceding his/her termination of employment with the Employer, and/or: a) Shall not use or disclose any Confidential Information to any person or entity without the written authorization of the Employer. Confidential Information includes, but is not limited to, information concerning Employer's customers; pricing information and methods; training and operational procedures; advertising, marketing, and sales information; financial information; and other data, concepts, strategies, methods, procedures or other confidential information that is not a Trade Secret as defined by Florida Statute Section 688.002; b) Shall not solicit, directly or indirectly, any existing or potential client or customer with whom the Employer has or may have a substantial relationship. A potential client or customer is defined as any person or entity that the Employer or Employee actively solicited during the twenty-four (24) month period directly preceding the Employee's termination of employment with the Employer; c) Shall not hire, recruit or attempt to recruit any person employed by the Employer at the time of the Employee's termination of employment with the Employer for any person or business entity which competes or plans to compete with the Employer. d) Shall not adversely affect the Employer's customer goodwill associated with (1) an ongoing business by way of trade name, trademark, service mark, trade dress and the like; (2) a specific geographic location; or (3) a specific marketing or trade area; and/or e) Shall not use extraordinary or specialized training received from the Employer. f) This Non-Competition and Protection of Non-Trade Secret Protectible Business Interest provision is expressly intended to benefit the Employer, its successors and assigns (the Third Party Beneficiaries) and the Employer and the Third Party Beneficiaries are expressly authorized to enforce this provision. 13) PRESERVATION OF TRADE SECRETS: Upon the termination of the Employee's employment relationship with the Employer the Employee shall not, directly or indirectly, use or disclose any trade secret, as that term is defined by Florida Statute Section 688.002, of the Employer or allow any such trade secret to be disclosed to or used by any person or entity, for any reason or purpose whatsoever. In addition, the Employment Agreement Moshe Citronowicz January 1, 1998 Page 6 Employee will not accept any employment or other business relationship which would, by the nature of the position, involve the inevitable disclosure of any trade secret. This Non-Disclosure of Trade Secrets provision is expressly intended to benefit the Employer and the Third Party Beneficiaries and the Employer and the Third Party Beneficiaries are expressly authorized to enforce this provision. 14) INDEMNIFICATION : The employee shall be indemnified from liability in connection with his acting as an officer and or director of both Aaron and An-Con including but not limited to indemnification for legal expenses and out-of-pocket disbursements in connection with defense of any claim or lawsuit against him based upon acts or omissions by him during the period that he was an officer and director of the corporation. However, the foregoing indemnification as to certain acts shall not apply in the event it is determined by a court of competent jurisdiction that the employee, during his tenure as an officer and director had a) breached his duty of loyalty to the corporation or the stockholders; b) acted not in good faith or had intentionally conducted himself improperly and had violated the law; c) paid unlawful dividends or made unlawful stock repurchases or redemptions; d) engaged in a transaction in which he had received an improper personal benefit against the interests of the corporation or its shareholders. 15) NOTICES: Any notice required or permitted to be given pursuant to the provisions of this hall be sufficient if in writing, and if personally delivered to the party to be notified or if sent by registered or certified mail to said party at the following addresses: If to the Company: An-Con Genetics, Inc./Aaron Medical Industries, Inc. 7100 - 30th Avenue North St. Petersburg, FL 33710 If to the Employee: Moshe Citronowicz 2806 Meadow Hill Dr. N. Clearwater, FL 34621 Employment Agreement Moshe Citronowicz January 1, 1998 Page 7 16) UNREASONABLE COMPENSATION : It is agreed that in the event all or any part of the compensation paid to the employee shall be disallowed by the Internal Revenue Service as a deduction by the Company under section 162 of the Internal Revenue Code of 1986, as amended, (or shall be disallowed as a deduction for state or local income tax purposes) and such disallowance becomes final, the Federal, state or local income tax deficiency and interest or other tax "costs" to the Company, as the case may be, attributable to said disallowance shall be determined and shall be a debt payable on demand by the Employee to the Company which the Company may recover as a setoff against future compensation. 17) BYLAWS; MISCELLANEOUS : This Agreement is made subject to and with reference to the Bylaws of the Company, which are incorporated herein by reference and which the Employee accepts as binding upon him. 18) SEVERABILITY : In the event any portion of this Agreement is held to be invalid or unenforceable, the invalid or unenforceable portion or provision shall not affect any other provision hereof and this Agreement shall be construed and enforced as if the invalid provision had not been included. 19) BINDING EFFECT : This Agreement shall inure to the benefit of and shall be binding upon the Company and upon any person, firm or corporation with which the Company may be merged or consolidated or which may acquire all or substantially all of the Company's assets through sale, lease, liquidation or otherwise. The rights and benefits of Employee are personal to him and no such rights or benefits shall be subject to assignment or transfer by Employee. 20) GOVERNING LAW : This Agreement shall be construed and interpreted in accordance with the laws of the State of Florida. 21) ENTIRE AGREEMENT : This Agreement constitutes the entire agreement between the parties and supersedes and replaces any prior agreement; and there are no other agreements between the parties except as set forth herein. 22) AMENDMENT AND MODIFICATION : All terms, conditions and provisions of this Agreement shall remain in full force and effect unless modified, changed, altered or amended, in writing, executed by both parties. Employment Agreement Moshe Citronowicz January 1, 1998 Page 8 IN WITNESS WHEREOF, the parties hereto have set their hands and seals effective on the day and year first above written. An-Con Genetics, Inc. ______________________ Moshe Citronowicz, Employee ______________________ J. Robert Saron, Chief Executive Officer ___________________________ Andrew Makrides,President Signed Sealed and delivered in the presence of: _________________________ Witness _________________________ Witness EMPLOYMENT AGREEMENT THIS AGREEMENT, effective as of the 1st day of January, 1998, by and between An-Con Genetics, Inc. a corporation, organized and existing under the laws of the State of Delaware, and Aaron Medical Industries, Inc. organized and existing under the laws of the State of Florida or any successor entity thereof (hereinafter referred to as ("the Company"), and Janis Dezso (hereinafter referred to as "the Employee"). WITNESSETH: WHEREAS, the Company is a corporation existing and authorized to do business in the State of Delaware (An-Con); and Florida (Aaron) and WHEREAS, the Company is desirous of securing Employee's services and Employee is willing to provide such services. NOW, THEREFORE, for and in consideration of the mutual covenants contained herein, the parties hereto agree as follows: 1) EMPLOYMENT OF EMPLOYEE: The Company hereby agrees to employ the Employee, and the Employee hereby agrees to accept said employment pursuant to the terms and conditions of this Agreement. 2) DUTIES: The Employee shall render, as an employee, professional services as Director of International Sales and shall perform such additional duties as may be assigned to the Employee by the Board of Directors of the Company. The Employee agrees to devote all of her time and efforts to the performance of her duties, except for customary vacations and reasonable absences due to illness or other incapacity as set forth herein, and to perform all of her duties to the best of her professional ability and comply with such reasonable policies, standards, and regulations of the Company as are from time to time established by the Board of Directors of the Company. Nothing contained herein shall be construed so as to prohibit or prevent the Employee from engaging in any business activity as long as such activities do not conflict or interfere with the adequate performance of her duties hereunder. 3) TERM : The initial term of employment under this Agreement shall be effective as of the 1st day of January, 1998, and shall continue until December 31, 1999 or until terminated as hereinafter provided. After December 31, 1999 the term of this Agreement shall be automatically extended for continuous terms of one year each unless the Employer provides the Employee with written notice of termination by March 31st of the year the Employer plans to terminate. Employment Agreement Janis Dezso January 1, 1998 Page 2 4) PLACE OF EMPLOYMENT : It is understood that the employee will permanently reside and work in the Tampa Bay, Florida area. 5) COMPENSATION : For all services rendered to the Company, the Employee agrees to accept as total compensation a sum computed as set forth in this section. a. During the employment of the Employee, the Employee shall receive the sum equal to FIFTY ONE THOUSAND NINETY NINETY DOLLARS AND 88/100 ($51,099.88) per year, payable in equal weekly installments. b. Bonuses: Shall be determined from time to time by the Board of Directors at its discretion. c. During the term of employment, the Employee shall receive an Annual Raise on June 1 of every year, as determined by the Board of Directors. 6) VACATION/SICK: The Company agrees that the Employee shall be entitled to a vacation, with full pay, of three (3) weeks (fifteen working days), during each year of Employee's employment. The scheduling of any vacation shall be coordinated with the Company so that the staffing needs of the Company are met to the extent reasonably possible. The Employee may be entitled to such further paid vacation as is approved in writing by the Board of Directors of the Company. Any accrued vacation not taken by the Employee during a year shall be available for use in subsequent years. The employee may elect to receive cash payment for one weeks vacation every calendar year. The employee shall be granted sick time in accordance with the policy outlined in the company's policy manual. 7) REIMBURSEMENT OF BUSINESS EXPENSES : The Company agrees to pay, either directly, or indirectly by payment to the Employee, for all of the Employee's approved entertainment, travel and miscellaneous business expenses incurred by him during the course of her employment. Employee shall be entitled, on each business related travel to Coach Airline tickets on Domestic Travel and Business Class Airline tickets on International Travel and a full size rental automobile. As a prerequisite to any payment or reimbursement by the Company for business expenses, the Employee shall submit receipts of all such expenses to the Company; and the Company's obligation to effect payment or reimbursement of such expenses shall be only to the extent of such receipts. 8) ADDITIONAL BENEFITS : The Company shall obtain and pay for group medical and dental insurance for the Employee and her dependents under such group insurance Employment Agreement Janis Dezso January 1, 1998 page 3 program and plan that the Board of Directors of the Company deems appropriate. The Company shall obtain and pay for group term life insurance in the amount of $50,000.00 for the Employee under such group insurance program and plan that the Board of Directors of the Company deems appropriate. The Company shall further provide a disability plan upon such terms and conditions that are, at a minimum, equal to or better than those maintained by the Company as of the date of this agreement. 9) PROPERTY DEFINED : The Employee understands and agrees that all Company files, customer files, legal files, legal research files, form files, forms, examples, samples, and all briefs and memoranda, and other work product are the sole and exclusive property of the Company; and the same shall remain in the possession of the Company and shall constitute the property of the Company irrespective of who prepared the same. The Employee shall not remove, photocopy, photograph or in any other manner duplicate or remove said property of the Company. 10) DISPOSITION OF PROPERTY UPON TERMINATION OF EMPLOYMENT : In the event the employment of the Employee with the Company is terminated, the Employee agrees and understands that all files and all customers of the Company are the sole and exclusive property of the Company, and the Employee shall have no right, title or interest in the same. 11) TERMINATION OF EMPLOYMENT : The employment of the Employee may be terminated as follows: a) By the death of the Employee and the Employee's estate shall be paid the basic annual compensation due the Employee pro-rated through the date of termination. b) By the Employee at any time upon at least thirty (30) days prior written notice to the Company; and the Company shall be obligated to pay the Employee the basic annual compensation due him pro-rated to the effective date of termination. c) By the Company, without cause, with the majority approval of the Board of Directors of the Company at any time upon at least thirty (30) days prior written notice to the Employee: and the Company shall be obligated to pay the Employee compensation currently in effect including all bonuses, accrued or prorata, and expenses up to the date of termination. During any subsequent years remaining on the contract, the Employee shall be paid the salary in effect at the time of termination payable weekly. Employee shall not have to account for other compensation from other sources or otherwise mitigate her damages due to termination pursuant to this subparagraph. Employment Agreement Janis Dezso January 1, 1998 Page 4 d) If the Company terminates this agreement, without cause, or fails to meet its obligations to the employee on a timely basis, or if there is a change in the control of the Company, the Employee may elect to terminate her employment agreement. Upon any such termination or breach of any of the Company's obligations hereunder, the Company shall pay the Employee a lump severance equal to three times the annual salary and bonus in effect the month preceding such termination or breach as well as any other sums which may be due under the terms hereof up to the date of termination. e) By the Company, if during the term of this Employment Agreement the Employee violates the provisions of Paragraph 12 hereof, or is found guilty in a court of law of any crime of moral turpitude. f) Employee agrees that the precise value of the covenants in this Section 11 are so difficult to evaluate that no accurate measure of liquidated damages could possibly be established and that, in the event of a breach or threatened temporary and permanent injunctive relief restraining Employee from such breach or threatened breach. In the event that any covenants made in this Section shall be more restrictive than permitted by applicable law, it shall be limited to the extent which is so permitted. 12) NON-COMPETITION AND PRESERVATION OF NON-TRADE SECRET PROTECTIVE BUSINESS INTERESTS: Upon the termination of Employee's employment relationship with Employer and for twelve (12) months thereafter, irrespective of the time, manner, or method of such termination, the Employee shall not, without the express written consent of the Employer, directly or indirectly, consult with, render services to, or otherwise participate or attempt to participate in any manner in a business which competes with the Employer within the geographic areas where the Employer and/or the Employee conducted business during the twenty-four (24) month period directly preceding his/her termination of employment with the Employer, and/or: a) Shall not use or disclose any Confidential Information to any person or entity without the written authorization of the Employer. Confidential Information includes, but is not limited to, information concerning Employer's customers; pricing information and methods; training and operational procedures; advertising, marketing, and sales information; financial information; and other data, concepts, strategies, methods, procedures or other confidential information that is not a Trade Secret as defined by Florida Statute Section 688.002; Employment Agreement Janis Dezso January 1, 1998 Page 5 b) Shall not solicit, directly or indirectly, any existing or potential client or customer with whom the Employer has or may have a substantial relationship. A potential client or customer is defined as any person or entity that the Employer or Employee actively solicited during the twenty-four (24) month period directly preceding the Employee's termination of employment with the Employer; c) Shall not hire, recruit or attempt to recruit any person employed by the Employer at the time of the Employee's termination of employment with the Employer for any person or business entity which competes or plans to compete with the Employer. d) Shall not adversely affect the Employer's customer goodwill associated with (1) an ongoing business by way of trade name, trademark, service mark, trade dress and the like; (2) a specific geographic location; or (3) a specific marketing or trade area; and/or e) Shall not use extraordinary or specialized training received from the Employer. f) This Non-Competition and Protection of Non-Trade Secret Protectible Business Interest provision is expressly intended to benefit the Employer, its successors and assigns (the Third Party Beneficiaries) and the Employer and the Third Party Beneficiaries are expressly authorized to enforce this provision. 13) PRESERVATION OF TRADE SECRETS: Upon the termination of the Employee's employment relationship with the Employer the Employee shall not, directly or indirectly, use or disclose any trade secret, as that term is defined by Florida Statute Section 688.002, of the Employer or allow any such trade secret to be disclosed to or used by any person or entity, for any reason or purpose whatsoever. In addition, the Employee will not accept any employment or other business relationship which would, by the nature of the position, involve the inevitable disclosure of any trade secret. This Non-Disclosure of Trade Secrets provision is expressly intended to benefit the Employer and the Third Party Beneficiaries and the Employer and the Third Party Beneficiaries are expressly authorized to enforce this provision. 14) INDEMNIFICATION : The employee shall be indemnified from liability in connection with her acting as an officer and or director of both Aaron and An-Con including but not limited to indemnification for legal expenses and out-of-pocket disbursements in connection with defense of any claim or lawsuit Employment Agreement Janis Dezso January 1, 1998 Page 6 against him based upon acts or omissions by him during the period that he was an officer and director of the corporation. However, the foregoing indemnification as to certain acts shall not apply in the event it is determined by a court of competent jurisdiction that the employee, during her tenure as an officer and director had a) breached her duty of loyalty to the corporation or the stockholders; b) acted not in good faith or had intentionally conducted himself improperly and had violated the law; c) paid unlawful dividends or made unlawful stock repurchases or redemptions; d) engaged in a transaction in which he had received an improper personal benefit against the interests of the corporation or its shareholders. 15) NOTICES: Any notice required or permitted to be given pursuant to the provisions of this hall be sufficient if in writing, and if personally delivered to the party to be notified or if sent by registered or certified mail to said party at the following addresses: If to the Company: An-Con Genetics, Inc./Aaron Medical Industries, Inc. 7100 - 30th Avenue North St. Petersburg, FL 33710 If to the Employee: Janis Dezso 13402 Cordova Largo, FL 33774 16) UNREASONABLE COMPENSATION : It is agreed that in the event all or any part of the compensation paid to the employee shall be disallowed by the Internal Revenue Service as a deduction by the Company under section 162 of the Internal Revenue Code of 1986, as amended, (or shall be disallowed as a deduction for state or local income tax purposes) and such disallowance becomes final, the Federal, state or local income tax deficiency and interest or other tax "costs" to the Company, as the case may be, attributable to said disallowance shall be determined and shall be a debt payable on demand by the Employee to the Company which the Company may recover as a setoff against future compensation. 17) BYLAWS; MISCELLANEOUS : This Agreement is made subject to and with reference to the Bylaws of the Company, which are incorporated herein by reference and which the Employee accepts as binding upon him. 18) SEVERABILITY : In the event any portion of this Agreement is held to be invalid or unenforceable, the invalid or unenforceable portion or provision shall not affect any other provision hereof and this Employment Agreement Janis Dezso January 1, 1998 Page 7 Agreement shall be construed and enforced as if the invalid provision had not been included. 19) BINDING EFFECT : This Agreement shall inure to the benefit of and shall be binding upon the Company and upon any person, firm or corporation with which the Company may be merged or consolidated or which may acquire all or substantially all of the Company's assets through sale, lease, liquidation or otherwise. The rights and benefits of Employee are personal to him and no such rights or benefits shall be subject to assignment or transfer by Employee. 20) GOVERNING LAW : This Agreement shall be construed and interpreted in accordance with the laws of the State of Florida. 21) ENTIRE AGREEMENT : This Agreement constitutes the entire agreement between the parties and supersedes and replaces any prior agreement; and there are no other agreements between the parties except as set forth herein. 22) AMENDMENT AND MODIFICATION : All terms, conditions and provisions of this Agreement shall remain in full force and effect unless modified, changed, altered or amended, in writing, executed by both parties. Employment Agreement Janis Dezso January 1, 1998 Page 8 IN WITNESS WHEREOF, the parties hereto have set their hands and seals effective on the day and year first above written. An-Con Genetics, Inc. _____________________ Janis Dezso, Employee _____________________ J. Robert Saron, Chief Executive Officer _____________________ Andrew Makrides, President Signed Sealed and delivered in the presence of: __________________ Witness ________________ Witness -----END PRIVACY-ENHANCED MESSAGE-----