T
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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£
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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Delaware
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11-2644611
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(State
or other jurisdiction
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(IRS
Employer Identification No.)
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Of
incorporation or organization)
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Large
Accelerated filer £
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Accelerated
filer T
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Non-accelerated
filer £
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Smaller
reporting company £
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Page
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Part
I:
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3
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Item
1:
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3
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5
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6
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7
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8
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Item
2:
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12
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Item
3:
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18
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Item
4:
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19
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Part
II.
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19
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Item
1:
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19
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Item
1A:
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19
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Item
2:
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20
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Item
3:
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20
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Item
4:
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20
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Item
5:
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20
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Item
6:
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20
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20
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(Unaudited)
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||||||||
March 31, 2009
|
December 31, 2008
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|||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 2,536,823 | $ | 2,564,443 | ||||
Trade
accounts receivable, net
|
2,796,536 | 2,991,715 | ||||||
Inventories
|
6,523,056 | 5,838,464 | ||||||
Prepaid
expenses
|
557,229 | 426,534 | ||||||
Deferred
income tax asset, net
|
214,000 | 216,885 | ||||||
Total
current assets
|
12,627,644 | 12,038,041 | ||||||
Property
and equipment, net
|
7,715,444 | 7,125,943 | ||||||
Other
assets:
|
||||||||
Brand
name/trademark, net
|
1,509,662 | 1,509,662 | ||||||
Purchased
technology, net
|
3,427,331 | 3,479,752 | ||||||
License
rights, net
|
199,892 | 215,673 | ||||||
Restricted
cash held in escrow
|
799,681 | 1,285,117 | ||||||
Deposits
and other assets
|
258,299 | 124,707 | ||||||
Total
other assets
|
6,194,865 | 6,614,911 | ||||||
Total
assets
|
$ | 26,537,953 | $ | 25,778,895 |
(Unaudited)
|
||||||||
March 31, 2009
|
December 31, 2008
|
|||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 1,099,702 | $ | 1,317,578 | ||||
Deferred
revenue
|
19,402 | 24,538 | ||||||
Accrued
payroll
|
142,138 | 61,168 | ||||||
Accrued
vacation
|
268,532 | 237,633 | ||||||
Current
portion of amounts due to Lican
|
50,000 | 50,000 | ||||||
Current
income taxes payable
|
155,078 | 77,943 | ||||||
Current
portion of mortgage note payable to bank
|
125,000 | 125,000 | ||||||
Accrued
and other liabilities
|
756,220 | 423,109 | ||||||
Total
current liabilities
|
2,616,072 | 2,316,969 | ||||||
Deferred
income taxes payable
|
553,000 | 530,863 | ||||||
Mortgage
note payable to bank, net of current portion
|
3,843,750 | 3,875,000 | ||||||
Due
to Lican, net of current portion
|
268,150 | 268,150 | ||||||
Total
liabilities
|
7,280,972 | 6,990,982 | ||||||
Commitments
and Contingency (Note 10)
|
||||||||
Stockholders'
equity:
|
||||||||
Preferred
stock, par value $.001; 10,000,000 shares authorized; none issued and
outstanding
|
- | - | ||||||
Common
stock par value $.001; 40,000,000 shares authorized, 17,017,803 and
16,795,269 issued and outstanding on March 31, 2009 and December 31, 2008,
respectively
|
16,875 | 16,796 | ||||||
Additional
paid in capital
|
22,894,730 | 22,841,545 | ||||||
Accumulated
other comprehensive income (loss)
|
(75,926 | ) | (88,464 | ) | ||||
Deficit
|
(3,578,698 | ) | (3,981,964 | ) | ||||
Total
stockholders' equity
|
19,256,981 | 18,787,913 | ||||||
Total
liabilities and stockholders' equity
|
$ | 26,537,953 | $ | 25,778,895 |
March 31, 2009
|
March 31, 2008
|
|||||||
Sales
|
$ | 7,217,324 | $ | 6,677,567 | ||||
Cost
of sales
|
3,897,510 | 4,091,642 | ||||||
Gross
profit
|
3,319,814 | 2,585,925 | ||||||
Other
costs and expenses:
|
||||||||
Research
and development
|
480,760 | 357,700 | ||||||
Professional
services
|
445,154 | 163,132 | ||||||
Salaries
and related costs
|
774,050 | 732,401 | ||||||
Selling,
general and administrative
|
1,077,192 | 1,043,744 | ||||||
Total
costs and expenses
|
2,777,156 | 2,296,977 | ||||||
Income
from operations
|
542,658 | 288,948 | ||||||
Interest
income, net
|
67,608 | 21,727 | ||||||
Income
before income taxes
|
610,266 | 310,675 | ||||||
Provision
for income taxes
|
(207,000 | ) | (120,231 | ) | ||||
Net
income
|
$ | 403,266 | $ | 190,444 | ||||
Earnings
per common share
|
||||||||
Basic
|
$ | 0.02 | $ | 0.01 | ||||
Diluted
|
$ | 0.02 | $ | 0.01 | ||||
Weighted
average number of shares outstanding
|
16,852,994 | 15,922,863 | ||||||
Weighted
average number of shares outstanding adjusted for dilutive
securities
|
17,777,738 | 17,684,783 |
Common
|
Additional
Paid-in
|
Accumulated Other
Comprehensive
|
||||||||||||||||||||||
Shares
|
Par Value
|
Capital
|
Deficit
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Gain (Loss)
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Total
|
|||||||||||||||||||
January
1, 2008
|
15,457,088 | $ | 15,457 | $ | 22,435,161 | $ | (5,813,752 | ) | $ | - | $ | 16,636,866 | ||||||||||||
Options
exercised, net of stock swap
|
1,338,181 | 1,339 | 221,687 | - | - | 223,026 | ||||||||||||||||||
Stock
based compensation
|
- | - | 184,697 | - | - | 184,697 | ||||||||||||||||||
Income
for year
|
- | - | - | 1,831,788 | - | 1,831,788 | ||||||||||||||||||
Foreign
currency remeasurement
|
(88,464 | ) | (88,464 | ) | ||||||||||||||||||||
Comprehensive
income
|
- | - | - | - | - | 1,743,324 | ||||||||||||||||||
December
31, 2008
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16,795,269 | 16,796 | 22,841,545 | (3,981,964 | ) | (88,464 | ) | 18,787,913 | ||||||||||||||||
Options
exercised, net of stock swap
|
79,256 | 79 | 6,424 | - | - | 6,503 | ||||||||||||||||||
Stock
based compensation
|
- | - | 46,761 | - | - | 46,761 | ||||||||||||||||||
Income
for period
|
- | - | - | 403,266 | - | 403,266 | ||||||||||||||||||
Foreign
currency remeasurement
|
- | - | - | - | 12,538 | 12,538 | ||||||||||||||||||
Comprehensive
income
|
- | - | - | - | - | 415,804 | ||||||||||||||||||
March
31, 2009
|
16,874,525 | $ | 16,875 | $ | 22,894,730 | $ | (3,578,698 | ) | $ | (75,926 | ) | $ | 19,256,981 |
2009
|
2008
|
|||||||
Cash
flows from operating activities
|
||||||||
Net
income
|
$ | 403,266 | $ | 190,444 | ||||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||
Depreciation
and amortization of property and equipment
|
163,210 | 208,782 | ||||||
Amortization
of intangible assets
|
68,202 | 37,883 | ||||||
Provision
for (recovery of) inventory obsolescence
|
(6,007 | ) | (465 | ) | ||||
Loss
on disposal of property and equipment
|
- | 2,236 | ||||||
Stock
based compensation
|
46,761 | (499 | ) | |||||
Non-cash
reclassification
|
- | 2,639 | ||||||
Benefit
for deferred taxes
|
25,022 | 105,231 | ||||||
Changes
in current assets and liabilities:
|
||||||||
Trade
receivables
|
195,180 | 109,193 | ||||||
Prepaid
expenses
|
(130,694 | ) | (428,124 | ) | ||||
Inventories
|
(678,586 | ) | (404,074 | ) | ||||
Deposits
and other assets
|
(133,592 | ) | 17,691 | |||||
Accounts
payable
|
(217,876 | ) | 88,599 | |||||
Accrued
and other liabilities
|
333,114 | 484,147 | ||||||
Accrued
payroll
|
80,969 | (2,558 | ) | |||||
Accrued
vacation
|
30,899 | 20,298 | ||||||
Income
taxes payable
|
77,135 | - | ||||||
Deferred
revenues
|
(5,136 | ) | (7,962 | ) | ||||
Net
cash provided by operations
|
251,867 | 423,461 | ||||||
Cash
flows from investing activities
|
||||||||
Purchases
of property and equipment
|
(752,711 | ) | (455,245 | ) | ||||
Proceeds
from sale of property and equipment
|
- | 10,573 | ||||||
Net
cash used in investing activities
|
(752,711 | ) | (444,672 | ) | ||||
Cash
provided by financing activities
|
||||||||
Proceeds
from Escrow Account
|
485,436 | - | ||||||
Payments
on mortgage note payable
|
(31,250 | ) | - | |||||
Common
shares issued
|
6,500 | 6,499 | ||||||
Net
change provided by financing activities
|
460,686 | 6,499 | ||||||
Effect
of exchange rate changes on cash and cash equivalents
|
12,538 | - | ||||||
Net
change in cash equivalents
|
(27,620 | ) | (14,712 | ) | ||||
Cash
and cash equivalents, beginning of period
|
2,564,443 | 3,534,759 | ||||||
Cash
and cash equivalents, end of period
|
$ | 2,536,823 | $ | 3,520,047 | ||||
Cash
paid during the three months ended March 31, 2009 and
2008:
|
||||||||
Interest
paid
|
$ | 47,732 | $ | 948 | ||||
Income
taxes
|
$ | 29,843 | $ | – |
March 31, 2009
|
December 31, 2008
|
|||||||
Raw
materials
|
$ | 4,101,119 | $ | 3,867,281 | ||||
Work
in process
|
1,853,219 | 1,621,032 | ||||||
Finished
goods
|
1,102,439 | 891,054 | ||||||
Gross
inventories
|
7,056,777 | 6,379,367 | ||||||
Less:
reserve for obsolescence
|
(533,721 | ) | (540,903 | ) | ||||
Net
inventories
|
$ | 6,523,056 | $ | 5,838,464 |
March 31, 2009
|
December 31, 2008
|
|||||||
Trade
name (life indefinite)
|
$ | 1,509,662 | $ | 1,509,662 | ||||
Purchased
technology (9-17 yr life)
|
$ | 3,940,617 | $ | 3,940,617 | ||||
Less: Accumulated
amortization
|
(513,286 | ) | (460,865 | ) | ||||
Net
carrying amount
|
$ | 3,427,331 | $ | 3,479,752 | ||||
License
rights (5 yr life)
|
$ | 315,619 | $ | 315,619 | ||||
Less
accumulated amortization
|
(115,727 | ) | (99,946 | ) | ||||
Net
carrying amount
|
$ | 199,892 | $ | 215,673 |
March 31, 2009
|
March 31, 2008
|
|||||||
Net
income
|
$ | 403,266 | $ | 190,444 | ||||
Basic-weighted
average shares outstanding
|
16,852,994 | 15,922,863 | ||||||
Effect
of dilutive potential securities
|
924,744 | 1,761,920 | ||||||
Diluted
– weighted average shares outstanding
|
17,777,738 | 17,684,783 | ||||||
Basic
EPS
|
$ | 0.02 | $ | 0.01 | ||||
Diluted
EPS
|
$ | 0.02 | $ | 0.01 |
Number
Of Options
|
Weighted
Average Exercise
Price
|
|||||||
Outstanding
at December 31, 2008
|
1,867,150 | $ | 3.25 | |||||
Granted
|
5,500 | $ | 6.60 | |||||
Exercised
|
( 90,000 | ) | $ | 0.87 | ||||
Canceled
|
-- | |||||||
Outstanding
at March 31, 2009
|
1,782,650 | $ | 3.36 |
USA 2009
|
Canada 2009
|
USA 2008
|
Canada 2008
|
|||||||||||||
Sales,
net
|
$ | 7,166 | 52 | $ | 6,623 | $ | 54 | |||||||||
Gross
profit
|
$ | 3,268 | $ | 52 | $ | 2,719 | (133 | ) | ||||||||
Expenses
|
(2,681 | ) | (236 | ) | (2,229 | ) | (167 | ) | ||||||||
Net
income (loss)
|
$ | 587 | $ | (184 | ) | $ | 490 | $ | (300 | ) |
•
|
General
economic and political conditions, such as political instability, credit
market uncertainty, the rate of economic growth or decline in our
principal geographic or product markets or fluctuations in exchange
rates;
|
•
|
Changes
in general economic and industry conditions in markets in which we
participate, such as:
|
|
§
|
General
economic and political conditions, such as political instability, credit
market uncertainty, the rate of economic growth or decline in our
principal geographic or product markets or fluctuations in exchange rates;
continued deterioration in or stabilization of the global
economy;
|
|
§
|
Changes
in general economic and industry conditions in markets in which we
participate, such as:
|
|
§
|
continued
deterioration in or stabilization of the global
economy;
|
|
§
|
continued
deterioration in or stabilization of the North America housing
market;
|
|
§
|
the
strength of product demand and the markets we
serve;
|
|
§
|
the
intensity of competition, including that from foreign
competitors;
|
|
§
|
pricing
pressures;
|
|
§
|
the
financial condition of our
customers;
|
|
§
|
market
acceptance of new product introductions and
enhancements;
|
|
§
|
the
introduction of new products and enhancements by
competitors;
|
|
§
|
our
ability to maintain and expand relationships with large
customers;
|
|
§
|
our
ability to source raw material commodities from our suppliers without
interruption and at reasonable prices;
and
|
|
§
|
our
ability to source components from third parties, in particular from
foreign manufacturers, without interruption and at reasonable
prices;
|
|
§
|
Our
ability to access capital markets and obtain anticipated financing under
favorable terms;
|
|
§
|
our
ability to identify, complete and integrate acquisitions successfully and
to realize expected synergies on our anticipated
timetable;
|
|
§
|
changes
in our business strategies, including acquisition, divestiture and
restructuring activities;
|
|
§
|
changes
in operating factors, such as continued improvement in manufacturing
activities and the achievement of related efficiencies, inventory risks
due to shifts in market demand;
|
|
§
|
our
ability to generate savings from our cost reduction
actions;
|
|
§
|
unanticipated
developments that could occur with respect to contingencies such as
litigation, intellectual property matters, product liability exposures and
environmental matters; and
|
|
§
|
our
ability to accurately evaluate the effects of contingent
liabilities.
|
2009
|
2008
|
Percentage
change in Dollar amounts 2009/2008
|
||||||||||
%
|
%
|
%
|
||||||||||
Sales
|
100.0 | 100.0 | 8.1 | |||||||||
Cost
of sales
|
54.0 | 61.3 | (4.7 | ) | ||||||||
Gross
profit
|
46.0 | 38.7 | 28.4 | |||||||||
Other
costs:
|
||||||||||||
Research
and development
|
6.7 | 5.4 | 34.4 | |||||||||
Professional
services
|
6.2 | 2.4 | 172.9 | |||||||||
Salaries
and related costs
|
10.7 | 10.9 | 5.7 | |||||||||
Selling,
general and administrative
|
14.9 | 15.6 | 3.2 | |||||||||
Total
other costs
|
38.5 | 34.3 | 20.9 | |||||||||
Income
from operations
|
7.5 | 4.4 | 87.8 | |||||||||
Interest
income, net
|
1.0 | 0.3 | 211.2 | |||||||||
Income
before income tax
|
8.5 | 4.7 | 96.4 | |||||||||
Provision
for income tax
|
(2.9 | ) | (1.8 | ) | 72.2 | |||||||
Net
income
|
5.6 | 2.9 | 111.8 |
Net
Sales (in thousands)
|
2009
|
2008
|
Percentage
change 2009/2008
|
Increase/
(Decrease)
|
||||||||||||
Domestic/international
sales:
|
||||||||||||||||
Domestic
|
$ | 5,868 | $ | 5,238 | 12.0 | $ | 630 | |||||||||
International
|
1,349 | 1,440 | (6.3 | ) | (91 | ) | ||||||||||
Total
net sales
|
$ | 7,217 | $ | 6,678 | 8.1 | $ | 539 | |||||||||
Product
line sales:
|
||||||||||||||||
Electrosurgical
|
$ | 5,204 | $ | 4,534 | 14.8 | $ | 670 | |||||||||
Cauteries
|
1,441 | 1,535 | (6.1 | ) | (94 | ) | ||||||||||
Other
|
572 | 609 | (6.1 | ) | (37 | ) | ||||||||||
Total
net sales
|
$ | 7,217 | $ | 6,678 | 8.1 | $ | 539 |
As of March 31, 2009
|
2010
|
2011
|
2012
|
2013
|
||||||||||||||||
Operating
leases
|
214 | 278 | 252 | 246 | 223 | |||||||||||||||
Employment
Agreements
|
779 | 814 | 64 | 0 | 0 | |||||||||||||||
Purchase
Commitments
|
4,177 | -0- | -0- | -0- | -0- |
As of March 31, 2009
|
2010
|
2011
|
2012
|
2013
|
||||||||||||||||
Operating
leases
|
214 | 278 | 252 | 246 | 223 | |||||||||||||||
Employment
Agreements
|
779 | 814 | 64 | 0 | 0 | |||||||||||||||
Purchase
Commitments
|
4,177 | -0- | -0- | -0- | -0- |
|
Certifications
of Andrew Makrides, President and Chief Executive Officer of Registrant
pursuant to Rule 13a-14 adopted under the Securities Exchange Act of 1934,
as amended, and Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
Certifications
of Gary D. Pickett, Chief Financial Officer of Registrant pursuant to Rule
13a-14 adopted under the Securities Exchange Act of 1934, as amended, and
Section 302 of the Sarbanes-Oxley act of
2002.
|
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|