# Apyx Medical Corp: Form 10-Q for the period ended Jun 30, 2009

- Company: [Apyx Medical Corp](/companies/apyx.md) (CIK 719135)
- Form: 10-Q
- Filed: 2009-08-10
- Accepted by EDGAR: Aug 10, 2009, 08:18 ET
- Period: 2009-06-30
- Accession: 0001140361-09-018362
- Inline XBRL: no
- Main document: https://www.sec.gov/Archives/edgar/data/719135/000114036109018362/form10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/719135/000114036109018362/

## Management's discussion and analysis

As filed, 29,531 characters.

This report contains statements that we believe to be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements give our current expectations or forecasts of future events. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “project,” or “continue,” or similar words or the negative thereof. From time to time, we also may provide oral or written forward-looking statements in other materials we release to the public. Any or all of our forward-looking statements in this report and in any public statements we make could be materially different from actual results. They can be affected by assumptions we might make or by known or unknown risks or uncertainties. Consequently, we cannot guarantee any forward-looking statements. Investors are cautioned not to place undue reliance on any forward-looking statements. Investors should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all potential risks and uncertainties. The following factors and those discussed in ITEM 1A, Risk Factors, included in our 2008 Annual Report on Form 10-K, may impact the achievement of forward-looking statements:

- 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 destabilization of the global economy;
- continued deterioration in or destabilization 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.

The foregoing factors are not exhaustive, and new factors may emerge or changes to the foregoing factors may occur that would impact our business. We assume no obligation, and disclaim any duty, to update the forward-looking statements in this report.

#### Executive Level Overview

We are a medical device company engaged in the manufacturing and marketing of electrosurgical devices. Our medical products include electrosurgical generators and accessories, saline enhanced resection devices, endoscopic disposable and reusable modular instruments, cauteries, medical lighting, nerve locators and other products.

We internally divide our operations into three product lines: electrosurgical products, battery operated cauteries and other products. The electrosurgical product line sells electrosurgical products which include dessicators, generators, electrodes, electrosurgical pencils and various ancillary disposable products. These products are used in surgery for the cutting and coagulation of tissue. Battery operated cauteries are used for precise hemostasis (to stop bleeding) in ophthalmology and in other fields. Our other revenues are derived from nerve locators, disposable and reusable penlights, medical lighting, license fees, development fees and other miscellaneous income.

Most of the Company’s products are marketed through medical distributors, which distribute to more than 6,000 hospitals, as well as doctors and other health-care facilities. The Company’s products are sold in more than 150 countries through local distributors coordinated by our in-house sales and marketing personnel at our Clearwater, Florida facility. We have no manufacturing facilities or branch offices other than the Florida and Canadian facilities.

Our ten largest customers accounted for approximately 73% and 66% of net revenues for the first six months of 2009 and 2008 respectively. At June 30, 2009 and 2008, our ten largest trade receivables accounted for approximately 71% and 79% of our net receivables, respectively. In the first six months of 2009 and 2008 one customer accounted for 27% and 14% of total sales, respectively.

Our business is generally not seasonal in nature.

#### Outlook for 2009

The Company continues to advance on its path towards future growth through the development of new technologies. Management is pleased with the positive surgeon acceptance of its SEER tissue resection device. Subsequent to the close of the second quarter, a 510K submission for the BOSS orthopedic device was filed; the BOSS is an expansion of the sintered steel technology and companion to the SEER. The SEER and BOSS are high margin products that address a market exceeding $500 million. The Company is establishing direct sales and specialty sales teams in order to deliver the BOSS and SEER into the marketplace.

Secondly, during the early part of the third quarter, a 510K application was filed for the Company’s Seal-n-Cut™ vessel sealing instrument line as well as a separate submission filed for its ICON VS generator, designed to work with the Seal-n-Cut™ instruments. The vessel sealing market is estimated to exceed $1 billion.

In addition, a 510K application for the J-Plasma technology (ICON GS) has been filed and awaits FDA action. J-Plasma includes an improved redesigned system with added features that should increase efficiency for the surgeon, while reducing manufacturing costs. Marketing strategies for J-Plasma are being developed, and management believes the product will be versatile with uses in a range of surgical specialties.

The Company remains focused on maximizing shareholder value through the development of new products which should provide high margins and profit opportunities.

In today’s economic environment, marked by historic uncertainty, forecasting has become increasingly more difficult. We have, and will always, take a conservative approach. Every effort has been made to provide an outlook based on our experience and knowledge; however, variations often impact forecasting which may result in a change in this outlook. We strongly encourage individuals to visit our website: www.boviemedical.com to view the most current news.

### Result of Operations (to be read in conjunction with the consolidated statements of operations)

The table below outlines the components of the consolidated statements of operations as percentages of net sales and the year-to-year percentage changes in dollar amounts for the three and six months ended June 30, 2009 and 2008:

|  | Three Months 2009 %%%%%% | 2008 | Percentage Change in Dollar Amounts | Six Months 2009 | 2008 | Percentage Change in Dollar Amounts |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Sales | 100.0 | 100.0 | (2.2) | 100.0 | 100.0 | 2.8 |
| Cost of sales | 56.4 | 58.5 | (5.7) | 55.2 | 59.8 | (5.2) |
| Gross profit | 43.6 | 41.5 | 2.8 | 44.8 | 40.2 | 14.8 |
| Other costs: |  |  |  |  |  |  |
| Research & development | 7.6 | 8.4 | (10.9) | 7.1 | 6.9 | 6.3 |
| Professional services | 4.0 | 2.3 | 72.9 | 5.1 | 2.4 | 123.5 |
| Salaries and related costs | 11.3 | 11.3 | (2.9) | 11.0 | 11.2 | 1.2 |
| Selling, general and administrative | 16.7 | 16.0 | 1.9 | 15.8 | 15.8 | 2.7 |
| Total other costs | 39.6 | 38.0 | 1.9 | 39.0 | 36.3 | 10.8 |
| Income from operations | 4.0 | 3.5 | 12.4 | 5.8 | 3.9 | 52.4 |
| Interest income, net | (0.1) | 0.1 | (225.4) | 0.4 | 0.2 | 83.8 |
| Other Income | - | 21.5 | (100.0) | - | 11.0 | (100.0) |
| Income before income tax | 3.9 | 25.1 | (84.9) | 6.2 | 15.1 | (57.7) |
| Provision for income taxes | (0.9) | (7.4) | (93.4) | (1.9) | (4.7) | (59.6) |
| Net income | 3.0 | 17.7 | (80.2) | 4.3 | 10.4 | (58.6) |

### Results of Operations – Six months ended June 30, 2009 compared to six months ended June 30, 2008

The table below sets forth domestic/international and product line sales information for the first six months of 2009 and 2008:

| Net Sales (in thousands): | 2009 | 2008 | %age change 2009/2008 | Increase/ (Decrease) |
| --- | ---: | ---: | ---: | ---: |
| Domestic | $11,616 | $10,946 | 6.1 | $670 |
| International | 2,433 | 2,717 | (10.5) | (284) |
| Total net sales | $14,049 | $13,663 | 2.8 | $386 |
| Product line sales: |  |  |  |  |
| Electrosurgical | $9,909 | $9,341 | 6.1 | $568 |
| Cauteries | 3,048 | 3,141 | (3.0) | (93) |
| Other | 1,092 | 1,181 | (7.5) | (89) |
| Total net sales | $14,049 | $13,663 | 2.8 | $386 |

The statement operations for the six months ended June 30, 2009 shows an increase in sales as compared to the first six months of 2008. Sales of electrosurgical products increased by 6.1% or approximately $568,000 compared to the same six month period of 2008 while sales of cauteries decreased by 3.0% from $3.1 million to $3.0 million. Other sales decreased by 7.5% from $1.2 million to $1.1 million. The overall increase was attributed mainly to increased OEM sales of certain electrosurgical products. No sales of one particular electrosurgical product dominated the number of units sold.

Sales of generators and accessories to Arthrex increased by approximately $1.9 million during the six months ended June 30, 2008 to $3.8 million for the six months ended June 30, 2009.

Domestic sales were $11.6 million for six months ended June 30, 2009, representing an increase of 6.1% from the same period last year. The increase was mainly the result of sales for certain OEM product lines. International sales were $2.4 million for the six months ended June 30, 2009, representing a decrease of 10.5% over the same period in 2008.

Cost of sales decreased $0.4 million from $8.2 million at June 30, 2008 to $7.8 million at June 30, 2009, representing a change from 59.8% of sales to 55.2% of sales for the six-month periods then ended. The net decrease in cost of sales is the result of the product mix and more concentrated sales in higher profit margin product lines coupled with decreases in freight-in and indirect labor costs.

Research and development expenses were 7.1% and 6.9% of sales for the six months ended June 30, 2009 and 2008, respectively. These expenses increased 6.3% in 2009 to approximately $1.0 million over the corresponding period in 2008 which amounted to approximately $942,000. This increase is largely due to costs related to our continued development of our Polarian vessel sealing technology at our Canadian facility, as well as additional costs for our other product lines (i.e. SEER, BOSS, J Plasma) as they approach the production phase.

Professional services increased from approximately $322,000 in the first six months of 2008 to approximately $720,000 in the first six months of 2009, an increase of approximately $398,000 or 124%. This increase is mainly attributable to legal costs related to the lawsuit with Erbe (see Note 11).

Salaries and related costs remained relatively stable between the first six months of 2009 and 2008 at $1.5 million. The relatively small increase in these expenses resulted from cost cutting measures implemented by management at the beginning of the year.

Selling, general and administrative expenses increased slightly by approximately $59,000 in the first six months of 2009 compared to the first six months of 2008 (an increase of 2.7% to $2.2 million). The increase is mainly attributable to increased costs for insurance, moving costs associated with our new facility, and an increase in amortization for intellectual property recently placed in production.

We have agreements with various sales representatives to develop markets for our new products and to maintain customer relations. Our current representatives receive an average commission of approximately 4% of sales in their market areas. In the first six months of 2009 and 2008, commissions paid approximated $355,000 and $371,000 respectively, a decrease of 4.3%. The decrease in sales commissions was a result of a difference in product mix and an increase in sales to OEM customers.

Net interest earned increased by approximately $26,000 during the first six months of 2009 when compared to the same period in 2008 primarily as a result of the capitalization of a portion of interest expense related to our new facility during renovation.

For the six months ended June 30, 2008 we realized other income in the amount of approximately $1.5 million as a result of our acquiring intellectual property from a contract settlement with Boston Scientific Corporation. We had no such activity in 2009.

Our income tax provision for the six months ended June 30, 2009 was approximately $265,000 as compared to approximately $640,000 during the six months ended June 30, 2008. Our effective tax rate was approximately 30% for the first six months of 2009, which differs from statutory rates primarily due to the effects of research and development and production tax credits We estimate that our annual effective tax rate is approximately 34% and we adjust our income tax provision for both temporary and permanent differences between GAAP net taxable income and net taxable income pursuant to the Internal Revenue Service Code and other state revenue agency code.

### Results of Operations - Three months ended June 30, 2009 compared to three months ended June 30, 2008

The table below sets forth domestic/international and product line sales information for the second quarter of 2009 and 2008:

### Index

| Net Sales (in thousands) | 2009 | 2008 | %age change 2009/2008 | Increase/ (Decrease) |
| --- | ---: | ---: | ---: | ---: |
| Domestic | $5,748 | $5,708 | 0.7 | $40 |
| International | 1,084 | 1,277 | (15.1) | (193) |
| Total net sales | $6,832 | $6,985 | (2.2) | $(153) |
| Product line sales: |  |  |  |  |
| Electrosurgical | 4,704 | $4,807 | (2.1) | $(103) |
| Cauteries | 1,608 | 1,606 | 0.1 | 2 |
| Other | 520 | 572 | (9.1) | (52) |
| Total net sales | $6,832 | $6,985 | (2.2) | $(153) |

Sales for the three month period ended June 30, 2009 were approximately $6.8 million as compared to $7.0 million for the same period in 2008, a decrease of $0.2 million or 2.2%. The decrease was mainly attributed to a decrease in international sales.

Cost of goods sold decreased from $4.1 million to $3.9 million a decrease of $0.2 million or 5.7% for the three month period ended June 30, 2009 as compared to the same period in 2008. The reason for the increase was mainly attributed to sales product mix and sales of higher margin products.

Research and development decreased by approximately $64,000,or 10.9%, from $584,400 in 2008 to $520,800 in 2009, respectively as products under development continued closer to production launch.

Professional fees increased by approximately $116,000 or 72.9% from approximately $159,000 to approximately $275,000 for the quarters ended June 30, 2008 to June 30, 2009, respectively. This increase continues to be driven by the legal costs associated with the Erbe lawsuit.

Salaries and related costs decreased from approximately $794,000 in 2008 to $771,000 in 2009, respectively, a decrease of approximately $23,000 or 2.9%. This decrease is mainly attributable to management’s cost cutting plan implemented at the beginning of the year.

Selling, general and administrative expenses remained relatively constant at around $1.1 million for the quarters ended June 30, 2008 and June 30, 2009, respectively.

Net interest income decreased by approximately $20,200, or 225%, from approximately $9,000 of net interest income for the quarter ended June 30, 2008 to approximately $11,000 of net interest expense for the quarter ended June 30, 2009. The decrease is due to increased interest expense from the financing of our new facility.

We realized other income in the amount of approximately $1.5 million in the second quarter 2008. The increase was the result of our acquiring intellectual property and molds from a contract settlement with Boston Scientific Corporation. As a result of this gain, income before income taxes for the three months ended June 30, 2008 was $1.8 million compared to $264,594 for the same three months period in 2009.

Our income tax provision for the three months ended June 30, 2009 was approximately $58,000 as compared to approximately $520,000 during the three months ended June 30, 2008. Our effective tax rate was approximately 22% for the quarter, which differs from statutory rates primarily due to the effects of research and development tax and production tax credits. We estimate that our annual effective tax rate is approximately 34% and we adjust our income tax provision for both temporary and permanent differences between GAAP net taxable income and net taxable income pursuant to the Internal Revenue Service Code and other state revenue agency code.

### Marketing and Sales

We sell our products through distributors both overseas and in U.S. markets. New distributors are contacted through responses to our advertising in domestic and international medical journals and domestic or international trade shows.

An adequate supply of raw materials is available from both domestic and international suppliers. The relationship between us and our suppliers is generally limited to individual purchase order agreements, supplemented by contractual arrangements with key vendors to ensure availability of certain products. We have developed multiple sources of supply where possible.

### Product Development

Most of the Company’s products and product improvements have been developed internally. Funds for this development have resulted primarily from internal cash flow and the issuance of common stock upon the exercise of stock options. The Company maintains close working relationships with physicians and medical personnel in hospitals and universities who assist in product research and development. New and improved products play a critical role in the Company’s sales growth. The Company continues to place emphasis on the development of proprietary products and product improvements to complement and expand its existing product lines. The Company has a centralized research and development focus, with its Florida and Canadian manufacturing locations responsible for new product development and product improvements. Our research, development and engineering units at the manufacturing locations maintain relationships with distribution locations and customers in order to provide an understanding of changes in the market and product needs. During 2009 we continued to invest in the ICON GS (J-Plasma technology), ICON GP, vessel sealing technology, Polarian, and BOSS. The ongoing cost for this development will be paid from operating cash flows.

In the next year we do not contemplate any material purchase or acquisition of assets that our ordinary cash flow and/or credit line would be unable to sustain.

### Reliance on Collaborative, Manufacturing and Selling Arrangements

We are dependent on certain contractual OEM customers for product development, wherein we are to provide the manufacturing of the product developed. However, the customer has no legal obligation to purchase the developed products. Should the collaborative customer fail to give us purchase orders for the product after development, our future business and value of related assets could be negatively affected. Furthermore, no assurance can be given that a collaborative customer may give sufficient high priority to our products. In addition, disagreements or disputes may arise between Bovie and its contractual customers, which could adversely affect production of our products. We also have informal collaborative arrangements with two foreign suppliers wherein we request the development of certain items and components and we purchase them pursuant to purchase orders. Our purchase orders are never more than one year and are supported by orders from our customers.

### Liquidity and Capital Resources

Our working capital at June 30, 2009 approximated $10 million as compared to approximately $9.7 million at December 31, 2008. Accounts receivable day sales outstanding were 34.1 days and 37.9 days at June 30, 2009 and June 30, 2008 respectively.

We generated cash from operations of $0.4 million for the six months ended June 30, 2009 compared to $0.7 million for the same period of 2008, a decrease of $0.3 million.

In the first six months ended June 30, 2009 we used approximately $2.1 million for the purchase of property and equipment as compared to purchases of such assets of approximately $0.6 in 2008. The increase resulted primarily from our refurbishment of our new facility that we purchased in September 2008.

We generated cash from financing activities of approximately $2.2 million and $.2 during the six months ended June 30, 2009 and 2008, respectively. The increase in cash resulted primarily from borrowings under our line of credit of approximately $1,000,000 and cash that was released from an escrow account established to fund the refurbishment of our new facility.

We had approximately $3.1 million in cash and cash equivalents at June 30, 2009. We believe our cash on hand, as well as anticipated cash flows from operations will be sufficient to fund our operating capital requirements, capital expenditures and any acquisitions to supplement our current product offerings for a period of at least one year. Should additional funds be required, we have $4.0 million of borrowing capacity available under our existing credit facility. As of June 30, 2009 the outstanding balance on our line of credit amounted to approximately $1.0 million.

### Off-Balance Sheet Arrangements

As of June 30, 2009, we had future contractual obligations for certain employee agreements, purchase order commitments and operating leases as follows:

|  | As of June 30, 2009 | 2010 | 2011 | 2012 | 2013 |
| --- | ---: | ---: | ---: | --- | --- |
| Operating leases | 141 | 278 | 252 | 246 | 223 |
| Employment agreements | 519 | 814 | 64 | -0- | -0- |
| Purchase order commitments | 2,785 | -0- | -0- | -0- | -0- |

### Critical Accounting Estimates

We have adopted various accounting policies to prepare the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). Our most significant accounting policies are disclosed in Note 1 to the consolidated financial statements included in our December 31, 2008 Form 10-K.

The preparation of the consolidated financial statements, in conformity with U.S. GAAP, requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Our estimates and assumptions, including those related to bad debts, inventories, intangible assets, property, plant and equipment, legal proceedings, research and development, warranty obligations, product liability, sales returns and discounts, and income taxes are updated as appropriate, which in most cases is at least quarterly. We base our estimates on historical experience, or various assumptions that are believed to be reasonable under the circumstances and the results form the basis for making judgments about the reported values of assets, liabilities, revenues and expenses. Actual results may materially differ from these estimates.

Estimates are considered to be critical if they meet both of the following criteria: (1) the estimate requires assumptions about material matters that are uncertain at the time the accounting estimates are made, and (2) other materially different estimates could have been reasonably made or material changes in the estimates are reasonably likely to occur from period to period. Our critical accounting estimates include the following:

#### Allowance for doubtful accounts

We maintain an allowance for doubtful accounts for estimated losses in the collection of accounts receivable. We make estimates regarding the future ability of our customers to make required payments based on historical credit experience and expected future trends. If actual customer financial conditions are less favorable than projected by management, additional accounts receivable write-offs may be necessary, which would unfavorably affect future operating results.

#### Inventory Reserves

We maintain reserves for excess and obsolete inventory resulting from the potential inability to sell our products at prices in excess of current carrying costs. The markets in which we operate are highly competitive, with new products and surgical procedures introduced on an ongoing basis. Such marketplace changes may cause our products to become obsolete. We make estimates regarding the future recoverability of the costs of these products and record a provision for excess and obsolete inventories based on historical experience, and expected future trends. If actual product life cycles, product demand or acceptance of new product introductions are less favorable than projected by management, additional inventory write-downs may be required, which would unfavorably affect future operating results.

#### Long-Lived Assets

We review long-lived assets which are held and used, including property and equipment and intangible assets, for impairment whenever changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Such evaluations compare the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset over its expected useful life and are significantly impacted by estimates of future prices and volumes for our products, capital needs, economic trends and other factors which are inherently difficult to forecast. If the asset is considered to be impaired, we record an impairment charge equal to the amount by which the carrying value of the asset exceeds its fair value determined by either a quoted market price, if any, or a value determined by utilizing a discounted cash flow technique.

#### Share-based Compensation

Under the Company’s stock option plan, options to purchase Common Shares of the Company may be granted to key employees, officers, directors, and consultants of the Company by the Board of Directors. The Company accounts for stock options in accordance with SFAS Statement 123 (R) with option expense amortized over the vesting period based on the binomial lattice option-pricing model fair value on the grant date, which includes a number of estimates that affect the amount of our expense.

#### Income Taxes

We operate in multiple tax jurisdictions both inside and outside the United States. Accordingly, management must determine the appropriate allocation of income to each of these jurisdictions. Tax audits associated with the allocation of this income and other complex issues may require an extended period of time to resolve and may result in income tax adjustments if changes to the income allocation are required between jurisdictions with different tax rates. Because tax adjustments in certain jurisdictions can be significant, we record accruals representing our best estimate of the probable resolution of these matters. To the extent additional information becomes available, such accruals are adjusted to reflect the revised estimated probable outcome.

#### Other Matters

We distribute our products throughout the world. As a result, our financial results could be significantly affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets. Our operating results are primarily exposed to changes in exchange rates among the United States dollar and European currencies, in particular the euro and the British pound. When the United States dollar weakens against foreign currencies, the dollar value of sales denominated in foreign currencies increases. When the United States dollar strengthens, the opposite situation occurs. We manufacture our products in the United States, China, Canada and Bulgaria and incur the costs to manufacture in US dollars. This worldwide deployment of factories serves to partially mitigate the impact of the high costs of manufacturing in the US.

## Market risk

As filed, 2,971 characters.

### Interest rate risk

Our financial instruments include cash, cash equivalents and short-term investments. We are exposed to interest rate risk on our short-term investments. The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. To achieve this objective, we invest in highly liquid overnight money market investments. To minimize our exposure due to adverse shifts in interest rates, we invest in short-term overnight securities. If a 10% change in interest rates were to have occurred on June 30, 2009, this change would not have had a material effect on the fair value of our investment portfolio as of that date. Due to the short holding period of our investments, we have concluded that we do not have a material financial market risk exposure.

### Foreign Currency Risk

Although we have a foreign subsidiary located in Canada, our transactions outside our functional currency are minimal and not a material financial risk.

### Changes in Market and Counterparty Risk

The global recession, driven initially by the crisis in global credit and financial markets, has caused extreme disruptions recently, including severely diminished liquidity and credit availability, declines in consumer confidence, increases in unemployment rates, and uncertainty about economic stability. There can be no assurance that there will not be further deterioration in credit and financial markets and confidence in economic conditions. These economic uncertainties affect businesses such as ours in a number of ways, making it difficult to accurately forecast and plan our future business activities. The current constriction of credit in financial markets may continue to lead hospitals and physicians to postpone spending, which may cause our customers to aggressively manage their inventories and delay their future orders with us. In addition, some of our suppliers and other vendors may be adversely impacted by tightening of the credit markets, fluctuations in commodity prices and other consequences of the economic downturn. Some vendors may seek to change the terms on which they do business with us in order to lessen the impact of the economic downturn on their business. If we are forced to find alternative vendors for key components or services, whether due to demands from the vendor or the vendor’s bankruptcy or ceasing operations, that could be a distraction to us and adversely impact our business. Changing vendors could also result in our inability to obtain business terms as favorable to us as the terms on which we currently operate. We are unable to predict the likely duration and severity of the current disruptions in the credit and financial markets and adverse global economic conditions, and if the current uncertain economic conditions continue or further deteriorate, our business and results of operations could be materially and adversely affected.

## Controls and procedures

As filed, 1,712 characters.

(a) Evaluation of disclosure controls and procedures

We have carried out an evaluation, under the supervision of and with the participation of our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended), as of June 30, 2009. Based upon that evaluation, our CEO and CFO concluded that, as of the end of that period, our disclosure controls and procedures are effective in providing reasonable assurance that (a) the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (b) such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

(b) Changes in internal controls

There were no changes in our internal control over financial reporting during the quarter ended June 30, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting

## Risk factors

As filed, 176 characters.

There have been no material changes to the Risk Factors previously disclosed in our Form 10K for the year ended December 31, 2008, in response to Item 1A to Part 1 of Form 10K.

Filed Aug 10, 2009.
Source: SEC EDGAR, the filing index for accession 0001140361-09-018362. Last ingested by Listed: Nov 5, 2026, 13:09 ET. No prices; not investment advice.