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MOCON INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations(Edgar Glimpses Via Acquire Media NewsEdge) This Management's Discussion and Analysis provides material historical and prospective disclosures intended to enable investors and other users to assess our financial condition and results of operations. Statements that are not historical are forward-looking and involve risks and uncertainties discussed below under the caption "Forward-Looking Statements." The following discussion of the results of operations and financial condition of MOCON should be read in conjunction with our consolidated financial statements and the related notes thereto included elsewhere in this report. Overview Description of Business MOCON, Inc. designs, manufactures, markets and services products and provides consulting and testing services primarily in the measurement and analytical instrument and services markets. Our products include instruments that detect, measure and monitor gases and chemical compounds. We continually seek growth opportunities through technological and product improvement, by developing new products, and by acquiring new companies, new product lines, or rights to technologies. We are headquartered in Minnesota and have operating locations in Minnesota, Denmark, and Colorado. We have foreign offices and laboratories in Texas, Germany, France, Italy, Spain and China. We use a mix of a direct sales force and independent sales representatives to market our products and services in the United States, Canada, Europe and China, and we use a network of independent sales representatives to market and service our products and services in most other foreign countries. Historically, a significant portion of our sales has come from international customers. The international portion of our consolidated sales has increased from recent historical trends since the acquisition of Dansensor as the principal portion of their sales are to European customers. Our ongoing plans for growth include continued substantial funding for research and development to drive new product introductions, together with strategic acquisitions and investments where appropriate. Products and Services Permeation Products and Services Our permeation products consist of systems and services that measure the rate at which various gases and vapors transmit through a variety of materials. These products perform measurements under precise temperature, pressure and relative humidity conditions. The principal market for these products consists of manufacturers of packaging materials, including manufacturers of papers, plastic films, coatings and containers and the users of such packaging materials, such as companies in the food, beverage, pharmaceutical and consumer product industries. Other customers include manufacturers of flat panel displays, solar panels, electronics, and many other sophisticated materials. We also provide certain laboratory testing services to companies that have a need for permeation data. These services consist primarily of testing film and package permeation for companies that: ? wish to outsource their testing needs to us; ? are interested in evaluating our instrumentation prior to purchase; or ? have purchased our products but have a need for additional capacity. -15--------------------------------------------------------------------------------- Permeation instruments that we currently manufacture include OX-TRAN® systems for oxygen transmission rates, PERMATRAN-W® systems for water vapor transmission rates, and PERMATRAN-C® systems for carbon dioxide transmission rates. Our AQUATRAN® ultra-high sensitivity, trace moisture permeation analyzer has been increasingly accepted as the standard test instrument of choice in the flat panel, solar cell and electronics industries. Our systems are available in a wide range of options for our customers, including high or low throughput, price, sensitivity and ease of use. They are primarily marketed to research and development departments, as well as production and quality assurance groups. During the second quarter 2014, we began shipping the OX-TRAN Model 2/22 for oxygen transmission measurement, the first in our new series of technologically-advanced permeation instruments. Package Testing Products and Services We manufacture and sell three primary products in this group: headspace analyzers, leak detection equipment and gas mixers. Our headspace analyzer products are used to analyze the amount and type of gas present in the headspace of flexible and rigid packages, as applied to gas flushing in modified or controlled atmosphere packaging. The principal market for these products consists of packagers of foods, beverages and pharmaceuticals. Our headspace analyzer products include the PAC CHECK®, CheckMateTM and CheckPointTM series of off-line headspace analyzers and the MAP Check 3™ series of on-line analyzers for continuous and intermittent monitoring of modified atmosphere packaging (MAP) and other gas flushing operations. Our leak detection products detect leaks in sterile medical trays, food pouches, blister packs and a wide range of other sealed packages. We currently manufacture three types of leak detection instruments. The first type is a non-destructive leak detector that senses small amounts of carbon dioxide escaping from a package or tray. The third type of instrument detects leaks and checks for seal integrity by applying and measuring pressure within a package. The third type pulls a vacuum on a package and looks for vacuum or gas flow changes. The principal markets for these products are packagers of sterile medical items, pharmaceuticals and food products. Our leak detection products include the LeakMatic IITM and LeakPointer IITM series of instruments. Our gas mixers are used in the food production environment to assure that the package has been properly flushed with the correct mixture of gases. Our gas mixer products include the MAP Mix Provectus and MAP Mix 9001 on-line instruments. Industrial Analyzer Products and Services and Other Sales of our gas analyzers, sensors and detector products comprise the majority of sales in this segment. We offer advanced gas analysis and monitoring instrumentation used in applications such as oil and gas exploration, process gas analysis, industrial hygiene and safety, environmental air monitoring and indoor air quality. In this group, we manufacture and sell two types of gas analyzer instruments: gas chromatographs (GCs) and total hydrocarbon analyzers (THAs). These instruments are typically installed in fixed locations at the monitoring sites and perform their functions of detecting and measuring various hydrocarbons continually or at regular intervals. We also make gas sensors and detectors which are sold to original equipment manufacturers (OEMs) of mobile gas safety equipment. Our industrial analyzer products, sensors and detectors are for use in industrial hygiene (detection of hazardous gases in the workplace), hydrocarbon gas analysis for oil and gas exploration, contaminant detection in the manufacture of specialty gases, and environmental monitoring (tracking the release, or the presence, of toxic substances). Our newest GC offering measures trace levels of contaminants in beverage grade carbon dioxide which is used to carbonate soft drinks, beer and water. We market some of these products under the names PETROALERT®, piD-TECH®, and BEVALERT®. -16- -------------------------------------------------------------------------------- Microbial Detection Products Our microbial detection products are designed to rapidly detect microbial growth in food and beverage samples. Using the total viable count (TVC) method, our GreenLight® series of instruments perform rapid and precise measurements to determine the presence or absence of aerobic bacteria in food products or ingredients. There are two models of the GreenLight product line currently available. Results of Operations The following table sets forth the relationship between various components of our results of operations, stated as a percent of sales, for the three and nine-month periods ended September 30, 2014 and 2013: Three Months Ended Nine Months Ended September 30, September 30, 2014 2013 2014 2013 Sales 100.0 100.0 100.0 100.0 Cost of sales 42.6 43.2 43.9 44.0 Gross profit 57.4 56.8 56.1 56.0 Selling, general and administrative expenses 36.8 37.0 38.3 39.1 Research and development expenses 5.7 6.3 6.4 7.3 Operating income 14.9 13.5 11.4 9.6 Other income (expense), net (0.7 ) (0.7 ) (0.6 ) (0.6 ) Income before income taxes 14.2 12.8 10.8 9.0 Income taxe expense 4.1 3.2 3.3 1.8 Net income 10.1 9.6 7.5 7.2 Comparison of Financial Results for the Three and Nine-Month Periods Ended September 30, 2014 and 2013 Sales Total consolidated sales for the three-month period ended September 30, 2014 were $16,649,000, up 17% compared to $14,190,000 for the same period in 2013. The growth for the quarter was attributable primarily to our Industrial Analyzer and Other segment which recorded a 58% increase in sales, and experienced growth in all major product lines, driven by continued strong demand in the oil and gas exploration and environmental monitoring markets. In addition, sales in our Package Testing segment increased in the current year third quarter by 16% due to increased sales of online and headspace analyzer equipment. Sales in our Permeation segment were up 2% which was due primarily to international market demand for instruments. Sales for the nine-month period ended September 30, 2014 were $47,537,000, up 12% compared to $42,325,000 for the same period in 2013, as all three segments reported increased sales. Sales in our Package Testing segment were up 12%, partially due to increased sales of online and headspace analyzer equipment. Sales in our Permeation segment increased 7%, due primarily to a significant increase in international shipments. Sales in our Industrial Analyzer and Other segment were up 23% in the current period, led by increased shipments of sensors and OEM detectors, while all major product lines also grew. Total consolidated sales to foreign customers increased 15% in the current quarter compared to the same quarter last year and accounted for 67% and 68% of total consolidated sales for the quarters ended September 30, 2014 and 2013, respectively. Total consolidated sales to domestic customers increased 22% in the current quarter compared to the same quarter last year and accounted for 33% and 32% of total consolidated sales for the quarters ended September 30, 2014 and 2013, respectively. Sales to foreign customers for the nine-month periods ended September 30, 2014 and 2013, respectively, amounted to 71% and 67% of total consolidated sales, and were up 18% in the current period. Sales to domestic customers for the nine-month periods ended September 30, 2014 and 2013, respectively, amounted to 29% and 33% of total consolidated sales, and were up 1% in the year to date period. -17---------------------------------------------------------------------------------The following table summarizes total sales by reporting segments for the three and nine-month periods ended September 30, 2014 and 2013: Three Months Ended Nine Months Ended September 30, September 30, 2014 2013 2014 2013 Permeation $ 5,729,373 $ 5,596,470 $ 16,621,767 $ 15,550,031 Package Testing 7,342,007 6,328,402 21,320,444 18,976,020 Industrial Analyzers and Other 3,578,247 2,265,001 9,595,087 7,799,015 Total Sales $ 16,649,627 $ 14,189,873 $ 47,537,298 $ 42,325,066 The following table sets forth the relationship between various components of domestic and foreign sales for the three and nine-month periods ended September 30, 2014 and 2013: Three Months Ended Nine Months Ended September 30, September 30, 2014 2013 2014 2013 Domestic Sales $ 5,461,503 $ 4,473,963 $ 13,959,785 $ 13,808,562 Foreign Sales: Europe 6,813,012 5,879,450 19,808,715 18,016,054 Asia 3,526,335 2,803,707 10,900,652 7,839,304 Other 848,777 1,032,753 2,868,146 2,661,146 Total Foreign Sales 11,188,124 9,715,910 33,577,513 28,516,504 Total Sales $ 16,649,627 $ 14,189,873 $ 47,537,298 $ 42,325,066 Permeation Testing Products and Services - Sales in our Permeation segment increased 2% for the three months ended September 30, 2014 compared to the same period in the prior year, and accounted for 34% and 39% of our consolidated third quarter sales in 2014 and 2013, respectively. The slight increase in the current period is primarily due to continued strong sales in international markets. In particular, Southern Europe which had been depressed for the last two to three years, showed signs of economic recovery. Foreign sales comprised 70% of the shipments in this segment in the third quarter 2014, compared to 69% from the same period in the prior year. During the second quarter of 2014, we began shipping the OX-TRAN Model 2/22, the new generation of oxygen permeation instrumentation. While this new product is not a significant contributor to revenue in the current period, initial feedback in the marketplace is positive. -18- -------------------------------------------------------------------------------- Sales in our Permeation segment increased 7% for the first nine-months ended September 30, 2014 compared to the same period in the prior year, and accounted for 35% and 37% of our consolidated first nine-month sales in 2014 and 2013, respectively. The increase in sales for the nine-month period is primarily due to a 16% increase in foreign sales. This increase is due to the strengthening international markets. Foreign sales comprised 71% of the sales in this segment in the first three quarters of 2014, compared to 65% from the same period in the prior year, and increased 6%. This increase more than offset a 13% decrease in domestic sales for the nine-month period. Package Testing Products and Services - Sales in our Package Testing segment increased 16% for the three-months ended September 30, 2014, compared to the same period in the prior year, and accounted for 44% and 45% of our consolidated third quarter sales in 2014 and 2013, respectively. Sales of online and headspace analyzers were higher than expected and improved over the prior year third quarter. Sales of leak detection instruments also were higher than expected and significantly improved over the prior year. Sales to foreign destinations comprised 77% and 75% of total sales in this segment for the three-months ended September 30, 2014 and 2013, respectively. Sales in our Package Testing segment, which accounted for 45% of our consolidated sales during the first nine-months in 2014 and 2013, increased 12% in the current nine-month period compared to the same period in 2013. Improved sales of headspace analyzers, leak detectors and online analyzers and mixers all contributed to the current year growth. Sales to foreign destinations comprised 78% and 77% of total sales in this segment for the nine-months ended September 30, 2014 and 2013, respectively. Industrial Analyzer Products and Services and Other - Sales in our Industrial Analyzers and Other segment, which accounted for 22% and 16% of our consolidated third quarter sales in 2014 and 2013, respectively, increased 58% during the third quarter 2014 compared to the same period in 2013. Sales in this segment are comprised mainly of instruments and services provided by our Baseline subsidiary. Sales of instruments to the oil and gas exploration and environmental monitoring markets, as well as sales of OEM sensors and detectors for worker safety applications, accounted for the majority of the increase. Sales to foreign destinations comprised 41% and 51% of total sales in this segment for the three-months ended September 30, 2014 and 2013, respectively. Sales in our Industrial Analyzers and Other segment, which accounted for 20% and 18% of our consolidated sales for the first nine-months of 2014 and 2013, respectively, increased 23% during the first nine-months of 2014 compared to the same period in 2013. Sales of OEM sensors and detectors for worker safety applications, accounted for the majority of the increase. Sales of gas chromatographs and hydrocarbon analyzers also improved as demand in the oil and gas drilling and environmental monitoring markets continues to be strong. Sales to foreign destinations comprised 53% and 48% of total sales in this segment for the nine-months ended September 30, 2014 and 2013, respectively. Gross Profit For the three-months ended September 30, 2014 and 2013, the consolidated gross profit margins were 57% for both periods respectively. The gross profit as a percentage of sales in the Permeation segment for the current quarter was consistent at 56% compared to the prior year quarter. The gross profit as a percentage of sales for the Package Testing segment increased by three percentage points to 53% in the current quarter compared to 50% in the year ago quarter, due to increased capacity utilization as a result of increased production. The gross profit as a percentage of sales for the Industrial Analyzers and Other segment for the current quarter was consistent at 56% compared to the prior year quarter. For the nine-months ended September 30, 2014 and 2013, the consolidated gross profit margins were 56% for both periods respectively. The year-to-date gross profit as a percentage of sales for the Permeation segment increased by one percentage point from 63% in the nine-months ended September 30, 2103 to 64% in the nine-months ended September 30, 2014 as a result of decreased consulting costs. The year-to-date Package Testing segment gross profit as a percentage of sales improved by one percentage point to 50% compared to 49% in prior year due to increased capacity utilization. The year-to-date Industrial Analyzer and Other segment gross profit as a percentage of sales declined by two percentage points to 56% compared to 58% in the prior year. The decline in gross profit as a percent of sales for the Industrial Analyzer and Other segment is due to an increase in production capacity to support our continued revenue growth. -19- --------------------------------------------------------------------------------Selling, General and Administrative Expenses Selling, general and administrative (SG&A) expenses were $6,125,000, or 37% of consolidated sales, in the three-month period ended September 30, 2014, compared to $5,258,000, or 37% of consolidated sales, in the same period of 2013. The dollar increase in the current quarter was primarily related to increased commissions resulting from higher sales, increased headcount in our sales and marketing area, recruitment expenses incurred in connection with the new Chief Financial Officer and higher incentive compensation due to improved operating results. The current period expense is within our expected range of 35% to 38% of sales. SG&A expenses were $18,215,000, or 38% of consolidated sales, in the nine-month period ended September 30, 2014, compared to $16,529,000, or 39% of consolidated sales, in the same period of 2013. The dollar increase in the current nine-month period was primarily related to higher professional fees for audit and SOX compliance consulting, increased commissions, and higher compensation related expenses resulting from increased headcount and incentive compensation. Research and Development Expenses Research and development (R&D) expenses were $950,000, or 5.7% of consolidated sales, in the third quarter 2014, compared to $886,000, or 6.3% of sales, in the same period of 2013. The current period expense is slightly below our planned level of spending. R&D expenses were $3,064,000, or 6.4% of consolidated sales, in the first nine-months of 2014, compared to $3,085,000, or 7.3% of consolidated sales, in the same period of 2013. The current period expense is slightly below our planned level of spending, but within our expected range of 6% to 8% of consolidated sales. Other Expense Other expense for the three and nine-month periods ended September 30, 2014 and 2013 was as follows: Three Months Ended Nine Months Ended September 30, September 30, 2014 2013 2014 2013 Interest income $ 681 $ 4,399 $ 3,161 $ 19,208 Interest expense (45,499 ) (24,752 ) (149,347 ) (73,236 ) Foreign currency exchange loss (72,105 ) (75,248 ) (120,919 ) (235,318 ) Other - 293 - 3,356 Total other expense $ (116,923 ) $ (95,308 ) $ (267,105 ) $ (285,990 ) Income Tax Expense Our provision for income tax expense was 29% and 25% of income before income taxes for the third quarters ended September 30, 2014 and 2013, respectively. The rate in the third quarter 2014 was lower than the statutory rate due primarily to the effect of foreign operations where tax rates tend to be lower as well as the domestic manufacturing deduction. The rate in the third quarter 2013 was lower than the statutory rate due primarily to certain discrete adjustments totaling $109,000 recorded during the quarter. -20- -------------------------------------------------------------------------------- For the nine-month period ended September 30, 2014, our income tax expense was 30% of income before income taxes compared to 20% for the same period of 2013. The rate for the first nine-months of 2014 was lower than the statutory rate due primarily to the effect of our foreign operations and the domestic manufacturing deduction. The rate for the first nine-months of 2013 was positively impacted by the tax law changes noted above as well as the domestic tax law change related to research and development credits which was effective in the first quarter 2013. Based on current projected annual operating results and current income tax rates, we expect the effective tax rate for the remainder of 2014 to be consistent with our experience in the first nine-months. This rate fluctuates over time based on the income tax rates in the various jurisdictions in which we operate, and also the level of profits in those jurisdictions. Net Income Net income was $1,674,000 in the third quarter 2014, compared to a net income of $1,359,000 in the third quarter 2013. Diluted net income per share was $0.29 and $0.24 in the third quarters of 2014 and 2013, respectively. For the nine-months ended September 30, 2014, net income was $3,569,000 or $0.62 per diluted share, compared to $3,027,000, or $0.53 per diluted share in the prior year. Liquidity and Capital Resources Total cash, cash equivalents and marketable securities increased $2,007,000 to $6,141,000 during the nine-month period ended September 30, 2014, compared to $4,133,000 at December 31, 2013. Included in the September 30, 2014 total, was $4,618,000 held outside of the United States. The year-to-date increase in cash, cash equivalents and marketable securities was primarily due to cash provided from operations of $6,430,000 partially offset by net pay-downs on our revolving lines of credit and term debt totaling $1,400,000, dividend payments of $1,900,000 and capital expenditures of $1,000,000. At September 30, 2014, we had $4.5 million outstanding on the revolving lines of credit compared to $4.3 million at December 31, 2013. The four-year term note is payable in monthly principal installments of $72,917 plus interest at 3.46% per annum. The four-year seller note is payable in semi-annual installments of $891,000, including interest, at 3.46% per annum. The U.S. revolving line of credit accrues interest at 1.75% over the one-month LIBOR rate, which totaled 2.00% at September 30, 2014. The term note and the revolving line of credit related to our U.S. borrowings are due on March 28, 2016, and we are subject to certain financial and restrictive covenants. Our working capital as of September 30, 2014 was $11,446,000, an increase of $811,000 compared to $10,635,000 at December 31, 2013. This increase is primarily related to the increase in cash and cash equivalents, an increase in inventories, and a decrease in current maturities of long-term notes payable, partially offset by a reduction in trade accounts receivable. One of our strategic objectives is, as market and business conditions warrant, to consider acquisitions of, or investments in, businesses, products and/or technologies. If we wish to pursue one or more additional acquisition opportunities, this may require the consent of the Bank under the credit agreement we have executed, and we may need to fund such activities with a portion of our cash balances and debt or equity financing. If we need to raise additional capital, an equity-based or equity-linked financing may be used which could be dilutive to existing shareholders. If we raise additional funds by issuing debt, we may be subject to additional restrictive covenants that could limit our operational flexibility and higher interest expense could dilute earnings per share. -21---------------------------------------------------------------------------------We may invest a portion of our available cash in highly liquid marketable securities consisting primarily of certificates of deposits, municipal bonds, and money market funds. Our investment policy is to manage these assets to preserve principal, maintain adequate liquidity at all times, and maximize returns subject to investment guidelines we maintain. We believe that a combination of our existing cash and cash equivalents, funds available under the revolving credit facility, and an expected continuation of cash flow from operations, will continue to be adequate to fund our operations and working capital, capital expenditures, required payments on indebtedness and declared dividend payments. For those international earnings considered to be reinvested indefinitely, we currently have no intention to, and plans do not indicate a need to, repatriate the funds related to those earnings for U.S. operations. Cash Flow Cash Flow from Operating Activities Historically, our primary source of funds has been cash provided by operating activities. In the first nine-months of 2014, cash provided by operations totaled approximately $6,430,000, due primarily to net income of $3,569,000, non-cash depreciation and amortization of $1,924,000, an increase in deferred revenue of $588,000, and an decrease in trade accounts receivable of $843,000. These increases in cash from operating activities were partially offset from an increase in inventories of $1,339,000, and a reduction in deferred income taxes of $309,000. In the first nine-months of 2013, cash provided by operations totaled approximately $4,415,000 due primarily to net income of $3,027,000, non-cash depreciation and amortization of $1,795,000, and an increase in accounts payable of $759,000. These increases in cash from operating activities were partially offset by an increase in trade accounts receivable of $589,000, a reduction in deferred income taxes of $697,000, and in increase in inventories of $604,000. Cash Flow from Investing Activities Cash used in investing activities totaled approximately $1,113,000 in the first nine-months of 2014 due primarily to the purchase of property, plant and equipment and intangible assets of $1,371,000, partially offset by the receipt of proceeds from maturities of marketable securities of $205,000. Cash provided from investing activities totaled approximately $3,391,000 in the first nine-months of 2013 due primarily to the receipt of proceeds from maturities of marketable securities of $5,255,000, partially offset by cash paid for intangible assets and property, plant and equipment additions of $1,977,000. Cash Flow from Financing Activities Cash used in financing activities in the first nine-months of 2014 totaled approximately $2,966,000 due primarily to a reduction of our term notes payable of $1,642,000, and dividends paid of $1,865,000. These uses of cash were partially offset by the proceeds received from stock option exercises of $285,000 and net proceeds from our revolving line of credit of $240,000. Cash used in financing activities in the first nine-months of 2013 totaled approximately $5,751,000 due primarily to a reduction of our term notes payable of $1,454,000, a net pay-down on our revolving lines of credit of $2,775,000, and dividends paid of $1,798,000. These uses of cash were partially offset by the proceeds received from stock option exercises of $256,000. -22- -------------------------------------------------------------------------------- Although we have repurchased shares of our common stock in the past, we currently are not authorized by our Board of Directors to make repurchases of our common stock and are prohibited from doing so under the credit agreement with the Bank unless we obtain the Bank's approval. Contractual Obligations We refer you to our Annual Report on Form 10-K/A for the year ended December 31, 2013 for a summary of our contractual obligations related to operating leases, purchase obligations and financing arrangements. Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements, as defined by the rules and regulations of the SEC, that have or are reasonably likely to have a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. As a result, we are not materially exposed to financing, liquidity, market or credit risk that could arise if we had engaged in these arrangements. Recently Issued Accounting Guidance Revenue from Contracts with Customers In May 2014, the Financial Accounting Standards Board issued new accounting requirements for the recognition of revenue from contracts with customers. The requirements of the new standard are effective for annual reporting periods beginning after December 15, 2016, and interim periods within those annual periods. We are currently evaluating the impact of this guidance on our results of operations and financial position. Critical Accounting Policies Our most critical accounting policies, which are those that require significant judgment, include policies related to revenue recognition, allowance for doubtful accounts, accrual for excess and obsolete inventories, recoverability of long-lived assets, goodwill and income taxes. An in-depth description of these can be found in our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2013. Management has not changed the method of calculating and using estimates and assumptions in preparing our condensed consolidated financial statements in accordance with generally accepted accounting principles. There have been no changes in the policies for our accounting estimates for the quarter ended September 30, 2014. Forward-Looking Statements This report contains forward-looking statements that involve future events, our future performance and our future operations and actions. In some cases you can identify forward-looking statements by the use of words such as "may," "should," "anticipate," "believe," "expect," "plan," "future," "intend," "could," "estimate," "predict," "hope," "potential," "continue," or the negative of these terms or other similar expressions. These forward-looking statements are only our predictions and involve numerous assumptions, risks and uncertainties. These forward-looking statements may be contained in the notes to our consolidated financial statements and elsewhere in this report, including under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations." -23--------------------------------------------------------------------------------- Some of the factors known to us that could cause our actual results to differ materially from what we have anticipated in our forward-looking statements are described below. ? Failure to correct material weaknesses in our internal control over financial reporting; ? Failure to effectively integrate the operations of Dansensor with ours; ? Decline in overall economic or business conditions; ? Ability to meet our debt obligations in a timely manner; ? The impact of complying with our bank covenants; ? Impairment of our investment in Luxcel due to adverse operating results as compared to plan; ? Increases in prices for raw materials; ? Risks inherent in operating internationally and selling and shipping our products and purchasing our products and components internationally; ? Fluctuations in foreign currency exchange rates and interest rates; ? Failure to develop new products and technologies, delays in new product introduction and lack of market acceptance of new products; ? Exposure to assertions of intellectual property claims and failure to protect our intellectual property; ? Disruption in our ability to manufacture our products or the ability of our key suppliers to provide us products or components or raw materials for products resulting in our inability to supply market demand for our products; ? Reliance on independent sales distributors and sales associates to market and sell our products; ? Highly competitive nature of the markets in which we sell our products and the introduction of competing products; ? Loss of customers; ? Failure to retain senior management or replace lost senior management; ? Reliance on our management information systems for inventory management, distribution, accounting and other functions; ? Effects of any potential litigation; ? Failure to comply with applicable laws and regulations and adverse changes in applicable laws or regulations; or ? Changes in generally accepted accounting principles |