General
Atrion
Corporation and its subsidiaries (”we,”
“our,” “us,” “Atrion,” or the
“Company”) develop and manufacture products, primarily
for medical applications. Our medical products are used in a number
of fields including fluid delivery, cardiovascular and ophthalmic
applications.
Our
fluid delivery products accounted for 46 percent of net revenues
for 2018, 44 percent of net revenues for 2017 and 42 percent of net
revenues for 2016. We have developed a wide variety of proprietary
valves designed to precisely fill, hold and release controlled
amounts of fluids or gasses on demand for use in various
intubation, intravenous, catheter and other applications in fields
such as anesthesia and oncology. We make products that deliver
fluids as well as promote infection control in hospital and home
healthcare environments.
Our cardiovascular products accounted for 33 percent of net
revenues for each of 2018, 2017 and 2016. At the core of our
cardiovascular products is the MPS2® Myocardial Protection
System, or MPS2, a proprietary technology that is the only system
used in open-heart surgery that delivers to the heart essential
fluids and medications, mixes critical drugs and controls
temperature, pressure and other variables. This system indicates
improved outcomes offering an integrated, flexible set of choices
during surgery without diluting the blood. We also develop and
manufacture other cardiovascular products such as cardiac surgery
vacuum relief valves; silicone vessel loops for retracting and
occluding vessels in minimally invasive surgical procedures;
inflation devices for balloon catheter dilation, stent deployment
and fluid dispensing; as well as products used in heart bypass
surgery to make a precision opening in the heart for attachment of
the bypass vessels.
Our ophthalmic products accounted for 7 percent, 9 percent and 11
percent of our net revenues for 2018, 2017 and 2016, respectively.
We are a leading manufacturer of
specialized
medical devices that disinfect contact lenses. We
also manufacture a proprietary line of balloon catheters used in
the treatment of nasolacrimal duct obstruction in children and
adults.
Our other medical and non-medical products accounted for 14 percent
of our net revenues for each of 2018, 2017 and 2016. One of these
product lines consists of instrumentation and associated
disposables used to measure the activated clotting time of blood.
In addition, we manufacture and sell a line of products designed
for safe needle and scalpel blade containment. We are also the
leading manufacturer of inflation systems and valves used in marine
and aviation safety products. We manufacture components used in
inflatable survival products and structures. We also produce
one-way and two-way pressure relief valves that protect sensitive
electronics and other products during transport in other medical
and non-medical applications.
Marketing and Major Customers
We
market components to other equipment manufacturers for
incorporation in their products and sell finished devices to
physicians, hospitals, clinics and other treatment centers. We sell
our products through a sales force which consists of direct sales
personnel, independent sales representatives and distributors. Our
sales managers also work closely with major customers in designing
and developing products to meet customer requirements.
We
offer customer service, training and education, and technical
support such as field service, spare parts, maintenance and repair
for certain of our products. We periodically advertise our products
in trade journals, routinely attend and participate in industry
trade shows throughout the United States and internationally, and
sponsor scientific symposia as a means of disseminating product
information. We also have supportive literature on the benefits of
our products.
Manufacturing
Our
medical and non-medical products are manufactured at facilities in
Florida, Alabama and Texas. The facilities in Alabama and Florida
both utilize plastic injection molding and specialized assembly as
their primary manufacturing processes. Our other manufacturing
processes consist of the assembly of standard and custom component
parts, including the assembly of electronic components, and the
testing of completed products.
We are
subject to the Quality System Regulation, or QSR, of the United
States Food and Drug Administration, or FDA, which requires
manufacturers of medical devices to adhere to certain design
testing, quality control, documentation and other quality assurance
procedures during the manufacturing process. We devote significant
attention to quality assurance. Our quality assurance measures
begin with the suppliers which participate in our supplier quality
assurance program. These measures continue at the manufacturing
level where many components are assembled in a clean room
environment designed and maintained to reduce product exposure to
particulate matter. Products are tested throughout the
manufacturing process for adherence to specifications. Most
finished products are then shipped to outside processors for
sterilization by radiation or ethylene oxide gas. After
sterilization, the products are quarantined and tested before they
are shipped to customers.
Skilled
workers are required for the manufacturing of our products, and we
believe that additional workers with these skills are readily
available in the areas where our plants are located.
Our
medical device operations are EN ISO13485:2016 certified and are
subject to FDA jurisdiction. Our non-medical device operations are
ISO9001-2008 certified.
Research and Development
A
well-targeted research and development, or R&D, program is an
essential part of our activities, and we are currently engaged in a
number of R&D projects. The objective of this program is to
develop new products in our current product lines, improve current
products and develop new product lines. The Company expects to
continue additional R&D in 2019 in all these
fields.
Sources and Availability of Raw Materials
The
principal raw materials that we use in our products are resins. Our
ability to operate profitably is dependent, in part, on the
availability and pricing of these resins. The resins we use are
derived from petroleum and natural gas, and the prices fluctuate
substantially as a result of changes in petroleum and natural gas
prices, demand and the capacity of the companies that produce these
resins to meet market needs. Instability in the world markets for
petroleum and natural gas could adversely affect the availability
and pricing of these resins.
We
contract with various suppliers to provide the component parts
necessary to assemble our products. Substantially all of these
components are available from a number of different suppliers,
although certain components are purchased from single sources that
manufacture these components using our tooling. We believe that we
have satisfactory alternative sources for single-sourced
components, although a sudden disruption in supply from one or more
of these suppliers could adversely affect our ability to deliver
finished products on time. We own the molds used for production of
substantially all our components. Consequently, in the event of
supply disruption, we should be able to fabricate our own
components or contract with another supplier, albeit after a
possible delay in the production process.
Patents and License Agreements
Our
commercial success is dependent, in part, on our ability to
continue developing patentable products, to preserve our trade
secrets and to operate without infringing or violating the
proprietary rights of third parties. We currently have 530 active
patents and patent applications pending on products that are either
being sold or are in development. We pay royalties to an outside
party for one patent. All of these patents and patents pending
relate to products currently being sold by us or to products in
evaluation stages. Our patents expire at various times over the
next 20 years.
We have
developed technical knowledge which, although non-patentable, we
consider to be significant in enabling us to compete. However, the
proprietary nature of such knowledge may be difficult to protect.
We have entered into agreements with key employees prohibiting them
from disclosing any of our confidential information or trade
secrets. In addition, generally these agreements also provide that
inventions or discoveries relating to our business by these
individuals will be assigned to us and become our sole
property.
The
medical device industry is characterized by extensive intellectual
property litigation, and companies in this industry sometimes use
intellectual property litigation to gain a competitive advantage.
Intellectual property litigation, regardless of outcome, is often
complex and expensive, and the outcome of this litigation is
generally difficult to predict.
Competition
Depending
on the product and the nature of the project, we compete on the
basis of our ability to provide engineering and design expertise,
quality, service, product and price. As such, successful
competitors must have technical strength, responsiveness and scale.
We believe that our expertise and reputation for quality medical
products have allowed us to compete favorably with respect to each
such factor and to maintain long-term relationships with our
customers.
In many
of our markets, we compete with numerous other companies in the
sale of healthcare products. These markets are dominated by
established manufacturers that have broader product lines, greater
distribution capabilities, substantially greater capital resources
and larger marketing, R&D staffs and facilities than ours. Many
of these competitors offer broader product lines within the
specific product market and in the general field of medical devices
and supplies. Broad product lines give many of our cardiovascular
and fluid delivery competitors the ability to negotiate exclusive,
long-term medical device supply contracts and, consequently, the
ability to offer comprehensive pricing of their competing products.
By offering a broader product line in the general field of medical
devices and supplies, competitors may also have a significant
advantage in marketing competing products to group purchasing
organizations, health maintenance organizations, and other managed
care organizations that are increasingly seeking to reduce costs
through centralization of purchasing functions. Furthermore,
innovations in surgical techniques, product design or functions, or
medical practices could have the effect of reducing or eliminating
market demand for one or more of our products. In addition, our
competitors may use price reductions to preserve market share in
their product markets.
We
design products for a customer or potential customer prior to
entering into long-term development and manufacturing agreements
with that customer. Because these products are somewhat limited in
number and normally are only a component of the ultimate product
sold by our customers, we are dependent on our ability to meet the
quality requirements of our customers and must continually be
attentive to the need to manufacture such products at competitive
prices and in compliance with strict manufacturing standards.
Additionally, we are dependent on our customers’ success in
the marketing of the ultimate products sold. We also compete in the
market for inflation devices used in marine and aviation
equipment.
Government
Regulation
Products
The
manufacture and sale of medical products are subject to
comprehensive regulation by numerous United States and foreign
regulatory agencies, principally the FDA in the United States. The
R&D, manufacturing, promotion, marketing and distribution of
medical products in the United States are subject to the provisions
of the Federal Food, Drug and Cosmetic Act, or FDCA, and the
regulations promulgated thereunder. All manufacturers of medical
devices must register with the FDA and list all medical devices
manufactured by them. The list must be updated annually. Our
medical products subsidiaries and certain of our customers are
subject to inspection by the FDA for compliance with such
regulations and procedures and our medical products manufacturing
facilities are subject to regulation by the FDA. In order for our
products to be marketed in countries outside the United States,
regulatory approvals must be obtained, and extensive product and
quality system regulations must be complied with, in those
countries. These regulations, including the requirements for
approvals or clearance and the time required for regulatory review,
vary significantly from country to country. Some countries have
regulatory review processes which are substantially longer than
similar processes in the United States. Failure to obtain
regulatory approval in a timely manner and to meet all local
requirements including language and specific safety standards in
any foreign country in which we would like for our products to be
marketed could prevent our products from being marketed in those
countries.
The FDA
has traditionally pursued a rigorous enforcement program to ensure
that regulated entities comply with the FDCA. A company not in
compliance may face a variety of regulatory actions, including
warning letters, product detentions, device alerts, mandatory
recalls or field corrections, product seizures, total or partial
suspension of production, injunctive actions or civil penalties and
criminal prosecutions of the company or responsible employees,
officers and directors.
The FDA
promulgates rules, which are available to the public, for the
approval of medical devices. The process of obtaining FDA approval
for new devices can take several months to several years depending
on the type of application required for a particular device.
Furthermore, the process of obtaining FDA approval can be expensive
and uncertain. Even if granted, FDA approval may include
significant limitations on the indicated uses for which a product
may be marketed. FDA enforcement policy strictly regulates the
promotion of approved medical devices. Product approvals can be
withdrawn for failure to comply with regulatory requirements or the
occurrence of unforeseen problems following initial marketing. In
addition, after a device is placed on the market, numerous FDA and
other regulatory requirements continue to apply. These include
establishment registration and device listing with the FDA;
compliance with medical device reporting regulations requiring that
manufacturers report to the FDA if their device may have caused or
contributed to a death or serious injury or malfunctioned in a way
that would likely cause or contribute to a death or serious injury
if it were to recur; and compliance with corrections and removal
reporting regulations requiring that manufacturers report to the
FDA field corrections and product recalls or removals if undertaken
to reduce a risk to health posed by the device or to remedy a
violation of the FDCA that may present a risk to health. The FDA
and the Federal Trade Commission, or FTC, also regulate the
advertising and promotion of our products to ensure that the claims
we make are consistent with our regulatory clearances, that
scientific data substantiates the claims and that our advertising
is not false or misleading. Generally, we may not promote or
advertise our products for uses outside the scope of our intended
use statement in our clearances or make unsupported safety and
effectiveness claims. Many jurisdictions outside the United States
have similar regulations.
Certain
aviation and marine safety products are subject to regulation by
the United States Coast Guard and the Federal Aviation
Administration and similar organizations in foreign countries which
regulate the safety of marine and aviation equipment.
Healthcare Regulations
In the
United States, healthcare providers, including hospitals and
physicians, that purchase medical products for treatment of their
patients generally rely on third-party payors, principally
Medicare, Medicaid and private health insurance plans, to reimburse
all or a part of the costs and fees associated with the procedures
performed using these products.
Reimbursement
systems in international markets vary significantly by country and
by region within some countries, and reimbursement approvals must
be obtained on a country-by-country basis. Many international
markets have government-managed healthcare systems that control
reimbursement for new products and procedures. In most markets,
there are private insurance systems as well as government-managed
systems. Market acceptance of our products in international markets
depends, in part, on the availability and level of
reimbursement.
Medicare
and Medicaid reimbursement for hospitals is generally based on a
fixed amount for a patient based upon that patient’s specific
diagnosis. Because of this fixed reimbursement method, hospitals
may seek to reduce the costs they incur in treating Medicare and
Medicaid patients. Frequently, reimbursement is reduced to reflect
the availability of a new procedure or technique, and as a result
hospitals are generally willing to implement new cost saving
technologies before these downward adjustments take effect.
Likewise, because the rate of reimbursement for physicians who
perform certain procedures has been and may in the future be
reduced, physicians may seek greater cost efficiency in treatment
to minimize any negative impact of reduced reimbursement.
Third-party payors may challenge the prices charged for medical
products and services and may deny reimbursement if they determine
that a device was not used in accordance with cost-effective
treatment methods as determined by the payor, was experimental or
was used for an unapproved application.
In March 2010, the Patient Protection and Affordable Care Act and
the Health Care and Education Reconciliation Act (collectively
known as the “Affordable Care Act”) were enacted. The
Affordable Care Act made changes that have had a significant impact
on healthcare providers, medical device and pharmaceutical
companies and insurers. To generate revenues to fund the
expansion of healthcare coverage, the Affordable Care Act has a
number of provisions, including a 2.3 percent excise tax on the
sale in the United States of certain medical devices by the
manufacturer, producer or importer effective after December 31,
2012. The Consolidated Appropriations Act, 2016, signed into law on
December 18, 2015 included a two-year moratorium on collection of
the medical device tax, beginning January 1, 2016 and ending on
December 31, 2017. As part of stopgap spending legislation
signed into law by President Trump on January 22, 2018, the
imposition of the medical device excise tax was delayed for an
additional two years until January 1, 2020. The Affordable Care Act
also established a payment transparency program, sometimes
referred to as the Physician Payments Sunshine Act, that requires
medical device and drug manufacturers, including the Company, to
report to the Centers for Medicare & Medicaid Services, or CMS,
payments or other transfers of value made to physicians and
teaching hospitals. The program is intended to provide patients
with enhanced transparency as to the financial relationships that
physicians and teaching hospitals have with medical device and drug
manufacturers. On January 20, 2017, President Trump signed an
Executive Order directing federal agencies to exercise all
authority and discretion available to them under the Affordable
Care Act to waive, defer, grant exemptions from, or delay the
implementation of any provision of the Affordable Care Act that
would impose a fiscal or regulatory burden on states, individuals,
healthcare providers, health insurers, or manufacturers of
pharmaceuticals or medical devices. There have also been judicial
and congressional challenges to certain aspects of the Affordable
Care Act, as well as efforts by the Trump Administration to modify,
repeal, or otherwise invalidate all, or certain provisions of, the
Affordable Care Act. Since January 2017, President Trump has signed
two Executive Orders designed to delay the implementation of
certain provisions of the Affordable Care Act or otherwise
circumvent some of the requirements for health insurance mandated
by the Affordable Care Act. In addition, CMS has recently proposed
regulations that would give states greater flexibility in setting
benchmarks for insurers in the individual and small group
marketplaces, which may have the effect of relaxing the essential
health benefits required under the Affordable Care Act for plans
sold through such marketplaces. The Tax Cuts and Jobs Act of 2017,
or Tax Act, which was enacted on December 22, 2017, reduced the
Affordable Care Act's shared-responsibility payment to zero,
effective January 1, 2019. Following the enactment of the Tax
Act, on December 14, 2018 in a case in the United States District
Court for the Northern District of Texas, a federal judge ruled
that the individual mandate imposed by the Affordable Care Act is
unconstitutional and inseverable from the other provisions of the
Affordable Care Act and, therefore, the remaining provisions of the
Affordable Care Act are invalid. Although the Trump
Administration and CMS have indicated that this ruling will have no
immediate effect, we cannot presently determine how this case, as
well as other actions to repeal or replace the Affordable Care Act,
will affect our business. Even while the impact of that case is
unclear, the Trump Administration is likely to continue
shaping the law significantly through regulations that may impact
the health insurance marketplaces, essential health benefits
requirements, and Medicaid/marketplace waivers for state
flexibilities. Any regulatory or legislative developments in
domestic or foreign markets that eliminate or reduce reimbursement
rates for procedures performed with our products could harm our
ability to sell our products or cause downward pressure on the
prices of our products, either of which would adversely affect our
business, financial condition, and results of operations. Further,
we anticipate that state legislatures and the private sector will
continue to review and assess healthcare reform, including
alternative healthcare delivery and payment systems. We cannot
predict with certainty what impact the adoption or modification of
any such reform measures or market forces may have on our
business.
We are, directly or indirectly, subject to various federal and
state laws governing our relationship with healthcare providers and
pertaining to healthcare fraud and abuse, including anti-kickback
laws. In particular, the federal Anti-Kickback Statute prohibits
persons from knowingly and willfully soliciting, offering,
receiving or providing remuneration, directly or indirectly, in
exchange for or to induce either the referral of an individual or
the furnishing, arranging for or recommending a good or service for
which payment may be made in whole or part under federal healthcare
programs, such as the Medicare and Medicaid programs. Penalties for
violations include criminal penalties and civil sanctions such as
fines, imprisonment and possible exclusion from Medicare, Medicaid
and other federal healthcare programs. The Anti-Kickback Statute is
broad and prohibits many arrangements and practices that are lawful
in businesses outside of the healthcare industry. In implementing
the statute, the Office of Inspector General of the United States
Department of Health and Human Services, or OIG, has issued a
series of regulations, known as the “safe harbors.”
These safe harbors set forth provisions that, if all their
applicable requirements are met, will assure healthcare providers
and other parties that they will not be prosecuted under the
Anti-Kickback Statute. The failure of a transaction or arrangement
to fit precisely within one or more safe harbors does not
necessarily mean that it is illegal or that prosecution will be
pursued. However, conduct and business arrangements that do not
fully satisfy each applicable element of a safe harbor may result
in increased scrutiny by government enforcement authorities, such
as the OIG.
The
Federal False Claims Act, or FCA, imposes civil liability on any
person or entity that submits, or causes the submission of, a false
or fraudulent claim to the United States government. Damages under
the FCA can be significant and consist of the imposition of fines
and penalties. The FCA also allows a private individual or entity
with knowledge of past or present fraud against the federal
government to sue on behalf of the government to recover the civil
penalties and treble damages. The United States Department of
Justice, on behalf of the government, has previously alleged that
the marketing and promotional practices of medical device and drug
manufacturers that included the off-label promotion of products or
the payment of prohibited kickbacks to doctors violated the FCA
resulting in the submission of improper claims to federal and state
healthcare entitlement programs such as Medicaid. In certain cases,
manufacturers have entered into criminal and civil settlements with
the federal government under which they entered into plea
agreements, paid substantial monetary amounts and entered into
corporate integrity agreements that require, among other things,
substantial reporting and remedial actions going
forward.
Product Liability and Insurance
The
design, manufacture and marketing of products of the types we
produce entail an inherent risk of product liability claims. A
problem with one of our products could result in product liability
claims or a recall of, or safety alert or advisory notice relating
to, the product. We have product liability insurance in amounts
that we believe are adequate.
Advisory Board
Several
physicians and other healthcare professionals serve as our clinical
advisors. These clinical advisors have assisted in the
identification of the market need for some of our products. Members
of our management and scientific and technical staff from time to
time consult with these clinical advisors to better understand the
technical and clinical requirements of current and future products.
We anticipate that these clinical advisors will continue to play a
role in our development activities.
Certain
of the clinical advisors are employed by academic institutions and
may have commitments to, or consulting or advisory agreements with,
other entities that may limit their availability to advise us. The
clinical advisors may also serve as consultants to other medical
device companies. Our clinical advisors are not expected to devote
more than a small portion of their time in providing services to
us.
People
At
January 31, 2019, we had 570 employees. We are proud that many of
our employees have tenures with us ranging from 10 to 40
years.
Available Information
Our
website address is
www.atrioncorp.com
.
We make available free of charge through our website our Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K and Proxy Statements, and amendments to these
filings, as soon as reasonably practicable after filing with or
furnished to the Securities and Exchange Commission, or SEC. These
filings are also available at
www.sec.gov
.
The contents of these websites are not incorporated in this Form
10-K, and any references to our website are intended to be inactive
textual references only.
In addition to the other information contained in this Form 10-K,
the following risk factors should be considered carefully in
evaluating our business. Our business, financial condition and
results of operations could be materially adversely affected by any
of these risks. Additional risks and uncertainties that we do not
currently know about or that we currently believe are immaterial,
or that we have not predicted, may also harm our business
operations or adversely affect us.
●
Our
sales could decline materially if we lose business from one or more
of our larger customers or a significant number of our smaller
customers.
Our
sales are generally made under open short-term purchase orders or
purchase contracts. Customers with purchase orders could reduce
their volumes, or cease purchasing our products, with minimal
notice. Customers having purchase contracts may elect not to renew
those contracts at expiration or the contracts may be renewed on
terms less favorable to us. The loss of, or material reduction in
orders by, one or more of our larger customers or a significant
number of our smaller customers could have a material adverse
effect on our business, financial condition and results of
operations.
●
Our
business is dependent on the price and availability of resins and
our ability to pass on resin price increases to our
customers.
The
principal raw materials that we use in our products are
polyethylene, polypropylene and polyvinyl chloride resins. Our
ability to operate profitably is dependent, in part, on the
availability and pricing of these resins. The resins we use are
derived from petroleum and natural gas; therefore, prices fluctuate
substantially as a result of changes in petroleum and natural gas
prices, demand and the capacity of the companies that produce these
products to meet market needs. Instability in the world markets for
petroleum and natural gas could adversely affect the prices of
these raw materials and their availability.
Our
ability to maintain profitability depends, in part, upon our
ability to pass through to our customers the full amount of any
increase in raw material costs. If resin prices increase and we are
not able to fully pass on the increases to our customers, our
results of operations and our financial condition will be adversely
affected.
●
The
loss of a key supplier of raw materials could lead to increased
costs and lower profit margins.
The
loss of a key supplier could force us to purchase raw materials in
the open market, which may be at higher prices, until we could
secure another source and such higher prices may not allow us to
remain competitive. If we are unable to obtain raw materials in
sufficient quantities, we may not be able to manufacture our
products. Even if we were able to replace one of our raw material
suppliers through another supply arrangement, there is no assurance
that the terms that we enter into with such alternate supplier will
be as favorable to us as the supply arrangements that we currently
have or that such replacement could be timely completed. A
disruption or termination in the supply of raw materials could
result in our inability to meet the demand for our products, which
could adversely affect our revenue generation and result in
customer dissatisfaction.
●
Political
and economic conditions could materially and adversely affect our
revenue and results of operations.
Our
business may be affected by a number of factors that are beyond our
control such as general geopolitical economic and business
conditions, conditions in the financial markets, and changes in the
overall demand for our products. A severe or prolonged economic
downturn could adversely affect our customers’ financial
condition and the levels of business activity of our customers.
Uncertainty about current global political or economic conditions
could cause businesses to postpone spending in response to tighter
credit, negative financial news or declines in income or asset
values, which could have a material negative effect on the demand
for our products. There could be additional effects on our business
from these economic developments including the insolvency of key
suppliers or their inability to obtain credit, the inability of our
customers to pay for or obtain credit to finance purchases of our
products and increased pressure to reduce the prices of our
products. Turbulence in the United States and international markets
and economies could have a material adverse impact on our business,
operating results and financial condition. In addition, if we are
unable to successfully anticipate changing economic and political
conditions, we may be unable to effectively plan for and respond to
those changes, which could materially adversely affect our business
and results of operations.
●
Product
liability claims could adversely affect our financial condition and
results of operations.
We may
be subject to product liability claims involving claims of personal
injury or property damage. Our product liability insurance coverage
may not be adequate to cover the cost of defense and the potential
award in the event of a claim. A product liability claim,
regardless of its merit or outcome, could result in significant
legal defense costs. Also, a well-publicized actual or perceived
problem with one or more of our products could adversely affect our
reputation and reduce the demand for our products.
●
Issues
with product quality could have an adverse effect upon our
business, subject us to regulatory actions and cause a loss of
customer confidence in us or our products.
Our
success depends upon the quality and reliability of our products.
Quality management plays an essential role in determining and
meeting customer requirements, preventing defects, improving our
products and assuring the safety and efficacy of our products. Our
future success depends on our ability to maintain and continuously
improve our quality management program. Although we have one
quality system that covers the lifecycle of our products, quality
and safety issues may occur with respect to any of our products. A
quality or safety issue may result in adverse inspection reports,
warning letters, product recalls, monetary sanctions, injunctions
to halt manufacture and distribution of products, civil or criminal
sanctions, costly litigation, refusal of a government to grant
approvals and licenses, restrictions on operations or withdrawal of
existing approvals and licenses. An inability to address a quality
or safety issue in an effective and timely manner may also cause
negative publicity or a loss of customer confidence in us or our
current or future products, which may result in the loss of sales
and difficulty in successfully launching new products.
Additionally, we have made and continue to make significant
investments in assets, including inventory and property, plant and
equipment, which relate to potential new products or modifications
to existing products. Product quality or safety issues and costs
associated there with may restrict us from being able to realize
the expected returns from these investments and may adversely
affect our results of operations and our financial
condition.
Unaffiliated third
party suppliers provide a number of goods and services to our
manufacturing and R&D organizations. Third party suppliers are
required to comply with our quality standards. Failure of a third
party supplier to provide compliant raw materials or supplies could
result in delays, service interruptions or other quality related
issues that may negatively impact our business
results.
●
Any
losses we incur as a result of our exposure to the credit risk of
our customers could harm our results of operations.
We
monitor individual customer payment capability in granting credit
arrangements, seek to limit credit to amounts we believe the
customers can pay, and maintain reserves we believe are adequate to
cover exposure for doubtful accounts. As we have grown our revenue
and customer base, our exposure to credit risk has increased. Any
material losses as a result of customer defaults could harm, and
have an adverse effect on, our business, operating results and
financial condition.
●
The success of certain of our products depends upon relationships
with healthcare professionals.
The
research, development, marketing, and sales of many of our new and
improved products are dependent upon our maintaining working
relationships with healthcare professionals. We rely on these
professionals to provide us with considerable knowledge and
experience regarding our products. If we are unable to maintain our
relationships with these professionals and do not continue to
receive their advice and input, the development and
commercialization of our products could suffer, which could have a
material, adverse impact on our revenues, financial condition,
profitability, and cash flows.
●
Our
success is measured in part by our ability to develop patentable
products, to preserve our trade secrets and operate without
infringing or violating the proprietary rights of third
parties.
Others
may challenge the validity of any patents issued to us, and we
could encounter legal and financial difficulties in enforcing our
patent rights against infringers. In addition, there can be no
assurance that other technologies cannot or will not be developed
or that patents will not be obtained by others which would render
our patents less valuable or obsolete. Our patents expire at
various times over the next 20 years. Once patents expire, some
customers may not continue to purchase from us, opting for
competitive copies instead. If we do not develop and launch new
products prior to the expiration of patents for our existing
products, our sales and profits could decline
substantially.
We have
developed technical knowledge which, although non-patentable, we
consider to be significant in enabling us to compete. However, the
proprietary nature of such knowledge may be difficult to
protect.
The
medical device industry is characterized by extensive intellectual
property litigation, and companies in the medical device industry
sometimes use intellectual property litigation to gain a
competitive advantage. Intellectual property litigation, regardless
of outcome, is often complex and expensive, and the outcome of this
litigation is generally difficult to predict. An adverse
determination in any such proceeding could subject us to
significant liabilities to third parties or require us to seek
licenses from third parties or pay royalties that may be
substantial. Furthermore, there can be no assurance that necessary
licenses would be available to us on satisfactory terms or at all.
Accordingly, an adverse determination in a judicial or
administrative proceeding or failure to obtain necessary licenses
could prevent us from manufacturing or selling certain of our
products, which could have a material adverse effect on our
business, financial condition and results of
operations.
●
International
patent protection is uncertain.
Patent
law outside the United States is uncertain and is currently
undergoing review and revision in many countries. Further, the laws
of some foreign countries may not protect our intellectual property
rights to the same extent as United States laws. We may participate
in opposition proceedings to determine the validity of our or our
competitors’ foreign patents, which could result in
substantial costs and diversion of our efforts.
●
New
lines of business or new or enhanced products and services may
subject us to additional risks.
We may
implement new lines of business or offer new or enhanced products
and services within existing lines of business. There are
substantial risks and uncertainties associated with these efforts,
particularly in instances where the markets are not fully
developed. In developing and marketing new lines of business or new
or enhanced products and services, we may invest significant time
and resources. Initial timetables for the introduction and
development of new lines of business and new or enhanced products
or services may not be achieved and price and profitability targets
may not prove feasible. External factors, such as compliance with
regulations, competitive alternatives, and shifting market
preferences, may also impact the successful implementation of a new
line of business or a new or enhanced product or service.
Furthermore, any new line of business or new or enhanced product or
service could have a significant impact on the effectiveness of our
system of internal control. Failure to successfully manage these
risks in the development and implementation of new lines of
business or new or enhanced products or services could have a
material adverse effect on our business, results of operations and
financial condition.
●
Some
of our competitors have significantly greater resources than we do,
and it may be difficult for us to compete against
them.
In many
of our markets, we compete with numerous other companies that have
substantially greater financial resources and engage in
substantially more R&D activities than we do. Furthermore,
innovations in surgical techniques or medical practices could have
the effect of reducing or eliminating market demand for one or more
of our products. In addition, the trend of consolidation in the
medical device industry and among our customers could result in
greater competition and pricing pressure.
Some of
the markets in which we compete are dominated by established
manufacturers that have broader product lines, greater distribution
capabilities, substantially larger marketing, R&D staffs and
facilities than we do. Many of these competitors offer broader
product lines within the specific product market and in the general
field of medical devices and supplies. Broad product lines give
many of our cardiovascular and fluid delivery competitors the
ability to negotiate exclusive, long-term medical device supply
contracts and, consequently, the ability to offer comprehensive
pricing of their competing products. By offering a broader product
line in the general field of medical devices and supplies,
competitors may also have a significant advantage in marketing
competing products to group purchasing organizations. In addition,
our competitors may use price reductions to preserve market share
in their product markets.
●
We
are subject to healthcare fraud and abuse regulations that could
result in significant liability, require us to change our business
practices and restrict our operations in the future.
We are
subject to various federal, state and local laws targeting fraud
and abuse in the healthcare industry, including anti-kickback and
false claims laws. Violations of these laws are punishable by
criminal or civil sanctions, including substantial fines,
imprisonment and exclusion from participation in healthcare
programs such as Medicare and Medicaid and health programs outside
the United States. These laws and regulations are wide ranging and
subject to changing interpretations and applications, which could
restrict our sales or marketing practices. A violation of these
laws could have a material adverse effect on our business, results
of operations, financial condition and cash flow.
●
We
will be unable to sell our products if we fail to comply with
governmental regulations.
To
manufacture our products commercially, we must comply with
governmental regulations that govern design controls, quality
systems and documentation policies and procedures, including
continued compliance with QSR. The FDA and equivalent foreign
governmental authorities periodically inspect our manufacturing
facilities and the manufacturing facilities of our Original
Equipment Manufacturer, or OEM, medical device customers. If we or
our OEM
medical device
customers fail to comply with these manufacturing regulations,
including meeting reporting obligations to the FDA, or fail any FDA
inspections, marketing or distribution of our products may be
prevented or delayed, which would negatively impact our
business.
●
Our
products are subject to product recalls even after receiving
regulatory clearance or approval, and any such recalls would
negatively affect our financial performance and could harm our
reputation.
Any of
our products may be found to have significant deficiencies or
defects in design or manufacture. The FDA and similar governmental
authorities in other countries have the authority to require the
recall of any such defective products. A government-mandated or
voluntary recall could occur as a result of component failures,
manufacturing errors or design defects. We do not maintain
insurance to cover losses incurred as a result of product recalls.
Any product recall would divert managerial and financial resources
and negatively affect our financial performance and could harm our
reputation with customers and end-users.
●
We
may not receive regulatory approvals for new product candidates or
for modifications of existing products or approvals may be
delayed.
Regulation by
governmental authorities in the United States and foreign countries
is a significant factor in the development, manufacture and
marketing of our proposed products and in our ongoing research and
product development activities. Any failure to receive the
regulatory approvals necessary to commercialize our product
candidates, or the subsequent withdrawal of any such approvals,
would harm our business. Additionally, modification of our existing
products may require regulatory approval. The process of obtaining
these approvals and the subsequent compliance with federal and
state statutes and regulations require spending substantial time
and financial resources. If we fail to obtain or maintain, or
encounter delays in obtaining or maintaining, regulatory approvals,
it could adversely affect the marketing of any products we develop
or modify, our ability to receive product revenues, and our
liquidity and capital resources.
●
Any major disruption or failure of our
information technology
systems, or our failure to successfully
implement new technology effectively, could adversely affect our
business and operations.
We rely
on
various
information technology systems to manage our operations. Over the
last several years, we have been and continue to implement
modifications and upgrades to our systems, including making changes
to legacy systems, replacing legacy systems with successor systems
with new functionality and acquiring new systems with new
functionality For example, over the next several years, we plan to
continue the process of implementing a new enterprise resource
planning system across our company. These activities subject us to
inherent costs and risks associated with replacing and upgrading
these systems, including impairment of our ability to fulfill
customer orders, potential disruption of our internal control
structure, substantial capital expenditures, additional
administration and operating expenses, retention of sufficiently
skilled personnel to implement and operate the new systems, demands
on management time, and other risks and costs of delays or
difficulties in transitioning to new or upgraded systems or of
integrating new or upgraded systems into our current systems. Our
system implementations may not result in productivity improvements
at a level that outweighs the costs of implementation, or at all.
In addition, the difficulties with implementing new or upgraded
technology systems may cause disruptions in our business operations
and have an adverse effect on our business and operations, if not
anticipated and appropriately mitigated.
●
We
face cybersecurity risks and may incur increasing costs in an
effort to minimize those risks.
We
utilize systems and websites that allow for the secure storage and
transmission of proprietary or confidential information regarding
our customers, employees, and others, including personal
information. As evidenced by the numerous companies that have
suffered serious data security breaches, we may be vulnerable to,
and unable to anticipate or detect, data security breaches and data
loss, including rapidly evolving and increasingly sophisticated
cybersecurity attacks. In addition, data security breaches can also
occur as a result of a breach by us or our employees or by persons
with whom we have commercial relationships that result in the
unauthorized release of personal or confidential information. In
addition to our own databases, we use third-party service providers
to store, process and transmit confidential or sensitive
information on our behalf. Although we contractually require these
service providers to implement and use reasonable security
measures, we cannot control third parties and cannot guarantee that
a data security breach will not occur in the future either at their
location or within their systems. A data security breach may expose
us to a risk of loss or misuse of this information, and could
result in significant costs to us, which may include, among others,
fines and penalties, potential liabilities from governmental or
third-party investigations, proceedings or litigation and diversion
of management attention. We could also experience delays or
interruptions in our ability to function in the normal course of
business, including delays in the fulfillment of customer orders or
disruptions in the manufacture and shipment of products. In
addition, actual or anticipated attacks may cause us to incur
costs, including costs to deploy additional personnel and
protection technologies, train employees, and engage third-party
experts and consultants. Any compromise or breach of our security
could result in a violation of applicable privacy and other laws,
significant legal and financial exposure, and a loss of confidence
in our security measures, which could have an adverse effect on our
results of operations and our reputation.
The
regulatory environment surrounding information security and privacy
is increasingly demanding, with frequent imposition of new and
changing requirements. In the United States, various laws and
regulations apply to the collection, processing, disclosure and
security of certain types of data, including the Electronic
Communications Privacy Act, the Computer Fraud and Abuse Act, the
Health Insurance Portability and Accountability Act of 1996, the
Gramm Leach Bliley Act and state laws relating to privacy and data
security. Several foreign countries and governmental bodies,
including the European Union, also have laws and regulations
dealing with the handling and processing of personal information
obtained from their residents, which in certain cases are more
restrictive than those in the United States. Laws and regulations
in these jurisdictions apply broadly to the collection, use,
storage, disclosure and security of various types of data,
including data that identifies or may be used to identify an
individual, such as names, email addresses and, in some
jurisdictions, internet protocol addresses. Such laws and
regulations may be modified or subject to new or different
interpretations, and new laws and regulations may be enacted in the
future. Within the European Union, the General Data Protection
Regulation, which became effective in May 2018 and replaced the
1995 European Union Data Protection Directive and superseded
applicable European Union member state legislation, imposes
significant new requirements on how companies collect, process and
transfer personal data, as well as significant fines for
noncompliance. Any failure or perceived failure by us to comply
with laws, regulations, policies or regulatory guidance relating to
privacy or data security may result in governmental investigations
and enforcement actions, litigation, fines and penalties or adverse
publicity, and could cause our customers to lose trust in us, which
could have an adverse effect on our reputation and
business.
●
We
sell many of our products to healthcare providers that rely on
Medicare, Medicaid and private health insurance plans to reimburse
the costs associated with the procedures performed using our
products and these third party payors may deny reimbursement for
use of our products.
We are
dependent, in part, upon the ability of healthcare providers to
obtain satisfactory reimbursement from third-party payors for
medical procedures in which our products are used. Third-party
payors may deny reimbursement if they determine that a prescribed
product has not received appropriate regulatory clearances or
approvals, is not used in accordance with cost-effective treatment
methods as determined by the payor, or is experimental, unnecessary
or inappropriate. Failure by hospitals and other users of our
products to obtain reimbursement from third-party payors, or
adverse changes in government or private third-party payors’
policies toward reimbursement for procedures utilizing our
products, could have a material adverse effect on the
Company’s business, financial condition and results of
operations. Major third-party payors for medical services in the
United States and other countries continue to try to contain
healthcare costs. The introduction of cost containment incentives,
combined with closer scrutiny of healthcare expenditures by both
private health insurers and employers, has resulted in increased
discounts and contractual adjustments to charges for services
performed. Further implementation of legislative or administrative
reforms to the United States or international reimbursement systems
in a manner that significantly reduces reimbursement for procedures
using our products or denies coverage for such procedures may
result in hospitals or physicians substituting lower cost products
or other therapies for our products which, in turn, would have an
adverse effect on our business, financial condition and results of
operations. Additionally, uncertainty about whether and how changes
may be implemented could also have a negative impact on the demand
for our products.
●
Changes
in healthcare legislation and policy may have a material adverse
effect on our financial condition and results of
operations.
A
number of legislative initiatives to contain healthcare costs have
been and continue to be introduced in the United States. In March
2010, the Affordable Care Act was enacted, which made changes that
have impacted and are expected to significantly impact the
pharmaceutical and medical device industries. Among other things
the Affordable Care Act contains a number of provisions designed to
generate the revenues necessary to fund health insurance coverage
expansions. The Affordable Care Act also implemented a number of
Medicare payment system reforms including a national pilot program
on payment bundling to encourage hospitals, physicians and other
providers to improve the coordination, quality and efficiency of
certain healthcare services through bundled payment models, and
appropriated funding for comparative effectiveness research. The
taxes imposed by the Affordable Care Act and the expansion in the
government’s role in the United States healthcare industry
may result in decreased profits to us, lower reimbursement by
payors for our products, and reduced medical procedure volumes, all
of which may have a material adverse impact on our business,
financial condition, results of operations, or cash flows. Since
its enactment, there have been judicial and Congressional
challenges to certain aspects of the Affordable Care Act, as well
as efforts by the Trump Administration to modify, repeal or
otherwise invalidate all, or certain provisions of, the Affordable
Care Act. In addition, other legislative changes have been proposed
and adopted since the Affordable Care Act was enacted. These
changes included aggregate reductions to Medicare payments to
providers of up to 2 percent per fiscal year, which will remain in
effect through 2027 unless additional Congressional action is
taken. It is unclear what impact new quality and payment programs
may have on our business, financial condition, results of
operations or cash flows. Individual states in the United States
have also become increasingly aggressive in passing legislation and
implementing regulations designed to control product pricing,
including price or patient reimbursement constraints, and
discounts, and require marketing cost disclosure and transparency
measures. We believe that additional state and federal health care
reform measures will be adopted in the future that could have a
material adverse effect on our industry generally and on our
customers. Any changes in, or uncertainty with respect to, future
reimbursement rates could impact our customers’ demand for
our products, which in turn could have a material adverse effect on
our business, financial condition, results of operations, or cash
flows. Further, the federal, state and local governments, Medicare,
Medicaid, managed care organizations, and foreign governments have
in the past considered, are currently considering, and may in the
future consider healthcare policies and proposals intended to curb
rising healthcare costs, including those that could significantly
affect both private and public reimbursement for healthcare
services. Future significant changes in the healthcare systems in
the United States or other countries, including changes intended to
reduce expenditures along with uncertainty about whether and how
changes may be implemented, could have a negative impact on the
demand for our products. We are unable to predict whether other
healthcare policies, including policies stemming from legislation
or regulations affecting our business, may be proposed or enacted
in the future; what effect such policies would have on our
business; or the effect ongoing uncertainty about these matters
will have on our customers’ purchasing
decisions.
●
Our
existing credit agreement contains restrictions that may limit our
flexibility in operating our business.
Our
existing credit agreement contains, and any future agreements may
contain, covenants that could impose significant operating and
financial restrictions on us. Although we currently do not have any
borrowings under our existing credit agreement, the covenants in
those agreements may limit the manner in which we conduct our
business, and we may be unable to engage in favorable business
activities or finance future operations or capital
needs.
●
We
have pledged certain of our assets as collateral under our existing
credit agreement. If we borrow funds under that credit agreement
and default on the terms of such credit agreement and the holder of
our indebtedness accelerates the repayment of such indebtedness,
there can be no assurance that we will have sufficient assets to
repay our indebtedness.
Under
our existing credit agreement, we are required to satisfy and
maintain specified financial ratios. Our ability to meet those
financial ratios can be affected by events beyond our control, and
there can be no assurance that we will meet those ratios. A failure
to comply with the covenants contained in the agreement could
result in an event of default under such agreement, which, if not
cured or waived, could have a material adverse effect on
our
business, financial
condition, and profitability. In the event of any default under our
existing credit agreement, the holder of our indebtedness
thereunder:
●
Will not be
required to lend any additional amounts to us;
●
Could elect to
declare all indebtedness outstanding, together with accrued and
unpaid interest and fees, to be due and payable and terminate all
commitments to extend further credit, if applicable;
or
●
Could require us to
apply all of our available cash to repay such
indebtedness.
If we
are unable to repay those amounts, the holder of our indebtedness
could proceed against the collateral granted to them to secure that
indebtedness. If the indebtedness under our existing credit
agreement were to be accelerated, there can be no assurance that
our assets at that time would be sufficient to repay such
indebtedness in full.
●
We
may not be able to attract and retain skilled people.
Our
success depends, in large part, on our ability to attract and
retain key people. Competition for the best people in most
activities we engage in can be intense, and we may not be able to
hire qualified people or to retain them. The unexpected loss of
services of one or more of our key personnel could have a material
adverse impact on our business because of their skills, knowledge
of our market, years of industry experience and the difficulty of
promptly finding qualified replacement personnel.
●
A
portion of our business relies on distribution agreements and
relationships with various third parties and any adverse change in
those relationships could result in a loss of revenue and harm that
business.
We sell
many of our products through distributors. Some of our distributors
also sell our competitors’ products, and, if they favor our
competitors’ products for any reason, they may fail to market
our products as effectively or to devote resources necessary to
provide effective sales, which would cause our results to suffer.
The success of the arrangements with these third parties depends,
in part, on the continued adherence to the terms of our agreements
with them. Any disruption in these arrangements may adversely
affect our financial condition and results of operations. The
actions of distributors in foreign countries may adversely affect
our ability to market effectively our products in those countries,
particularly if a distributor holds the regulatory authorization in
such countries and such actions result in the suspension or
revocation of such authorization. In such cases, re-establishing
market access or regulatory authorization may be difficult,
expensive or time consuming.
●
We
utilize distributors for a portion of our sales, which subjects us
to risks that could harm our business.
We have
strategic relationships with a number of distributors for sales of
our products. To the extent that we rely on distributors, our
success will depend on the efforts of others over whom we may have
little or no control. If these strategic relationships are
terminated and not replaced, our revenues could be adversely
affected. Also, we may be named as a defendant in litigation
against our distributors related to sales of our products by
them.
●
Severe
weather, natural disasters, acts of war or terrorism or other
external events could significantly impact our
business.
We
currently conduct all our development, manufacturing and management
at three locations. Severe weather, natural disasters, acts of war
or terrorism and other adverse external events at any one or more
of these locations could have a significant impact on our ability
to conduct business. We have the ability to transfer the production
of certain products from a facility affected by such events, but
doing so would be expensive. Our disaster recovery policies and
procedures may not be effective and the occurrence of any such
event could have a material adverse effect on our business, which,
in turn, could have a material adverse effect on our financial
condition and results of operations. The insurance we maintain may
not be adequate to cover our losses.
●
Our
sales and operations are subject to the risks of doing business
internationally.
A
substantial portion of our sales occur outside the United States,
and we are increasing our presence in international markets. Sales
outside the United States subject us to many risks, such
as:
●
economic or
political problems that disrupt foreign healthcare payment systems
or businesses;
●
the imposition of
governmental controls;
●
less favorable
intellectual property or other applicable laws;
●
protectionist laws
and business practices that favor local competitors;
●
the inability to
obtain any necessary foreign regulatory or pricing approvals of
products in a timely manner;
●
changes in trade
policies, tariffs and tax laws;
●
receivables may be
more difficult to collect; and
Our
operations and marketing practices are also subject to regulation
and scrutiny by the governments of the other countries in which we
operate. In addition, the Foreign Corrupt Practices Act, or FCPA,
prohibits United States companies and their representatives
from offering, promising, authorizing or making payments to foreign
officials for the purpose of obtaining or retaining business
abroad. In certain countries, the healthcare professionals we
regularly interact with may meet the definition of a foreign
official for purposes of the FCPA. Additionally, we are subject to
other United States laws in our international operations.
Failure to comply with domestic or foreign laws could result in
various adverse consequences, including possible delay in approval
or refusal to approve a product, recalls, seizures, withdrawal of
an approved product from the market, and the imposition of civil or
criminal sanctions.
●
We
may lose revenues, market share and profits due to exchange rate
fluctuations related to our international business.
Fluctuations in
exchange rates may affect the prices that our international
customers are willing to pay and may put us at a price disadvantage
compared to other competitors. Potentially volatile shifts in
exchange rates may negatively affect our financial condition and
operations. Because payments from our international customers are
received primarily in United States dollars, increases in the value
of the United States dollar relative to foreign currencies could
make our products less competitive or less affordable, and
therefore adversely affect our sales in international
markets.
●
We
may experience fluctuations in our quarterly operating
results.
We
have historically experienced, and may continue to experience,
fluctuations in our quarterly operating results. These fluctuations
are due to a number of factors, many of which are outside our
control, and may result in volatility of our stock price. Future
operating results will depend on many factors,
including:
●
demand
for our products;
●
pricing
decisions, and those of our competitors, including decisions to
increase or decrease prices;
●
regulatory
approvals for our products;
●
timing
and levels of spending for R&D, sales and
marketing;
●
timing
and market acceptance of new product introductions by us or our
competitors;
●
development
or expansion of business infrastructure in new clinical and
geographic markets;
●
tax
rates in the jurisdictions in which we operate;
●
shipping
delays or interruptions;
●
timing
and recognition of certain R&D milestones and license fees;
and
●
ability
to control our costs;
●
Our
stock price has been and may continue to be volatile.
Stock
price volatility may make it more difficult for our stockholders to
sell their common stock when they want and at prices they find
attractive. Our stock price can fluctuate significantly in response
to a variety of factors including, among other things:
●
actual or
anticipated variations in quarterly results of
operations;
●
recommendations by
securities analysts;
●
operating and stock
price performance of other companies that investors deem comparable
to the Company;
●
perceptions in the
marketplace regarding the Company and our competitors;
●
new technology
used, or services offered, by competitors;
●
trading by funds
with high-turnover practices or strategies;
●
significant
acquisitions or business combinations, strategic partnerships,
joint ventures or capital commitments by or involving the Company
or our competitors;
●
failure to
integrate acquisitions or realize anticipated benefits from
acquisitions;
●
our stock
repurchase program;
●
changes in
government regulations; and
●
geopolitical
conditions such as acts or threats of terrorism or military
conflicts.
Additionally, our
public float is small which can result in large fluctuations in
stock price during periods with increased selling or buying
activity. General market fluctuations, industry factors and general
economic and political conditions and events, such as economic
slowdowns or recessions, interest rate changes or credit loss
trends, could also cause our stock price to decrease regardless of
operating results.
●
We
continue to evaluate expansion through acquisitions of, and
investments in, other companies or technologies, which may carry
significant risks.
If
we pursue acquisitions of, or investments in, other companies or
technologies, we may:
●
Use cash that we
may need in the future to operate our business;
●
Incur debt,
including on terms that could be unfavorable to us or debt that we
might be unable to repay;
●
Structure the
transaction in a manner that has unfavorable tax consequences, such
as a stock purchase that does not permit a step-up in the tax basis
for the assets acquired;
●
Be unable to
realize the anticipated benefits, such as increased revenues, cost
savings, or synergies from additional sales;
●
Be unable to
integrate, upgrade, or replace the purchasing, accounting,
financial, sales, billing, employee benefits, payroll, and
regulatory compliance functions of an acquisition
target;
●
Be unable to secure
or retain the services of key employees related to the
acquisition;
●
Be unable to
succeed in the marketplace with the acquisition; or
●
Assume material
unknown liabilities associated with the acquired
business.
Any
of the above risks, should they occur, could materially, adversely
affect our revenues, financial condition, profitability, and cash
flows, including the inability to recover our investment or cause a
write down or write off of such investment, associated goodwill, or
assets.
●
If
we make divestitures, we could encounter difficulties that harm our
business.
We
may sell a business or product line. Any divestiture may result in
significant write-offs, which could have a material adverse effect
on our business, financial condition or results of operations.
Divestitures could also involve additional risks, including
difficulties in separation of operations, services and personnel,
the diversion of management’s attention from other operations
and the potential loss of key personnel.
●
The enactment of tax reform legislation could materially impact our
financial position and results of operations.
Legislation
or other changes in tax laws could materially affect our financial
position and results of operation. For example, the Tax Act was
enacted in the United States on December 22, 2017. Among other
changes, the Tax Act reduces the United States corporate statutory
tax rate and eliminates, limits or adds certain deductions.
Further, the Tax Act is unclear in certain respects and will
require interpretations and implementing regulations by the
Internal Revenue Service, as well as state tax authorities, and
could be subject to amendments and technical corrections, any of
which could lessen or increase the impact of the Tax Act. The tax
and accounting treatment of the changes under the Tax Act are
complex, and some of the changes as well as other tax reform
legislation may affect both current and future periods. In the
ordinary course of our business, there are many transactions and
calculations where tax determinations may be uncertain. There can
be no assurance that our tax positions will not be challenged by
relevant tax authorities or that we would be successful in any such
challenge, which could result in additional taxation, penalties and
interest payments.
●
If
we fail to manage our exposure to market risk and credit risk
successfully, our financial condition could be adversely
impacted.
We
have exposure to market risk and credit risk in our investment
activities. The fair values of our investments vary from time to
time depending on economic and market conditions. Fixed income
securities expose us to interest rate risk as well as credit risk.
Equity securities expose us to equity price risk. Interest rates
are highly sensitive to many factors, including governmental
monetary policies and domestic and international economic and
political conditions. These and other factors also affect the
equity securities owned by us. The outlook of our investment
portfolio depends on the future direction of interest rates,
fluctuations in the equity securities market and the amount of cash
flows available for investment. Our investments may decline in
value in future periods, which could have a material adverse effect
on our financial condition.
●
Provisions
in our governing documents and Delaware law may discourage or
prevent a change of control, which could cause our stock price to
decline and prevent attempts by our stockholders to replace or
remove our current management.
Our
certificate of incorporation and bylaws contain provisions that may
discourage, delay or prevent a change in the ownership of the
Company or a change in our management. We are also subject to the
provisions of Section 203 of the Delaware General Corporation Law,
which may prohibit certain business combinations with stockholders
owning 15 percent or more of our outstanding common stock. Although
a delay or prevention of a change of control transaction or of
changes in our Board of Directors could be effective in improving
stockholder value, they also carry a risk of causing the market
price of our common stock to decline.
UNRESOLVED
STAFF COMMENTS.
None.
We own
three facilities comprising approximately 398,000 square feet, and
the 139 acres on which they are situated, in Texas, Alabama and
Florida. Administrative, engineering, manufacturing and warehouse
operations are conducted at each facility, and our corporate
headquarters are located at our Texas
facility.
We have
no pending legal proceedings of the type described in Item 103 of
Regulation S-K.
Not
applicable.
Executive Officers of the Company
Name
|
|
Age
|
|
Title
|
Emile A
Battat
|
|
80
|
|
Chairman
of the Board of the Company and Chairman of the Board of
Halkey-Roberts Corporation, or Halkey-Roberts, one of our
subsidiaries
|
|
|
|
|
|
David
A. Battat
|
|
49
|
|
President
and Chief Executive Officer of the Company, President of
Halkey-Roberts and Chairman of the Board of all other
subsidiaries
|
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Jeffery
Strickland
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Vice
President and Chief Financial Officer, Secretary and Treasurer of
the Company and Vice President or Secretary-Treasurer of all
subsidiaries
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Messrs.
David Battat and Strickland currently serve as officers of the
Company and all subsidiaries. Mr. Emile Battat currently serves as
an officer of the Company. The officers of the Company and our
subsidiaries are elected annually by the respective Boards of
Directors of the Company and our subsidiaries at the first meeting
of such Boards of Directors held after the annual meetings of
stockholders of such entities. The next meetings of the
stockholders of the Company and our subsidiaries are expected to be
held in May 2019 and the Boards of Directors of the Company and our
subsidiaries are expected to meet promptly thereafter. Accordingly,
the terms of office of the current officers of the Company and our
subsidiaries are anticipated to expire in May 2019.
There
are no arrangements or understandings between any officer and any
other person pursuant to which the officer was elected. The only
family relationship between any of our executive officers or
directors is that Mr. David Battat is the son of Mr. Emile
Battat.
There
have been no events under any bankruptcy act, no criminal
proceedings and no judgments or injunctions material to the
evaluation of the ability and integrity of any executive officers
during the past ten years.
Brief Account of Business Experience During the Past Five
Years
Mr.
Emile Battat has been a director of the Company since 1987 and has
served as Chairman of the Board of the Company since January 1998.
He has served as Chairman of the Board of Halkey-Roberts since
October 1998. He served as Chief Executive Officer of the Company
and Chairman of the Board or President of all subsidiaries from
October 1998 until May 2011.
Mr.
David Battat has been President and Chief Executive Officer of the
Company and Chairman of the Board of all subsidiaries with the
exception of Halkey-Roberts, Atrion Leasing Company, LLC and
AlaTenn Pipeline Company, LLC, since May 2011. He has been
President of Halkey-Roberts since January 2006. He also serves as
President of Atrion Leasing Company, LLC and AlaTenn Pipeline
Company, LLC. He served as the Company’s President and Chief
Operating Officer from May 2007 until May 2011 and from February
2005 until December 2005 he served as Vice President - Business
Development and General Counsel at Halkey-Roberts.
Mr.
Strickland has served as Vice President and Chief Financial
Officer, Secretary and Treasurer of the Company since February 1,
1997 and has served as a Vice President, Secretary or Treasurer of
all the Company’s subsidiaries since January 1997. Mr.
Strickland was employed by the Company or our subsidiaries in
various other positions from September 1983 through January
1997.