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EXHIBIT 99
SAFE HARBOR STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
Statements regarding the future prospects of the Company must be
evaluated in the context of a number of factors that may materially affect its
financial condition and results of operations. Disclosure of these factors is
intended to permit the Company to take advantage of the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. Most of these factors
have been discussed in prior filings by the Company with the Securities and
Exchange Commission. Although the Company has attempted to list the factors that
it is currently aware may have an impact on its operations, other factors may in
the future prove to be important and the following list should not necessarily
be considered comprehensive.
Fluctuations in Quarterly Operating Results. The Company has
experienced quarterly fluctuations in operating results and anticipates that
these fluctuations will continue. These fluctuations have been caused by various
factors, including the buying patterns of the Company's target market; the
number and timing of new product introductions and enhancements by the Company
and its competitors; the effects of industry evaluations and publicity; the
timing of product orders and shipments; marketing and promotional programs; and
economic conditions in the regions in which the Company does business. A
significant portion of the Company's operating expenses is relatively fixed in
nature and planned expenditures are based primarily on sales forecasts. If
revenue does not meet the Company's expectations in any given quarter, operating
results may be adversely affected.
Distribution Systems. The Company has consigned inventory to
approximately 2,200 clinics for direct distribution to patients. Although the
Company attempts to obligate such clinics to monitor the inventory, it has
experienced inventory losses in each year since it has commenced direct
distribution and expects such losses to continue. Further, the Company generally
experiences increased inventory loss with dissatisfied or terminated sales
agents and there can be no assurances that its reserves for lost inventory are
adequate.
In addition, because private and government health care reimbursement
entities (health insurance carriers) require a substantial amount of time to
approve reimbursement for sale and rental of products, the Company's accounts
receivable have grown significantly in recent years. The Company has added
personnel to deal with collections and record keeping and has established
reserves, which it believes are adequate, for uncollectible receivables and lost
inventory. Nevertheless, there can be no assurances that the Company can
continue to generate increasing revenue; that all the revenue it generates can
be collected; that its reserves for uncollectible accounts will be adequate; or
that its relationships with clinics can be maintained.
Volatile Markets. The electrotherapy pain management market is a
relatively mature and competitive market, subject to significant fluctuations in
profitability caused by foreign competition, questions of therapeutic efficacy,
governmental regulation and private rates of reimbursement. The electrotherapy
rehabilitation market is an evolving and fragmented market with a number of
different companies offering competing treatments without any clear indication
of industry preference. There can be no assurance that the Company will ever be
able to capture a significant portion of the pain management market or that it
can establish a significant position in the electrotherapy rehabilitation
market.
Competition. Competition in the medical device industry from other
electrotherapy pain management and rehabilitation device companies, as well as
from pharmaceutical companies and biotechnology companies, is intense. The
market for the Company's products, and particularly its pain management
products, is extremely competitive. Although the Company believes that the
rehabilitation products it sells distinguish it from its competitors, there can
be no assurance that the Company will be able to compete effectively in the sale
or rental of its products.
Reimbursement Rates. Most of the Company's products are sold or rented
on prescription and the sales or rental price is reimbursed to the Company or
its dealers by the patients' insurers. Both private insurers and the United
States Government as the administrator of Medicare and
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Medicaid will reimburse patients for the cost of such products based on
scheduled rates that they have established. Generally the Company, and other
providers of medical products, attempt to sell and lease their products at
prices approximating these reimbursement rates. Nevertheless, private and
government payers are increasingly vigorous in their attempts to contain health
care costs through limitations on the level of reimbursement and scrutiny of
items submitted for reimbursement. In some instances, such payers have made
determinations that a form of electrotherapy is not an acceptable form of
treatment and have refused all reimbursement for that electrotherapy modality.
To the extent such private insurers or Medicare or Medicaid decrease the rate of
reimbursement or refuse reimbursement with respect to any product or line of
products, the Company's profit margins and revenues will be adversely effected.
Clinical Efficacy. TENS sales were negatively affected several years
ago, and may continue to be affected, by publications questioning the efficacy
of TENS for pain relief. The mechanism through which a number of electrotherapy
modalities relieve pain is not precisely understood and although studies
generally indicate that TENS and other modalities offered by the Company are
effective in relieving chronic pain, there can be no assurance that contrary
studies or publicity will not negatively impact sales in the future. Such
studies have, and can be expected to continue to have, a negative impact on
reimbursement.
Governmental Regulation. The Company's products are subject to changing
Federal regulation governing the use, marketing and sale of medical products.
Generally, medical products must be "substantially equivalent" to existing
medical products or will be subject to an extensive premarket approval process
that often requires clinical testing. The Company has received approval from the
Food and Drug Administration (FDA) for ability to market its existing products
based on substantial equivalence. Nevertheless, there can be no assurance that
approval to market such products for broader medical applications, or other
products the Company may introduce, will be granted on such basis. The FDA also
regulates the manufacture of medical devices under its "good manufacturing
practices" regulations and requires that the manufacturing process follow
certain pre-established procedures. The FDA and state regulatory bodies also
regulate the form of advertisement and methods used to sell and distribute
medical products. Although the Company believes that its manufacturing processes
comply with good manufacturing practices and that all of its advertising and
sales practices comply with applicable law, a contrary finding by a regulatory
body could have an adverse effect on its operations.
Product Liability. Like most producers of medical products, the Company
faces the risk of product liability claims and unfavorable publicity in the
event that the use of its products causes injury or has other adverse effects.
Although the Company has product liability insurance for risks of up to
$2,000,000 and has not been subject to any material claims for product
liability, there can be no assurance that it will be able to avoid product
liability exposure.
Lack of Proprietary Protection. The Company holds various patents and
plans to seek protection for certain technology in the future. However, the
Company has not applied for protection on the technology incorporated into other
products that it currently offers. In the absence of proprietary protection, the
Company is vulnerable to competitors that may attempt to copy its products.
In addition, although the Company has never been the subject of a suit
for patent or trademark infringement and does not believe that the technology
incorporated into its products infringes upon the proprietary rights of others,
there can be no assurance that third parties will not assert infringement claims
against the Company in the future or that any such assertion will not result in
royalty payments or costly litigation.
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Dependence on Key Personnel. The Company's success depends to a
significant extent upon certain key personnel, including Mr. Kaysen, its
President and Chief Executive Officer. The loss of Mr. Kaysen, or other key
management or technical personnel, could adversely affect the Company's
business. In addition, the Company's success will depend on its ability to
attract and retain skilled personnel in all areas of its business. There can be
no assurance that the Company will be successful in attracting and retaining
such personnel.
Limited Public Market/Possible Volatility of Stock Price. To date there
has been a limited trading market in the Company's Common Stock. The Company
believes that factors such as new product announcements by the Company and
quarter-to-quarter variations in financial results could cause the market price
of the Common Stock to fluctuate substantially. In addition, the stock market in
general has recently experienced significant price and volume fluctuations
unrelated to the performance of individual companies. Broad market fluctuations
as well as general economic or political conditions may adversely affect the
market price of the Common Stock.
