What changed in this filing

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Item 1A. Risk Factors

2022-09-08 compared with 2021-09-09 · 189 added, 196 removed, 247 unchanged (61% of the section changed)

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Related to COVID-19

The COVID-19 pandemic, or the perception of

its effects, could have a material adverse effect on our business, financial condition, and results of operations.

To date, COVID-19 has not had

a material adverse impact on our business or results of operations, but due to the uncertainties surrounding this pandemic, it may adversely

The COVID-19 pandemic, or the perception of its

effects, could have a material adverse effect on our business, financial condition, and results of operations.

To date, COVID-19 has not had a

material adverse impact on our business or results of operations, but due to the uncertainties surrounding this pandemic, it may adversely

impact us in the future.

We may experience disruptions in our supply chain and critical suppliers may delay or be unable to deliver products

we have ordered.

Additionally, our customers could reduce planned orders, request cancelations of existing orders, and/or delay payment

to us due to financial hardship they may experience as a result of this healthcare and resulting economic crisis.

Therefore, it is impossible

at this time to predict the ultimate short-term or long-term impact of the pandemic on our business, financial condition, and results

of operations.

The ability of our employees to work may be

significantly impacted by the COVID-19 crisis.

We have and may continue to experience disruptions in our supply chain and critical suppliers may delay or be

unable to deliver products we have ordered.

Additionally, our customers could reduce planned orders, request cancelations of existing

orders, and/or delay payment to us due to financial hardship they may experience as a result of this healthcare and resulting economic

Therefore, it is impossible at this time to predict the ultimate short-term or long-term impact of the pandemic on our business,

financial condition, and results of operations.

The ability of our employees to work may be significantly

impacted by the COVID-19 crisis.

Our employees are being affected

by the COVID-19 pandemic.

Some of our office and management personnel were working remotely during much of fiscal 2021, but our employees

engaged in manufacturing and assembly continued and are continuing to work at our corporate headquarters.

The health of our workforce

is of primary concern and we may need to enact further precautionary measures to help minimize the risk of our employees being exposed

to the coronavirus.

Further, our management team is focused on mitigating the adverse effects of the COVID-19 pandemic, which has required

and will continue to require a large investment of time and resources across the entire Company, thereby diverting their attention from

other priorities that existed prior to the outbreak of the pandemic.

To date, several of our employees have had COVID-19, but all have

made full recoveries and returned to work.

If more of our employees test positive for COVID-19, or these conditions worsen, or last for

an extended period of time, our ability to manage our business may be impaired, and operational risks, cybersecurity risks, and other

risks facing us even prior to the pandemic may be elevated.

Some of our office and management personnel were continuing to work remotely during some of fiscal 2022, but

our employees engaged in manufacturing and assembly continued and are continuing to work at our corporate headquarters.

The health of

our workforce is of primary concern and we may need to enact further precautionary measures to help minimize the risk of our employees

being exposed to the coronavirus.

Further, our management team is focused on mitigating the adverse effects of the COVID-19 pandemic,

which has required and will continue to require a large investment of time and resources across the entire Company, thereby diverting

their attention from other priorities that existed prior to the outbreak of the pandemic.

To date, several of our employees have had COVID-19,

but all have made full recoveries and returned to work.

If more of our employees test positive for COVID-19, or these conditions worsen,

or last for an extended period of time, our ability to manage our business may be impaired, and operational risks, cybersecurity risks,

and other risks facing us even prior to the pandemic may be elevated.

Risks Related to Our Business and the Industry

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and results of operations.

In fiscal 2021, our top three

customers accounted for 91% of our sales, with our current largest customer accounting for 58% of our sales.

This customer has made purchase

commitments to us through a supply agreement to purchase surgical handpieces through calendar 2025.

We provide this customer with a device

used primarily in elective surgeries and although this customer has not requested a reduction or delay to their planned shipments, if

the COVID-19 pandemic continues to adversely impact the United States and other markets where our products are sold, coupled with the

recommended deferrals of elective procedures by governments and other authorities, we would expect to see a decline in demand from our

principal customer.

The loss of this customer or any of our significant customers would severely impact us, including having a material

adverse effect on our business, financial condition, cash flows, revenue, and results of operations.

In fiscal 2022, our top three customers

accounted for 88% of our sales, with our current largest customer accounting for 66% of our sales.

This customer has made purchase commitments

to us through a supply agreement to purchase surgical handpieces through calendar 2025.

We provide this customer with a device used primarily

in elective surgeries and although this customer has not requested a reduction or delay to their planned shipments, if the COVID-19 pandemic

continues to adversely impact the United States and other markets where our products are sold, coupled with the recommended deferrals

of elective procedures by governments and other authorities, we would expect to see a decline in demand from our principal customer.

loss of this customer or any of our significant customers would severely impact us, including having a material adverse effect on our

business, financial condition, cash flows, revenue, and results of operations.

A substantial portion of our business is derived

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and results of operations.

In fiscal 2021, we derived 98%

of our revenue from sales of our medical device products and related services.

In fiscal 2022, we derived 97% of

our revenue from sales of our medical device products and related services.

We believe that a primary factor in the market acceptance

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efforts will also be required to support future growth.

There can be no assurance that

we will be successful in our product development efforts, that the market will continue to accept our existing products, or that new products

There can be no assurance that we

will be successful in our product development efforts, that the market will continue to accept our existing products, or that new products

or product enhancements will be developed and implemented in a timely manner, meet the requirements of our customers, or achieve market

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market acceptance, our business, financial condition, and results of operations could be materially adversely affected.

Our customers may cancel or reduce their orders, change production

quantities, or delay production, any of which would reduce our sales and adversely affect our results of operations .

Since most of our customers

purchase our products from us on a purchase order basis, they may cancel, change, or delay product purchase commitments with little notice

As a result, we are not always able to forecast with certainty the sales that we will make in a given period and sometimes we may

increase our inventory, working capital, and overhead in expectation of orders that may never be placed, or, if placed, may be delayed,

reduced, or canceled.

The following factors, among

others, affect our ability to forecast accurately our sales and production capacity:

Our customers may cancel or reduce their orders, change production quantities,

or delay production, any of which would reduce our sales and adversely affect our results of operations .

most of our customers purchase our products from us on a purchase order basis, they may cancel, change, or delay product purchase commitments

with little notice to us.

As a result, we are not always able to forecast with certainty the sales that we will make in a given period

and sometimes we may increase our inventory, working capital, and overhead in expectation of orders that may never be placed, or, if placed,

may be delayed, reduced, or canceled.

The following factors, among others, affect our ability

to forecast accurately our sales and production capacity:

· Changes in the specific products or quantities our customers order;

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customer orders.

In addition to reducing our

sales, delayed, reduced, or canceled purchase orders also may result in our inability to recover costs that we incur in anticipation of

those orders, such as costs associated with purchased raw materials and write-offs of obsolete inventory.

In recent years, we have launched many new

medical device products and our estimates of warranty claims are based largely on our previous history from similar legacy products.

actual warranty claims exceed our estimates, it could have an adverse effect on our results of operations and financial condition.

In addition to reducing our sales,

delayed, reduced, or canceled purchase orders also may result in our inability to recover costs that we incur in anticipation of those

orders, such as costs associated with purchased raw materials and write-offs of obsolete inventory.

In recent years, we have launched many new medical

device products and our estimates of warranty claims are based largely on our previous history from similar legacy products.

warranty claims exceed our estimates, it could have an adverse effect on our results of operations and financial condition.

In recent years, we have completed

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using, we may incur additional costs which could be materially adverse to our results of operations and financial condition.

We face significant competition from a number

of different sources, which could negatively impact our results of operations.

The markets for products in

the industries served by our customers are intensely competitive, and we face significant competition from a number of different sources.

We face significant competition from a number of

different sources, which could negatively impact our results of operations.

The markets for products in the

industries served by our customers are intensely competitive, and we face significant competition from a number of different sources.

Several of our competitors have significantly greater name recognition, as well as substantially greater financial, technical, product

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with other major surgical device and related companies.

As a provider of outsourced products and services, we also compete with our customers’

own internal development groups.

Competitive pressures and other factors, such as new product or new technology introductions by us, our

customers’

internal development and manufacturing departments, or our competitors, may result in price or market share erosion that

customers’ internal development and manufacturing departments, or our competitors, may result in price or market share erosion that

could have a material adverse effect on our business, results of operations and financial condition.

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our products and services will achieve broad market acceptance or will successfully compete with other products.

The industry in which we operate is subject

to significant technological change and any failure or delay in addressing such change could adversely affect our competitive position

or could make our current products obsolete.

The medical device market is

generally characterized by rapid technological change, changing customer needs, frequent new product introductions and evolving industry

The introduction of products incorporating new technologies and the emergence of new industry standards could render our existing

products obsolete and unmarketable.

There can be no assurance that we will be successful in developing and marketing new products that

respond to technological changes or evolving industry standards.

The industry in which we operate is subject to

significant technological change and any failure or delay in addressing such change could adversely affect our competitive position or

could make our current products obsolete.

The medical device market is generally

characterized by rapid technological change, changing customer needs, frequent new product introductions and evolving industry standards.

The introduction of products incorporating new technologies and the emergence of new industry standards could render our existing products

obsolete and unmarketable.

There can be no assurance that we will be successful in developing and marketing new products that respond

to technological changes or evolving industry standards.

New product development requires

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and sabotage.

In addition, our technology

infrastructure and systems are vulnerable to damage or interruption from natural disasters, power loss and telecommunications failures.

Any such disruption to our systems, or the technology systems of third parties on which we rely, the failure of these systems to otherwise

perform as anticipated, or the theft, destruction, loss, misappropriation, or release of sensitive and/or confidential information or

intellectual property, could result in business disruption, negative publicity, loss of customers, potential liability, including litigation

or other legal actions against us or the imposition of penalties, fines, fees or liabilities, which may not be covered by our insurance

policies, and competitive disadvantage, any or all of which would potentially adversely affect our customer service, decrease the volume

of our business and result in increased costs and lower profits.

Moreover, a cybersecurity breach could require us to devote significant

management resources to address the problems associated with the breach and to expend significant additional resources to upgrade further

the security measures we employ to protect information against cyber-attacks and other wrongful attempts to access such information, which

could result in a disruption of our operations.

While we have invested, and

continue to invest, in technology security initiatives and other measures to prevent security breaches and cyber incidents, as well as

disaster recovery plans, these initiatives and measures may not be entirely effective to insulate us from technology disruption that could

result in adverse effects on our results of operations and financial condition.

To service our

debt obligations, we will require a significant amount of cash.

However, our ability to generate cash depends on many factors beyond our

Our ability to make payments

on, and to refinance, our debt obligations and to fund capital expenditures, will depend on our ability to generate cash in the future,

which, in turn, is subject to general economic, financial, competitive, regulatory and other factors, many of which are beyond our control.

Our business may not generate

sufficient cash flow from operations, and we may not have available to us future borrowings in an amount sufficient to enable us to pay

our debt obligations or to fund our other liquidity needs.

In these circumstances, we may need to refinance all or a portion of our debt

obligations on or before maturity.

We may not be able to refinance any of our debt obligations, on commercially reasonable terms, or at

Without this financing, we could be forced to sell assets or secure additional financing to make up for any shortfall in our payment

obligations under unfavorable circumstances.

However, we may not be able to secure additional financing on terms favorable to us or at

all and, in addition, the agreements governing our debt obligations limit our ability to sell assets.

In addition, we may not be able

to sell assets quickly enough or for sufficient amounts to enable us to meet our obligations.

In addition, our technology infrastructure

and systems are vulnerable to damage or interruption from natural disasters, power loss and telecommunications failures.

Any such disruption

to our systems, or the technology systems of third parties on which we rely, the failure of these systems to otherwise perform as anticipated,

or the theft, destruction, loss, misappropriation, or release of sensitive and/or confidential information or intellectual property, could

result in business disruption, negative publicity, loss of customers, potential liability, including litigation or other legal actions

against us or the imposition of penalties, fines, fees or liabilities, which may not be covered by our insurance policies, and competitive

disadvantage, any or all of which would potentially adversely affect our customer service, decrease the volume of our business and result

in increased costs and lower profits.

Moreover, a cybersecurity breach could require us to devote significant management resources to

address the problems associated with the breach and to expend significant additional resources to upgrade further the security measures

we employ to protect information against cyber-attacks and other wrongful attempts to access such information, which could result in a

disruption of our operations.

While we have invested, and continue

to invest, in technology security initiatives and other measures to prevent security breaches and cyber incidents, as well as disaster

recovery plans, these initiatives and measures may not be entirely effective to insulate us from technology disruption that could result

in adverse effects on our results of operations and financial condition.

To service our debt

obligations, we will require a significant amount of cash.

However, our ability to generate cash depends on many factors beyond our control.

Our ability to make payments on,

and to refinance, our debt obligations and to fund capital expenditures, will depend on our ability to generate cash in the future, which,

in turn, is subject to general economic, financial, competitive, regulatory and other factors, many of which are beyond our control.

Our business may not generate sufficient

cash flow from operations, and we may not have available to us future borrowings in an amount sufficient to enable us to pay our debt

obligations or to fund our other liquidity needs.

In these circumstances, we may need to refinance all or a portion of our debt obligations

on or before maturity.

We may not be able to refinance any of our debt obligations, on commercially reasonable terms, or at all.

this financing, we could be forced to sell assets or secure additional financing to make up for any shortfall in our payment obligations

under unfavorable circumstances.

However, we may not be able to secure additional financing on terms favorable to us or at all and, in

addition, the agreements governing our debt obligations limit our ability to sell assets.

In addition, we may not be able to sell assets

quickly enough or for sufficient amounts to enable us to meet our obligations.

We periodically invest surplus cash in marketable

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be able to liquidate the investments in a timely manner even if we wish to sell them.

While we intend to hold our investments, we may

have unexpected cash requirements that could necessitate the sale of some or all of these marketable securities for a loss.

While we intend to hold our investments, until such

time as we believe it is appropriate to sell them in accordance with our overall investment policy, we may have unexpected cash requirements

that could necessitate the sale of some or all of these marketable securities for a loss.

We may not be able to successfully integrate our business acquisitions,

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· Diversion of resources and management attention from our other operations.

If market conditions or other

factors require us to change our strategic direction, we may fail to realize the expected value from one or more of our acquisitions.

Our failure to successfully integrate any future acquisitions or realize the expected value from past or future acquisitions could harm

our business, financial condition, and results of operations.

We have experienced losses in the past, and

we cannot be certain that we will sustain our current profitability;

If market conditions or other factors

require us to change our strategic direction, we may fail to realize the expected value from one or more of our acquisitions.

to successfully integrate any future acquisitions or realize the expected value from past or future acquisitions could harm our business,

financial condition, and results of operations.

We have experienced losses in the past, and we

cannot be certain that we will sustain our current profitability;

we may need additional capital in the future to fund our businesses,

which we may not be able to obtain on acceptable terms.

We have experienced operating

losses in the past.

Our ability to achieve or sustain profitability is based on a number of factors, many of which are out of our control,

including the material costs for our products and the demand for our products.

We currently anticipate that

our available capital resources, including our existing cash and cash equivalents and accounts receivable balances, will be sufficient

to meet our expected working capital and capital expenditure requirements as our business is currently conducted for at least the next

We may also attempt to raise additional funds through public or private debt or equity financings, if such financings

become available on acceptable terms.

We cannot be certain that any additional financing we may need will be available on terms acceptable

to us, or at all.

If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of

opportunities, develop new products, or otherwise respond to competitive pressures, and our operating results and financial condition

could be adversely affected.

We have experienced operating losses

Our ability to achieve or sustain profitability is based on a number of factors, many of which are out of our control, including

the material costs for our products and the demand for our products.

We currently anticipate that our

available capital resources, including our existing cash and cash equivalents and accounts receivable balances, will be sufficient to

meet our expected working capital and capital expenditure requirements as our business is currently conducted for at least the next 12 months.

We may also attempt to raise additional funds through public or private debt or equity financings, if such financings become available

on acceptable terms.

We cannot be certain that any additional financing we may need will be available on terms acceptable to us, or at

If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of opportunities,

develop new products, or otherwise respond to competitive pressures, and our operating results and financial condition could be adversely

Our operations are dependent upon our key personnel.

If such personnel were to leave unexpectedly, we may not be able to execute our business plan.

Our future performance depends

in significant part upon the continued service of our key technical and senior management personnel.

Because we have a relatively small

number of employees when compared to other companies in the same industry, our dependence on maintaining our relationship with key employees

Our future performance depends in

significant part upon the continued service of our key technical and senior management personnel.

Because we have a relatively small number

of employees when compared to other companies in the same industry, our dependence on maintaining our relationship with key employees

is particularly significant.

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Risks Related to Ownership of Our Common Stock

Two of our directors hold voting power with

respect to a substantial portion of our outstanding common stock that enables them to have significant influence over the outcome of all

matters submitted to our shareholders for approval, which influence may conflict with our interests and the interests of other shareholders.

As of September 3, 2021, two

of our directors, Nicholas J.

Two of our directors hold voting power with respect

to a substantial portion of our outstanding common stock that enables them to have significant influence over the outcome of all matters

submitted to our shareholders for approval, which influence may conflict with our interests and the interests of other shareholders.

As of August 12, 2022, two of our

directors, Nicholas J.

Swenson and Raymond E.

Cabillot, directly or indirectly, controlled voting power over approximately 36%

(26% and 9%, respectively) of the outstanding shares of our common stock.

As a result of such voting control, these directors will have

significant influence over all matters submitted to our shareholders for approval, including the election of our directors and other corporate

actions, and may have interests that conflict with our interests and the interests of other shareholders.

Cabillot, directly or indirectly, controlled voting power over approximately 38% (28% and

10%, respectively) of the outstanding shares of our common stock.

As a result of such voting control, these directors will have significant

influence over all matters submitted to our shareholders for approval, including the election of our directors and other corporate actions,

and may have interests that conflict with our interests and the interests of other shareholders.

Our quarterly results can fluctuate significantly

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our shares trade.

Our sales have fluctuated in

the past, and may fluctuate in the future from quarter to quarter and period to period, as a result of a number of factors, including,

without limitation:

Our sales have fluctuated in the

past, and may fluctuate in the future from quarter to quarter and period to period, as a result of a number of factors, including, without

the size and timing of orders from customers;

the length of new product development cycles;

market acceptance of new

technologies;

market acceptance of new technologies;

changes in pricing policies or price reductions by us or our competitors;

the timing of new product announcements and product

introductions by us or our competitors;

the timing of new product announcements and product introductions

by us or our competitors;

the financial stability of major customers;

our success in expanding our sales and marketing programs;

acceleration, deferral, or cancellation of customer orders and deliveries;

acceleration,

deferral, or cancellation of customer orders and deliveries;

changes in our strategy;

revenue recognition policies in conformity

with accounting principles generally accepted in the United States (“U.S.

GAAP”);

revenue recognition policies in conformity with

accounting principles generally accepted in the United States (“U.S.

personnel changes;

and general market and

economic factors.

and general market and economic

Because a significant percentage

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of future performance for any particular period.

In addition, it is possible

that our operating results in future quarters may be below the expectations of public market analysts and investors.

In such an event,

the price of our common stock could be materially adversely affected.

In addition, it is possible that

our operating results in future quarters may be below the expectations of public market analysts and investors.

In such an event, the

price of our common stock could be materially adversely affected.

Regulatory & Compliance Risks

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an adverse effect on our operations.

The FDA designates all medical

devices into one of three classes (Class I, II, or III) based on the level of control necessary to assure the safety and effectiveness

of the device (with Class I requiring the lowest level of control and Class III requiring the greatest level of control).

instrumentation we manufacture is generally classified into Class I.

The FDA has broad enforcement powers to recall and prohibit the sale

of products that do not comply with federal regulations and to order the cessation of non-compliant processes.

No claim has been made

to date by the FDA regarding any of our products or processes.

Nevertheless, as is common in the industry, certain of our products and

processes are from time to time subject to routine governmental reviews and investigations.

We are also subject to EPA regulations concerning

the disposal of industrial waste.

While management believes that

our products and processes fully comply with applicable laws and regulations, we are unable to predict the outcome of any such future

review or investigation.

We face risks and uncertainties associated

with potential litigation by or against us, which could have a material adverse effect on our business, financial condition, and results

of operations.

The FDA designates all medical devices

into one of three classes (Class I, II, or III) based on the level of control necessary to assure the safety and effectiveness of the

device (with Class I requiring the lowest level of control and Class III requiring the greatest level of control).

The surgical instrumentation

we manufacture is generally classified into Class I.

The FDA has broad enforcement powers to recall and prohibit the sale of products

that do not comply with federal regulations and to order the cessation of non-compliant processes.

No claim has been made to date by the

FDA regarding any of our products or processes.

Nevertheless, as is common in the industry, certain of our products and processes are

from time to time subject to routine governmental reviews and investigations.

We are also subject to EPA regulations concerning the disposal

of industrial waste.

While management believes that our

products and processes fully comply with applicable laws and regulations, we are unable to predict the outcome of any such future review

or investigation.

We face risks and uncertainties associated with

potential litigation by or against us, which could have a material adverse effect on our business, financial condition, and results of

We continually face the possibility

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Defending or prosecuting litigation could result in significant legal costs and a diversion

of management’s time and attention away from business operations, either of which could have a material adverse effect on our business,

financial condition, and results of operations.

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of financial accounting matters that govern the measurement of our performance, compliance with which could be costly and time consuming.

We are subject to changes in

and interpretations of financial accounting standards that govern the measurement of our performance.

We are subject to changes in and

interpretations of financial accounting standards that govern the measurement of our performance.

Based on our reading and interpretations

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Section 404 of the Sarbanes-Oxley

Act of 2002, as amended, requires management’s assessment of the effectiveness of our internal control over financial reporting.

This process is expensive and time consuming and requires significant attention of management.

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The disclosure of a material weakness, even if quickly remedied, could

reduce the market’s confidence in our financial statements and harm our stock price, especially if a restatement of financial statements

for past periods is required.

General Risks

The global economic environment may impact

our business, financial condition, and results of operations.

Changes in the global economic

environment have caused, and may cause in the future, a general tightening in the credit markets, lower levels of liquidity, increases

in rates of default and bankruptcy, and extreme volatility in credit, equity and fixed income markets.

These macroeconomic developments

could negatively affect our business, operating results or financial condition should they cause, for example, current or potential customers

to become unable to fund purchases of our products, in turn resulting in delays, decreases or cancellations of purchases of our products

and services, or causing the customer to not pay us or to delay paying us for previously purchased products and services.

financial institution failures may cause us to incur increased expenses or make it more difficult either to obtain financing for our operations,

investing activities (including the financing of any future acquisitions), or financing activities.

Additional economic risks and uncertainties

not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial

condition, and results of operations.

The global economic environment may impact our

business, financial condition, and results of operations.

Changes in the global economic environment

have caused, and may cause in the future, a general tightening in the credit markets, lower levels of liquidity, increases in rates of

default and bankruptcy, high rates of inflation, and extreme volatility in credit, equity and fixed income markets.

These macroeconomic

developments could negatively affect our business, operating results or financial condition should they cause, for example, current or

potential customers to become unable to fund purchases of our products, in turn resulting in delays, decreases or cancellations of

purchases of our products and services, or causing the customer to not pay us or to delay paying us for previously purchased products

and services.

In addition, financial institution failures may cause us to incur increased expenses or make it more difficult either to

obtain financing for our operations, investing activities (including the financing of any future acquisitions), or financing activities.

Additional economic risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and

adversely affect our business, financial condition, and results of operations.

UNRESOLVED STAFF COMMENTS

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors