Overview

The Company develops and manufactures products primarily for medical applications. The Company markets components to other equipment manufacturers for incorporation in their products and sells finished devices to physicians, hospitals, clinics and other treatment centers. The Company's medical products primarily serve the fluid delivery, cardiovascular, and ophthalmology markets. The Company's other medical and non-medical products include instrumentation and disposables used in dialysis, contract manufacturing and valves and inflation devices used in marine and aviation safety products.

The Company's products are used in a wide variety of applications by numerous customers. The Company encounters competition in all of its markets and competes primarily on the basis of product quality, price, engineering, customer service and delivery time.

The Company's strategy is to provide a broad selection of products in the areas of its expertise. Research and development efforts are focused on improving current products and developing highly-engineered products that meet customer needs and have the potential for broad market applications and significant sales. Proposed new products may be subject to regulatory clearance or approval prior to commercialization and the time period for introducing a new product to the marketplace can be unpredictable. The Company also focuses on controlling costs by investing in modern manufacturing technologies and controlling purchasing processes. The Company has been successful in consistently generating cash from operations and has used that cash to reduce indebtedness, to fund capital expenditures, to repurchase stock and to pay dividends.

The Company's strategic objective is to further enhance its position in its served markets by:

· Focusing on customer needs;
· Expanding existing product lines and developing new products;
· Maintaining a culture of controlling cost; and
· Preserving and fostering a collaborative, entrepreneurial management structure.

For the three months ended March 31, 2009, the Company reported revenues of $25.0 million, operating income of $6.1 million and net income of $4.1 million, up 2 percent, 12 percent and 13 percent, respectively, from the three months ended March 31, 2008.

Over the past ten years, the Company has achieved meaningful annual increases in operating revenues, operating income, net income from continuing operations and diluted earnings per share from continuing operations. During this ten-year period, the Company has been able to achieve this growth even during declines in economic activity. The United States and world economies have recently been deteriorating at an unprecedented pace. This resulting decline in global demand makes it difficult to make accurate predictions for 2009 results. The Company hopes to achieve at least modest growth for the year ending December 31, 2009, but is unable to predict at what level.

Results for the three months ended March 31, 2009

Consolidated net income totaled $4.1 million, or $2.09 per basic and $2.06 per diluted share, in the first quarter of 2009. This is compared with consolidated net income of $3.7 million, or $1.88 per basic and $1.83 per diluted share, in the first quarter of 2008. The income per basic share computations are based on weighted average basic shares outstanding of 1,973,888 in the 2009 period and 1,943,387 in the 2008 period. The income per diluted share computations are based on weighted average diluted shares outstanding of 2,002,885 in the 2009 period and 2,002,989 in the 2008 period.

Consolidated revenues of $25.0 million for the first quarter of 2009 were 2 percent higher than revenues of $24.6 million for the first quarter of 2008. This increase was generally attributable to higher sales volumes.

Revenues by product line were as follows (in thousands):

                                          Three Months ended
                                               March 31,
                                           2009          2008

                       Fluid Delivery   $    8,656     $  8,249
                       Cardiovascular        7,211        7,467
                       Ophthalmology         4,935        3,779
                       Other                 4,245        5,107
                       Total            $   25,047     $ 24,602

Cost of goods sold of $14.0 million for the first quarter of 2009 was $36,000 higher than in the comparable 2008 period. The Company's cost of goods sold in the first quarter of 2009 was 55.7 percent of revenues compared with 56.6 percent of revenues in the first quarter of 2008.The primary contributor to this increase for the first quarter of 2009 was increased sales volume partially offset by improved manufacturing efficiencies.

Gross profit of $11.1 million in the first quarter of 2009 was $409,000, or 4 percent, higher than in the comparable 2008 period. The Company's gross profit percentage in the first quarter of 2009 was 44.3 percent of revenues compared with 43.4 percent of revenues in the first quarter of 2008. The increase in gross profit percentage in the 2009 period compared to the 2008 period was primarily related to improved product mix and improved manufacturing efficiencies.

The Company's first quarter 2009 operating expenses of $5.0 million were $246,000 lower than the operating expenses for the first quarter of 2008. This decrease was comprised of a $206,000 decrease in selling (Selling) expenses, a $23,000 decrease in General and Administrative (G&A) expenses and a $17,000 decrease in Research and Development (R&D) expenses. The decrease in Selling expenses for the first quarter of 2009 was primarily related to decreased compensation, promotion, outside services and travel-related expenses. The decrease in G&A expenses for the first quarter of 2009 was principally attributable to decreased outside services. The decrease in R&D costs was primarily related to decreased supplies expense partially offset by increased outside services expenses. Operating income in the first quarter of 2009 increased $655,000, to $6.1 million, a 12 percent increase over operating income in the quarter ended March 31, 2008. Operating income was 24 percent of revenues in the first quarter of 2009 compared to 22 percent of revenues in the first quarter of 2008. The previously mentioned increase in gross profit coupled with the decrease in operating expenses were the major contributors to the operating income improvement in the first quarter of 2009.

Income tax expense for the first quarter of 2009 was $2.1 million compared to income tax expense of $1.8 million for the same period in the prior year. The effective tax rate for the first quarter of 2009 was 33.4 percent, the same as the first quarter of 2008.

Liquidity and Capital Resources
The Company has a $25.0 million revolving credit facility (the "Credit Facility") with a money center bank to be utilized for the funding of operations and for major capital projects or acquisitions, subject to certain limitations and restrictions. Borrowings under the Credit Facility bear interest that is payable monthly at 30-day, 60-day or 90-day LIBOR, as selected by the Company, plus one percent. The Company had no outstanding borrowings under its Credit Facility at March 31, 2009 or at December 31, 2008. The Credit Facility, which expires November 12, 2012, and may be extended under certain circumstances, contains various restrictive covenants, none of which is expected to impact the Company's liquidity or capital resources. At March 31, 2009, the Company was in compliance with all financial covenants and had $25.0 million available for borrowing under the Credit Facility. The Company believes that the bank providing the Credit Facility is highly-rated and that the entire $25.0 million under the Credit Facility is currently available to the Company. If that bank were unable to provide such funds, the Company believes that such inability would not impact the Company's ability to fund operations.

At March 31, 2009, the Company had cash and cash equivalents of $16.7 million compared with $12.1 million at December 31, 2008. The Company had short-term investments of $4.7 million at March 31, 2009 compared with $4.7 million at December 31, 2008.

As of March 31, 2009, the Company had working capital of $47.7 million, including $16.7 million in cash and cash equivalents. The $4.8 million increase in working capital during the first three months of 2009 was primarily related to increases in cash and accounts receivable partially offset by decreases to inventories and an increase in accrued income and other taxes. The increase in accounts receivable during the first three months of 2009 was primarily related to the increase in revenues for the first quarter of 2009 as compared to the fourth quarter of 2008. The increase in accrued income and other taxes was primarily related to income taxes on the operational results of the first quarter of 2009 and the timing of income tax payments. The decrease in inventories was primarily related to the Company's consumption of raw materials purchased in 2008 under a program to hedge against future price increases.

Cash flows from operating activities generated $6.0 million for the three months ended March 31, 2009 as compared to $3.5 million for the three months ended March 31, 2008. The 2009 increase was primarily attributable to increased operational results, and more favorable cash requirements for working capital related to inventories, accounts payable and accrued liabilities, and accrued income and other taxes, as compared to the 2008 period. During the first three months of 2009, the Company expended $1.2 million for the addition of property and equipment. During the first three months of 2009, stock option activities generated $455,000 of cash and the Company paid dividends of $594,000.

Although recent distress in the financial markets and the global economy in general has not had a significant impact on the Company's liquidity, the Company continues to monitor the financial markets and general global economic conditions. In the current credit and financial markets, many companies are finding it difficult to gain access to capital resources. In spite of the current economic conditions, the Company believes that its $21.4 million in cash, cash equivalents and short-term investments, cash flows from operations and available borrowings of up to $25.0 million under the Company's Credit Facility will be sufficient to fund the Company's cash requirements for at least the foreseeable future. The Company believes that its strong financial position would allow it to access equity or debt financing should that be necessary and its capital resources should not be materially impacted by the current economic crisis. Additionally, the Company believes that its cash and cash equivalents and short-term investments will continue to increase in 2009.

Forward-Looking Statements
Statements in this Management's Discussion and Analysis that are forward-looking are based upon current expectations, and actual results may differ materially. Therefore, the inclusion of such forward-looking information should not be regarded as a representation by the Company that the objectives or plans of the Company would be achieved. Such statements include, but are not limited to, the Company's expectations regarding the Company's ability to achieve at least modest growth for 2009, availability of equity and debt financing, the Company's ability to fund operations and meet its cash requirements for the foreseeable future, the impact of the current economic crisis on the Company's capital resources and increases in cash and cash equivalents and short-term investments in 2009. Words such as "anticipates," "believes," "expects," "estimated" and variations of such words and similar expressions are intended to identify such forward-looking statements. Forward-looking statements contained herein involve numerous risks and uncertainties, and there are a number of factors that could cause actual results or future events to differ materially, including, but not limited to, the following: changing economic, market and business conditions; acts of war or terrorism; the effects of governmental regulation; the impact of competition and new technologies; slower-than-anticipated introduction of new products or implementation of marketing strategies; implementation of new manufacturing processes or implementation of new information systems; the Company's ability to protect its intellectual property; changes in the prices of raw materials; changes in product mix; intellectual property and product liability claims and product recalls; the ability to attract and retain qualified personnel; and the loss of, or any material reduction in sales to, any significant customers. In addition, assumptions relating to budgeting, marketing, product development and other management decisions are subjective in many respects and thus susceptible to interpretations and periodic review which may cause the Company to alter its marketing, capital expenditures or other budgets, which in turn may affect the Company's results of operations and financial condition.