Cautionary Notes Regarding "Forward-Looking" Statements

This report contains statements that we believe to be "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange act of 1934, as amended. Forward-looking statements give our current expectations or forecasts of future events. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "expect," "intend," "estimate," "anticipate," "believe," "project," or "continue," or similar words or the negative thereof. From time to time, we also may provide oral or written forward-looking statements in other materials we release to the public. Any or all of our forward-looking statements in this report and in any public statements we make could be materially different from actual results. They can be affected by assumptions we might make or by known or unknown risks or uncertainties. Consequently, we cannot guarantee any forward-looking statements. Investors are cautioned not to place undue reliance on any forward-looking statements. Investors should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all potential risks and uncertainties. The following factors and those discussed in ITEM 1A, Risk Factors, included in our Annual Report on Form 10-K for the year ended December 31, 2011, may affect the achievement of forward-looking statements:

? general economic and political conditions, such as political instability, credit market uncertainty, the rate of economic growth or decline in our principal geographic or product markets or fluctuations in exchange rates, continued deterioration in or de-stabilization of the global economy;

? changes in general economic and industry conditions in markets in which we participate, such as:

? deterioration in or destabilization of the global economy;

? the strength of product demand and the markets we serve;

? the intensity of competition, including that from foreign competitors;

? pricing pressures;

? the financial condition of our customers;

? market acceptance of new product introductions and enhancements;

? the introduction of new products and enhancements by competitors;

? our ability to maintain and expand relationships with large customers;

? our ability to source raw material commodities from our suppliers without interruption and at reasonable prices; and

? our ability to source components from third parties, in particular from foreign manufacturers, without interruption and at reasonable prices.

? our ability to access capital markets and obtain anticipated financing under favorable terms;

? our ability to identify, complete and integrate acquisitions successfully and to realize expected synergies on our anticipated timetable;

? changes in our business strategies, including acquisition, divestiture and restructuring activities;

? changes in operating factors, such as continued improvement in manufacturing activities, the achievement of related efficiencies and inventory risks due to shifts in market demand;

? our ability to generate savings from our cost reduction actions;

? unanticipated developments that could occur with respect to contingencies such as litigation, intellectual property matters, product liability exposures and environmental matters; and

? our ability to accurately evaluate the effects of contingent liabilities.

The foregoing factors are not exhaustive, and new factors may emerge or changes to the foregoing factors may occur that would impact our business. We assume no obligation, and disclaim any duty, to update the forward-looking statements in this report. Past performance is no guaranty of future results.

Executive Level Overview

We are a medical device company engaged in manufacturing and marketing of electrosurgical devices. Our medical products include a wide range of devices including electrosurgical generators and accessories, cauteries, medical lighting, nerve locators and other products.

We internally divide our operations into three product lines. Electrosurgical products, battery-operated cauteries, and other products. The electrosurgical line sells electrosurgical products which include desiccators, generators, electrodes, electrosurgical pencils and various ancillary disposable products. These products are used in surgery for the cutting and coagulation of tissue. Battery-operated cauteries are used for precise hemostasis (to stop bleeding) in ophthalmology and in other fields. Our other revenues are derived from nerve locators, disposable and reusable penlights, medical lighting, license fees, development fees and other miscellaneous income.

Most of our products currently are marketed through medical distributors, which distribute to more than 6,000 hospitals, and to doctors and other health-care facilities. New distributors are contacted through responses to our advertising in international and domestic medical journals and domestic or international trade shows. International sales represented 16.2% of total revenues for the first three months of 2012, as compared with 22.1% for the first three months of 2011. Our products are sold in more than 150 countries mainly through local dealers which are coordinated by sales and marketing personnel at the Clearwater, Florida facility. In addition, for the launch of our new surgical suite product lines, we have established the use of a network of approximately 50 commission-based independent direct sales contractors to market these products. Our business is generally not seasonal in nature.

Results of Operations -Three Months Ended March 31, 2012 Compared to Three

Months Ended March 31, 2011

Sales

                                         Three months ended
Sales by Product Line (in thousands)          March 31,             Percent
                                          2012          2011        change

Electrosurgical                        $    4,362      $ 4,207           3.7  %
Cauteries                                   1,605        1,485           8.1  %
Other                                         766          462          65.8  %

Total                                  $    6,733      $ 6,154           9.4  %



                                                       Three months ended
Sales by Domestic and International (in thousands)          March 31,            Percent
                                                        2012          2011        change

Domestic                                             $    5,623      $ 4,784         17.5 %
International                                             1,110        1,370       (19.0) %

Total                                                $    6,733      $ 6,154          9.4 %

During the three months ended March 31, 2012, we experienced increases in demand along all three of our product line categories. The largest dollar sales increases occurred in our other products category and were related to sales of our new distribution products released last year, medical lighting systems and laproscopic instruments, amounting to increases of approximately $235,000 and $17,000 respectively, along with additional increases in various other products of approximately $52,000 for the three months ended March 31, 2012 compared to the same period in 2011. The 3.7% sales increase experienced in our electrosurgical category during the three months ended March 31, 2012 compared to the same period in 2011, was mainly attributable to increased demand for our OEM domestic electrosurgical generators amounting to approximately $279,000 offset with an approximate decrease of $79,000 in electrode sales to an OEM customer due to a delay in product shipment, and other decreases of approximately $45,000 in various other electrosurgical items. Lastly, demand for our cauteries increased by 8.1% or approximately $120,000 for the three months ended March 31, 2012 when compared to the same period in 2011.

Gross Profit

                   Three months ended
                        March 31,              Percentage of sales         Percent
(in thousands)      2012          2011          2012           2011        Change

Cost of sales    $    3,937      $ 3,721         58.5   %        60.5 %       5.8   %

Gross profit     $    2,796      $ 2,433         41.5   %        39.5 %       14.9  %

As a result of increased sales combined with reduced costs relative to the sales, our gross profit margin improved on a dollar basis by approximately $363,000 or 14.9% during the three months ended March 31, 2012 compared to the same period in 2011. Two main areas related to the reduced costs were material costs with an approximate 1.3% decrease as a percentage of sales and direct and indirect labor with an approximate 0.7% decreased as a percentage of sales.

Other Gain (Loss)

Salient/Medtronic Settlement

During the prior year three months ended March 31, 2011, we entered into a
settlement agreement related to the legal action with Salient Surgical
Technologies, Inc. and medtronic, Inc. The settlement called for us and related
parties to immediately exit and not enter into the monopolar and bipolar
saline-enhanced RF device business (including SEERTM) worldwide through February
2015. In exchange, Salient made a one-time payment to us of $750,000.

Research and Development

                               Three months ended
                                    March 31,                  Percentage of sales          Percent
(in thousands)                2012             2011           2012             2011         Change

Research and development
costs                      $      298       $      347            4.4 %            5.6 %      (14.1) %

As a result of our legal settlement with Salient Surgical Technologies, Inc. in March of 2011, in which we agreed to exit the monopolar and bipolar saline-enhanced RF device business (SEER™ and BOSS™) worldwide through February 2015, we experienced a 14.1% decrease in research and development expense or approximately $49,000 in the first three months of 2012 compared to the same period in 2011. This decrease was comprised of an approximate $22,000 decrease in R&D engineering labor costs along with an approximate $27,000 decrease in R&D materials and labs.

Professional Fees

                           Three months ended
                                March 31,                Percentage of sales        Percent
(in thousands)            2012            2011          2012            2011         Change

Professional services   $     295       $     344           4.4 %           5.6 %     (14.3) %

During the three months ended March 31, 2012 compared to the same period in 2011, we experienced a decrease in legal costs of approximately $45,000 due to several settlements resulting in less litigation expense. In addition, we experienced a decrease of approximately $2,000 in both accounting and consulting fees. These decreases combined equated to an approximate $49,000 decrease in professional fees for the first quarter of 2012 when compared to the same period in 2011, or 14.3%.

Salaries

                             Three months ended
                                  March 31,               Percentage of sales        Percent
(in thousands)              2012            2011           2012           2011        Change

Salaries & related cost   $     782       $     806         11.6   %        13.1 %      (3.0) %

During the three months ended March 31, 2012 compared to the same period in 2011, we eliminated two salaried positions and at the same time also created and hired two unrelated, new salaried positions which resulted in an approximate decrease of $24,000 or 3.0%.

Selling, General & Administrative Expenses

(in thousands) Three months ended March 31, Percentage of sales Percent 2012 2011 2012 2011 Change

SG & A costs $ 1,025 $ 1,101 15.2 % 17.9 % (7.0 ) %

We continued our trend of an overall net decrease in selling, general and administrative costs for the first three months of 2012 when compared to the same period in 2011, and experienced an approximate decrease of $76,000, or 7.0%. We have, however, increased our efforts and expenditures related to selling costs to expand our sales growth in the international market place and to promote our new plasma product line. These increased expenditures were mainly in two areas, additional international travel which approximated $22,000 and second for additional marketing, show fees and costs related to the plasma line and other product lines which approximated $27,000.

Our general and administrative costs in the three months ended March 31, 2011 contained some costs that only occurred in that time period, resulting in a decrease when compared to the same period in 2012. The settlement of the SEER lawsuit in the three months ended March 31, 2011 resulted in an $89,000 decrease over the same period in 2012 which was due to the write off of inventory and other SEER related costs. Another cost that was present in the first three months ended March 31, 2011 that was not present in the same period 2012 was approximately $5,000 of amortization expense related to the MEG product line that we no longer own. Other various reductions in our general and administrative costs for the three months ended March 31, 2012 compared to the same period in 2011 amounted to approximately $32,000 and related to decreases in bank fees, utilities, insurance costs, regulatory fees, and royalties.

Other Income (expense)

                               Three months ended March 31,            Percentage of sales          Percent
(in thousands)                  2012                   2011            2012            2011         change

Interest income
(expense), net             $          (58)         $        (52 )        (0.9) %         (0.9) %        11.6 %
Change in fair value of
liabilities, net           $          (17)         $        141          (0.3) %           2.3 %     (112.0) %

As a result of the change in fair value of the warrants associated with the equity issuance in April of 2010, we recorded a non-cash loss of approximately $17,000 for the three months ended March 31, 2012 verses a non-cash gain of approximately $141,000 for the three month period ended March 31, 2011, representing a change of approximately $158,000. The derivative warrant liability was valued at approximately $105,000 at December 31, 2011 and was valued at approximately $122,000 at March 31, 2012.

Income Taxes

                               Three months ended
(in thousands)                      March 31,              Percent of sales        Percent
                                2012           2011        2012         2011        change
Income before income taxes   $      321       $  674           4.8 %      11.0 %     (52.4) %
Provision for income taxes   $    (134)       $ (182 )       (2.0) %     (3.0) %     (26.4) %
Effective tax rate                 41.7 %       27.0 %

While we are subject to U.S. federal income tax as well as income tax of certain state jurisdictions, during the three months ended March 31, 2012, our current provisions were zero because the net effect of our permanent and temporary differences resulted in us recognizing losses for tax purposes. At March 31, 2012, we have remaining net operating loss carry-forwards of approximately $3.2 million to reduce any future taxable income earned in various years through the tax year 2030. Our effective tax rate of 41.7% for the three months ended March 31, 2012 was more than the statutory tax rates primarily because we recognized certain temporary and permanent adjustments for financial statement purposes.

Net Income

Product Development

We have developed most of our products and product improvements internally. Funds for this development have come primarily from our internal cash flow and equity issuances. We maintain close working relationships with physicians and medical personnel in hospitals and universities who assist in product research and development. New and improved products play a critical role in our sales growth. We continue to emphasize the development of proprietary products and product improvements to complement and expand our existing product lines. We have a centralized research and development focus in Florida for new product development and product improvements. Our research, development and engineering units at the manufacturing locations maintain relationships with distribution locations and customers to provide an understanding of changes in the market and product needs. During 2012, we continued to invest in expanding our plasma product line and technology, ICON VS™ and the accompanying vessel sealing technology, and Aaron™ 1450. We intend to pay the ongoing costs for this development from operating cash flows.

At this time, we do not contemplate any material purchase or acquisition of assets during the next twelve months that our ordinary cash flow and/or credit line would be unable to sustain.

Reliance on Collaborative, Manufacturing and Selling Arrangements

We depend on certain contractual OEM customers for product development. In these situations, we plan to manufacture the products developed. The customer has no legal obligation, however, to purchase the developed products. If the collaborative customer fails to give us purchase orders for the product after development, our future business and value of related assets could be negatively affected. Furthermore, we can give no assurance that a collaborative customer may give sufficient high priority to our products. In addition, disagreements or disputes may arise between us and our contractual customers, which could adversely affect production of our products. We also have two collaborative arrangements with foreign suppliers, one informal and one contractual, in which we request the development of certain items and components, and we purchase them pursuant to purchase orders. Our purchase orders are never longer than one year and are supported by orders from our customers. We recently amended the manufacturing agreement with our Bulgarian supplier, which as of March 1, 2012, provides for certain contingent liabilities on our part if we terminate our arrangement prior to July 1, 2014 (see Note 10).

Liquidity and Capital Resources

Our working capital at March 31, 2012 increased by approximately $0.2 million to $14.3 million compared to approximately $14.1 million at December 31, 2011. This increase was mainly the result of a decrease in accounts payable and costs. Accounts receivable days of sales outstanding were 40.2 days and 42.3 days at March 31, 2012 and 2011, respectively. The number of days worth of sales in inventory, which is the total inventory available for production divided by the 12 month average cost of materials, decreased 3 day to 236 days equating to an inventory turn ratio of 1.3 at March 31, 2012 from 233 days and an inventory turn ratio of 1.3 at December 31, 2011. The lower number of days worth of sales is mainly due to the increased conversion of long lead time raw materials to accommodate the three month period increased sales.

We used cash for operations of approximately $0.5 million for the three months ended March 31, 2012, compared to cash from operations of approximately $0.7 million for the same period of 2011, a decrease of approximately $1.2 million.

In the three month period ended March 31, 2012, we used approximately $243,000 for the purchase of property and equipment as compared to purchases amounting to approximately $75,000 for the same period in 2011.

We used cash from financing activities of approximately $32,000 during the first three months of 2012, a decrease of approximately $3,000 compared with the same period in 2011. The decrease in cash from financing resulted primarily from lower net payments related to our long-term bonds.

We currently have approximately $3.5 million outstanding under industrial revenue bonds which we previously used for the purchase and renovation of our Clearwater, Florida facility. These bonds were refinanced in 2011 through PNC Bank, N.A. The bonds, which are being amortized over a 20-year term, balloon in November 2018 and bear interest at a fixed interest rate of 5.6%. Scheduled maturities of this indebtedness are $129,800, $137,300, $145,000, $153,100 and $161,700 for 2012, 2013, 2014, 2015 and 2016, respectively and approximately $2.8 million thereafter.

We had approximately $4.1 million in cash and cash equivalents at March 31, 2012. We believe our cash on hand, as well as anticipated cash flows from operations, will be sufficient to meet our operating cash commitments for the next year. Should additional funds be required, we have secured additional borrowing capacity with PNC Bank. (See below)

We have a $6 million secured revolving line of credit facility with PNC Bank, which at March 31, 2012 had a zero balance. Advances under the $6 million line of credit are due on demand and bear interest at a rate of daily LIBOR plus 1.75% and are secured by a perfected first security interest in our inventory and accounts receivable.

In addition we have a separate additional credit facility with PNC Bank for up to $1 million specific to financing new equipment purchases. This credit facility provides for a 1 year draw up to the conversion date of October 31, 2012. Prior to the conversion dates amounts outstanding will bear an interest rate of daily LIBOR plus 2.25%. Once the note is converted the term will be 5 years and will bear an interest rate of daily LIBOR plus 2.50%. The note would be secured by a perfected first security interest in the new equipment purchased.

Subsequent available borrowings for both these credit facilities are subject to a borrowing base utilizing a percentage of eligible receivables, inventories, and any assigned cash along with certain financial ratios, specifically maintaining: a ratio of tangible net worth of less than 0.75 to 1.0 and a ratio of minimum fixed charge of 1.5 to 1.0 measured on a rolling four quarter basis.

On February 22, 2012, as a result of our settlement agreement with Mr. Livneh, certain intangible assets were agreed to be transferred and included as part of the settlement package. PNC Bank notified us shortly after we signed the settlement and informed us that the transfer of such assets caused a technical default under our loan agreement with PNC. However, PNC Bank has since waived such default.

Except as described in the preceding paragraph, at March 31, 2012, we were in full compliance with the loan covenants and ratios of both the credit facilities. According to our most recent borrowing base calculation, we had approximately $3.8 million total availability under the $6 million credit line, of which we currently have a zero balance. We also have available approximately $1.0 million under the equipment line of credit.

Our future contractual obligations for agreements with initial terms greater than one year and agreements to purchase materials in the normal course of business are summarized as follows (in thousands):

Description                          Years Ending December 31,
                           2012      2013     2014     2015     2016     2017
Operating leases        $   192     $ 228     $ 12      $ -        -        -
Employment agreements       458       591       46        -        -        -
Purchase Commitments      2,879         -        -        -        -        -

Critical Accounting Estimates

In preparing the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"), we have adopted various accounting policies. Our most significant accounting policies are disclosed in Note 2 to the consolidated financial statements included in our report on Form 10-K for the year ended December 31, 2011, which we filed in March 2012.

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Our estimates and assumptions, including those related to inventories, intangible assets, property, plant and equipment, legal proceedings, research and development, warranty obligations, product liability, fair valued liabilities, sales returns and discounts, and income taxes are updated as appropriate, which in most cases is at least quarterly. We base our estimates on historical experience, or various assumptions that are believed to be reasonable under the circumstances and the results form the basis for making judgments about the reported values of assets, liabilities, revenues and expenses. Actual results may materially differ from these estimates.

Estimates are considered to be critical if they meet both of the following criteria: (1) the estimate requires assumptions about material matters that are uncertain at the time the accounting estimates are made, and (2) other materially different estimates could have been reasonably made or material changes in the estimates are reasonably likely to occur from period to period. Our critical accounting estimates include the following:

Inventory reserves

When necessary, we maintain reserves for excess and obsolete inventory resulting from the potential inability to sell our products at prices in excess of current carrying costs. The markets in which we operate are highly competitive, with new products and surgical procedures introduced on an ongoing basis. Such marketplace changes may cause our products to become obsolete. We make estimates regarding the future recoverability of the costs of these products and record a provision for excess and obsolete inventories based on historical experience, and expected future trends. If actual product life cycles, product demand or acceptance of new product introductions are less favorable than projected by management, additional inventory write-downs may be required, which would unfavorably affect future operating results.

Long-lived assets

. . .