<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 1-10986
MISONIX, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 11-2148932
- ------------------------------------------ ---------------------
(State or other jurisdiction of (I.R.S Employer
incorporation or organization Identification No.)
1938 New Highway Farmingdale, N.Y. 11735
- ------------------------------------------ ---------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code...(516) 694-9555
---------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date:
Outstanding at
Class of Common Stock November 1, 1998
--------------------- ----------------
$.01 par value 5,857,720
Transitional small business disclosure format (check one):
YES NO X
----- -----
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MISONIX, INC.
-------------
Index
PART I. FINANCIAL INFORMATION Page
Financial Statements:
Consolidated Balance Sheet
September 30, 1998 (Unaudited) 3
Consolidated Statements of Operations
Three Months Ended September 30, 1998
and 1997 (Unaudited) 4
Consolidated Statements of Cash Flows
Three months ended September 30, 1998
and 1997 (Unaudited) 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-8
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K 9
Signatures 10
2
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MISONIX, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
==========================
September 30,
ASSETS 1998
------ ------------
CURRENT:
Cash and cash equivalents $ 2,814,332
Investments held to maturity 10,947,480
Accounts receivable, net of allowance
for doubtful accounts of $1,958,339 3,468,646
Inventories (Note 3) 3,009,074
Prepaid expenses and other current assets 866,631
------------
TOTAL CURRENT ASSETS 21,106,163
PROPERTY AND EQUIPMENT, at cost,
less accumulated depreciation and
amortization of $1,892,459
1,245,781
PATENTS, at cost, less accumulated
amortization of $7,979 35,845
DEFERRED INCOME TAXES 529,012
GOODWILL, less accumulated amortization
of $71,710 390,875
OTHER 59,737
------------
$ 23,367,413
============
LIABILITIES AND STOCKHOLDERS'
EQUITY
-----------------------------
CURRENT:
Note payable to bank $ 579,724
Accounts payable 1,582,245
Accrued expenses and other current liabilities 782,021
Income taxes payable 272,632
Current maturities of capital lease obligations 136,852
------------
TOTAL CURRENT LIABILITIES 3,353,474
CAPITAL LEASE OBLIGATIONS 81,703
DEFERRED INCOME 807,943
MINORITY INTEREST (Notes 1 and 5) 133,213
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; shares authorized
10,000,000; issued and outstanding 5,767,720 57,677
Additional paid-in capital 21,383,491
Deficit (2,470,731)
Cumulative foreign currency translation adjustment 20,643
------------
TOTAL STOCKHOLDERS' EQUITY 18,991,080
------------
$ 23,367,413
============
See accompanying notes to consolidated financial statements.
3
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MISONIX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
=====================================
For the three months ended
September 30,
----------------------------
1998 1997
----------- -----------
NET SALES $ 5,563,216 $ 5,012,563
COST OF GOODS SOLD 2,758,466 2,158,598
----------- -----------
Gross profit 2,804,750 2,853,965
----------- -----------
OPERATING EXPENSES:
Selling, general and
administrative expenses 1,664,977 1,543,352
Bad debt expense 1,715,000 --
Research and development 253,898 276,736
----------- -----------
Total operating expenses 3,633,875 1,820,088
----------- -----------
(Loss) income from operations (829,125) 1,033,877
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 178,870 111,295
Interest expense (16,545) (11,552)
Option/license fees 18,964 17,387
Royalty income 188,991 121,555
Foreign exchange loss (15,592) (10,765)
Miscellaneous expense (1,276) (534)
----------- -----------
Total other income 353,412 227,386
----------- -----------
(Loss) income before minority
interest and income taxes (475,713) 1,261,263
Minority interest in net income of
consolidated subsidiary (12,091) (1,545)
----------- -----------
(Loss) income before income taxes (487,804) 1,259,718
Income tax benefit (provision) 208,157 (352,090)
----------- -----------
NET (LOSS) INCOME $ (279,647) $ 907,628
=========== ===========
NET (LOSS) INCOME PER SHARE - BASIC $ (.05) $ .16
=========== ===========
NET (LOSS) INCOME PER SHARE -DILUTED $ (.05) $ .13
=========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 5,767,700 5,672,154
=========== ===========
DILUTED WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 5,767,700 6,737,189
=========== ===========
See accompanying notes to consolidated financial statement
4
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MISONIX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
=====================================
Three months ended
September 30,
---------------------------
1998 1997
----------- -----------
OPERATING ACTIVITIES:
Net (loss) income $ (279,647) $ 907,628
Adjustments to reconcile net (loss) income
to net cash provided by (used in)
operating activities:
Provision for uncollectible
accounts receivable 1,715,000 --
Depreciation and amortization 92,183 130,279
Minority interest in net income
of subsidiary 12,091 1,545
Foreign currency loss 14,823 9,394
Changes in operating assets and
liabilities:
Accounts receivable 2,940,885 (1,694,275)
Inventory 18,131 (428,108)
Prepaid expenses and other
receivables 30,940 (3,323)
Other assets (9,712) --
Accounts payable and accrued
expenses (557,672) (719,299)
Income taxes payable (1,147,806) 241,911
Deferred income (18,965) (9,587)
----------- -----------
Net cash provided by (used in)
operating activities 2,810,251 (1,563,835)
----------- -----------
INVESTING ACTIVITIES:
Purchase of investments held to maturity (7,940,008) (2,906,310)
Sale of investments held to maturity 3,400,000 --
Acquisition of property and equipment (72,181) (103,021)
----------- -----------
Net cash used in investing activities (4,612,189) (3,009,331)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from note payable to bank 33,875 56,155
Principal payments on capital lease
obligations (14,699) (7,581)
----------- -----------
Net cash provided by financing activities 19,176 48,574
----------- -----------
Effect of exchange rates 4,183 (644)
----------- -----------
NET DECREASE IN CASH (1,778,579) (4,525,236)
CASH, beginning of period 4,592,911 5,409,830
----------- -----------
CASH, end of period $ 2,814,332 $ 884,594
=========== ===========
See accompanying notes to consolidated financial statements.
5
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MISONIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to interim periods is unaudited)
================================================================================
1. Basis of Presentation
---------------------
The consolidated financial statements of Misonix, Inc. include the accounts of
Misonix, Inc., its 86.7% owned subsidiary, Labcaire Systems Ltd. ("Labcaire"),
and its 100% owned subsidiary, Misonix, Ltd. All significant intercompany
balances and transactions have been eliminated.
2. Interim Periods
---------------
The financial statements for the three months ended September 30, 1998 and 1997
are unaudited but, in the opinion of management, include all adjustments,
consisting of normal recurring accruals, necessary for fair presentation of
financial position and results of operations. Results for the interim periods
are not necessarily indicative of the results for a full year. For further
information refer to the consolidated financial statements and footnotes thereto
included in the Company's annual report for the year ended June 30, 1998.
3. Inventories
-----------
Inventories are summarized as follows:
September 30,
1998
-------------
Raw materials $1,725,342
Work-in-process 550,241
Finished goods 733,491
-----------
$3,009,074
===========
4. Bad Debt Expense
----------------
On October 22, 1998, the Company announced that it had reserved for possible bad
debts of $1,700,000 against accounts receivable due and owing by Medical Device
Alliance, Inc. and its wholly-owned subsidiary, Lysonix, Inc., as Licensees for
the Misonix ultrasonic soft tissue aspirator. A letter of default on the license
agreement with these parties was also transmitted by the Company.
5. Acquisition
-----------
In October 1998, under the terms of the revised purchase agreement (the
"Agreement") with Labcaire (as discussed in the Form 10-KSB at June 30, 1998),
the Company paid (pound)73,638 (approximately $129,000) for 9,286 shares (2.65%)
of the outstanding common stock of Labcaire. This represents the fiscal 1998
buy-back portion, as defined in the Agreement.
6
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MISONIX, INC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Results of Operations
- ---------------------
Three months ended September 30, 1998 and 1997
- ----------------------------------------------
Net Sales: Net sales of the Company's medical, scientific and industrial
products, increased $550,653 (11.0%) from $5,012,563 in the three months ended
September 30, 1997 to $5,563,216 in the three months ended September 30, 1998.
Parent Company sales for the three months ended September 30, 1998 increased
8.2% while sales at the Company's foreign subsidiary (Labcaire) increased 21.1%.
The Company's backlog of unfilled orders decreased from $6,349,585 at
September 30, 1997 to $5,789,988 at September 30, 1998. This decrease is
primarily due to a reduction in orders, from the Company's licensee, for the
ultrasonic soft tissue aspirator.
Gross Profit: Gross profit decreased from 56.9% of sales in the three months
ended September 30, 1997 to 50.4% of sales in the three months ended September
30, 1998 due to increased revenue, from one of the Company's licensees, on a
product line which has lower gross profits.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses increased from $1,543,352 (30.8 % of sales) in the three
months ended September 30, 1997 to $1,664,977 (29.9% of sales) in the three
months ended September 30, 1998. This increase relates to sales costs associated
with higher sales volume and hiring of additional administrative and technical
personnel, but reflects a percentage decrease due to higher sales volume.
Bad Debt Expense: Bad debt expense increased from none in the three months ended
September 30, 1997 to $1,715,000 in the three months ended September 30, 1998.
On October 22, 1998, the Company announced that it had reserved for possible bad
debts of $1,700,000 against accounts receivable due and owing by Medical Device
Alliance, Inc. and its wholly-owned subsidiary, Lysonix, Inc., as Licensees for
the Misonix ultrasonic soft tissue aspirator. A letter of default on the license
agreement with these parties was contemporaneously transmitted by the Company.
Without the effects of this charge , the Company would have reported net income
of $1,420,353, or $.22 diluted earnings per share for the three months ended
September 30, 1998 as compared to net income of $907,628, or $ .13 diluted
earnings per share for the three months ended September 30, 1997. Due to this
charge, the Company reported a net loss of $279,647, or $ (.05) diluted earnings
per share for the three months ended September 30, 1998 as compared to net
income of $907,628, or $ .13 diluted earnings per share for the three months
ended September 30, 1997.
Research and Development Expenses: Medical product research and development
expenses were $189,950 in the three months ended September 30, 1997 and $163,793
in the three months ended September 30, 1998. Industrial product research and
development expenses were $86,786 in the three months ended September 30, 1997
and $90,105 in the three months ended September 30, 1998.
Other Income (Expense): Other income during the three months ended September 30,
1997 was $227,386. During the three months ended September 30, 1998, other
income was $353,412. This increase was principally due to increased royalty
income received from the Company's licensees on sales of medical devices and
interest income on investments.
Income Taxes: For the three months ended September 30, 1998 there was a tax
benefit of $208,157 as compared to a tax provision of $352,090 at September 30,
1997 due to the fact that the Company had an operating loss for the three months
ended September 30, 1998.
7
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MISONIX, INC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
---------------------------------------------------------
Liquidity and Capital Resources: At September 30, 1998, the Company had a cash
balance of $2,814,332 and investments held to maturity of $10,947,480 compared
with a cash balance of $884,594 and investments held to maturity of $9,273,905
at September 30, 1997. This increase is due to royalties received from the
Company's licensees on sales of medical devices and to cash flow from
operations. Inventories have increased from $2,713,467 at September 30, 1997 to
$3,009,074 at September 30, 1998 due to increasing sales of the Company's
medical devices. In addition, the Company has a revolving credit facility, which
expires on June 30, 1999, in the amount of $500,000 available to the Company for
short-term borrowings and letters of credit. Borrowings under the facility bear
interest at prime plus 2% and are collateralized by a security interest in all
assets of the Company. There are no outstanding borrowings under this facility.
A revolving credit facility from a U.K. bank in the amount of approximately
$560,000 is available to Labcaire for short term borrowings. This facility
expires in September 1999 when all unpaid principal and interest is due. This
facility bears interest at U.K. prime plus 2% and is collateralized by a
security interest in all the assets of Labcaire and a guarantee by Labcaire's
directors. As of September 30, 1998, $579,724 was outstanding under this
facility.
The Company believes that its existing capital resources will enable it to
maintain its current and planned operations for at least 12 months from the date
hereof.
Year 2000 Compliance: The Company utilizes and is dependent upon data processing
systems and software to conduct its business. The data processing systems and
software include those developed and maintained by the Company's third-party
data processing vendors and software which is run on in-house computer networks.
During the first quarter of fiscal 1998, the Company initiated a review and
assessment of all hardware and software to confirm that it will function
properly in the year 2000. With respect to internal systems, the results of that
evaluation to date have not revealed any year 2000 issues that, in the Company's
opinion, cannot be remediated in a timely manner; and therefore are not expected
to create a material risk of disruption of operations. With respect to outside
vendors, those vendors which have been contacted have indicated that their
hardware or software is or will be year 2000 compliant in time frames that meet
regulatory requirements. Evaluations of these issues is continuing and there can
be no assurance that additional issues, not presently known to the Company, will
not be discovered which could present a material risk of disruption to the
Company's operations.
Forward Looking Statements: This report contains certain forward looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act, which are intended to be covered by the safe harbors
created thereby. Although the Company believes that the assumptions underlying
the forward looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore, there can be no assurance that
the forward looking statements contained in this report will prove to be
accurate. Factors that could cause actual results to differ from the results
specifically discussed in the forward looking statements include, but are not
limited to , the absence of anticipated contracts, higher than historical costs
incurred in performance of contracts or in conducting other activities, future
economic, competitive and market conditions, the outcome of legal proceedings,
as well as management business decisions.
8
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MISONIX, INC.
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
--------------------------------
There were no reports on Form 8-K filed during the quarter ended
September 30, 1998.
9
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SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Quarterly Report to be signed on its behalf
by the undersigned thereunto duly authorized.
Date: November 12, 1998
MISONIX, INC.
-----------------------------------------
(Registrant)
By: /s/ Michael A. McManus, Jr.
--------------------------------------
Michael A. McManus, Jr.
President, Chief Executive Officer
By: /s/ Peter Gerstheimer
--------------------------------------
Peter Gerstheimer
Vice President and
Chief Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated financial statements and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,814,332
<SECURITIES> 10,947,480
<RECEIVABLES> 5,426,985
<ALLOWANCES> 1,958,339
<INVENTORY> 3,009,074
<CURRENT-ASSETS> 21,106,163
<PP&E> 3,138,240
<DEPRECIATION> 1,892,459
<TOTAL-ASSETS> 23,367,413
<CURRENT-LIABILITIES> 3,353,474
<BONDS> 0
0
0
<COMMON> 57,677
<OTHER-SE> 18,933,403
<TOTAL-LIABILITY-AND-EQUITY> 23,367,413
<SALES> 5,563,216
<TOTAL-REVENUES> 5,563,216
<CGS> 2,758,466
<TOTAL-COSTS> 6,392,341
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,545
<INCOME-PRETAX> (487,807)
<INCOME-TAX> 208,157
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (279,647)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
