<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 MARCH 31, 1999
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 May 1, 1999
--------------------- -----------
$.01 par value 5,927,470
Transitional small business disclosure format (check one):
YES X NO ____
---
<PAGE>
MISONIX, INC.
Index
PART I. FINANCIAL INFORMATION Page
Financial Statements:
Consolidated Balance Sheet
March 31, 1999(Unaudited) 3
Consolidated Statements of Operations
Nine months ended March 31, 1999
and 1998 (Unaudited) 4
Consolidated Statements of Operations
Three Months Ended March 31, 1999
and 1998 (Unaudited) 5
Consolidated Statements of Cash Flows
Nine months ended March 31, 1999
and 1998 (Unaudited) 6
Notes to Consolidated Financial Statements 7-10
Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-14
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K 15
Signatures 16
2
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MISONIX, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
--------------------------------------
March 31,
ASSETS 1999
---------
CURRENT:
Cash and cash equivalents $ 6,384,053
Investments held to maturity 7,447,095
Accounts receivable, net of allowance
for doubtful accounts of $2,338,175(Note 5) 4,199,701
Note Receivable (Note 3) 250,000
Inventories (Note 4) 2,727,111
Prepaid expenses and other current assets 703,833
----------
TOTAL CURRENT ASSETS $21,711,793
PROPERTY, PLANT AND EQUIPMENT, at cost,
less accumulated depreciation and
amortization of $2,054,184 2,976,763
PATENTS, at cost, less accumulated
amortization of $9,225 34,599
GOODWILL, less accumulated amortization
of $83,115 508,642
DEFERRED INCOME TAXES 501,722
OTHER 44,699
-----------
$25,778,218
===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT:
Note payable to bank $ 735,708
Accounts payable 1,629,470
Accrued expenses and other current liabilities 782,998
Current maturities of capital lease obligations 119,981
----------
TOTAL CURRENT LIABILITIES 3,268,157
LONG TERM DEBT 1,332,874
DEFERRED INCOME 782,901
MINORITY INTEREST (Notes 1 and 8) 123,782
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; shares authorized
10,000,000; issued and outstanding 5,927,470 59,275
Additional paid-in capital 21,712,040
Deficit (1,440,437)
Cumulative foreign currency translation adjustment (50,374)
----------
TOTAL STOCKHOLDERS' EQUITY 20,280,504
----------
$25,778,218
===========
See accompanying Notes to Consolidated Financial Statements
3
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MISONIX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
--------------------------------------
For the nine months ended
March 31,
------------------------------
1999 1998
---- ----
NET SALES $17,244,068 $17,353,978
COST OF GOODS SOLD 8,646,076 8,105,262
---------- ----------
Gross profit 8,597,992 9,248,716
---------- ----------
OPERATING EXPENSES:
Selling, general and
administrative expenses 5,599,413 5,245,296
Research and development 827,060 704,581
Bad debt expense 2,115,300 36,000
---------- ----------
Total operating expenses 8,541,773 5,985,877
---------- ----------
Income from operations 56,219 3,262,839
---------- ----------
OTHER INCOME (EXPENSE):
Interest income 470,641 343,165
Interest expense (63,307) (36,099)
Option/license fees 44,006 54,649
Royalty income 565,037 386,302
Foreign exchange (loss) gain (1,489) 191
Miscellaneous expense (2,161) (2,085)
---------- ----------
Total other income 1,012,727 746,123
---------- ----------
Income before minority
interest and income taxes 1,068,946 4,008,962
Minority interest in net income of
consolidated subsidiary (2,660) (9,539)
---------- ----------
Income before income taxes 1,066,286 3,999,423
Income taxes (315,639) (1,112,803)
---------- ----------
NET INCOME $ 750,647 $ 2,886,620
========== ==========
NET INCOME PER SHARE - BASIC $ .13 $ .51
==== =====
NET INCOME PER SHARE - DILUTED $ .11 $ .43
==== =====
WEIGHTED AVERAGE COMMON SHARES 5,842,937 5,675,392
========== ==========
WEIGHTED AVERAGE COMMON SHARES AND
SHARE EQUIVALENTS OUTSTANDING 6,611,623 6,667,868
========== ==========
See accompanying Notes to Consolidated Financial Statements
4
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MISONIX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
--------------------------------------
For the three months ended
March 31,
------------------------------
1999 1998
---- ----
NET SALES $ 5,820,288 $ 6,516,470
COST OF GOODS SOLD 2,838,224 3,209,656
---------- ----------
Gross profit 2,982,064 3,306,814
---------- ----------
OPERATING EXPENSES:
Selling, general and
administrative expenses 2,050,907 1,862,492
Research and development 384,551 256,878
Bad debt expense 15,000 25,000
---------- ----------
Total operating expenses 2,450,458 2,144,370
---------- ----------
Income from operations 531,606 1,162,444
---------- ----------
OTHER INCOME (EXPENSE):
Interest income 143,368 83,601
Interest expense (36,523) (11,291)
Option/license fees 6,077 18,964
Royalty income 155,251 156,548
Foreign exchange gain 4,143 12,774
Miscellaneous income (expense) 328 (610)
---------- ----------
Total other income 272,644 259,986
---------- ----------
Income before minority
interest and income taxes 804,250 1,422,430
Minority interest in net income of
consolidated subsidiary 17,078 (64)
---------- ----------
Income before income taxes 821,328 1,422,366
Income taxes (255,704) (387,572)
---------- ----------
NET INCOME $ 565,624 $ 1,034,794
========== ==========
NET INCOME PER SHARE - BASIC $ .10 $ .18
===== =====
NET INCOME PER SHARE - DILUTED $ .09 $ .16
===== =====
WEIGHTED AVERAGE COMMON SHARES 5,910,783 5,677,622
========== ==========
WEIGHTED AVERAGE COMMON SHARES AND
SHARE EQUIVALENTS OUTSTANDING 6,613,506 6,587,427
========== ==========
See accompanying Notes to Consolidated Financial Statements
5
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MISONIX, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-------------------------------------------------
Nine months ended
March 31,
---------------------------
1999 1998
---- ----
OPERATING ACTIVITIES:
Net income $ 750,647 $2,886,620
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 273,625 275,498
Minority interest in net income
of subsidiary 2,660 9,539
Provision for bad debt 2,115,300 36,000
Deferred income taxes 27,290 -
Changes in operating assets and
liabilities:
Accounts receivable 1,846,538 (2,003,800)
Inventory 284,802 (794,139)
Prepaid expenses and other
current assets 191,018 (78,372)
Other assets 5,326 (2,094)
Accounts payable and accrued
expenses (1,952,065) 226,889
Deferred income (44,007) 98,821
------------ ----------
Net cash provided by operating activities 3,501,134 654,962
----------- ----------
INVESTING ACTIVITIES:
Sales of investments held to maturity 14,775,000 4,549,722
Purchase of investments held to maturity (15,814,623) (6,543,334)
Purchase of additional stock in Labcaire (129,172) (119,187)
Acquisition of property, plant and
equipment (1,983,224) (523,195)
----------- ----------
Net cash used in investing activities (3,152,019) (2,635,994)
----------- ----------
FINANCING ACTIVITIES:
Proceeds from (repayment of)
note payable to bank 200,822 (262,765)
Proceeds from long term debt 1,290,276 -
Repayment of long term debt (31,683) -
Principal payments on capital lease
obligation (44,818) (16,067)
Secured loan to Hearing Innovations (250,000) -
Exercise of employee stock options 330,147 13,500
----------- ----------
Net cash provided by (used in)
financing activities 1,494,744 (265,332)
----------- ----------
Effect of exchange rates on assets and
liabilities (49,167) 919
----------- ----------
Effect of exchange rates on cash and
cash equivalents (3,550) (2,476)
----------- -----------
NET INCREASE (DECREASE) IN CASH 1,791,142 (2,247,921)
CASH, beginning of period 4,592,911 5,409,830
---------- ----------
CASH, end of period $ 6,384,053 $ 3,161,909
========== ===========
Cash paid for interest $ 48,191 $ 36,099
Cash paid for income taxes $ 1,962,005 $ 708,539
See accompanying Notes to Consolidated Financial Statements
6
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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 89.34% 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 consolidated financial statements for the nine months ended March 31, 1999
and 1998 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. NOTE RECEIVABLE
On March 10, 1999, the Company entered into a bridge loan agreement with Hearing
Innovations, Incorporated (Hearing Innovations) whereby Hearing Innovations
promises to pay to the Company, on or before the first anniversary date of the
agreement, March 10, 1999, the principal amount of $250,000. This amount bears
no interest. The note is secured by a lien on all Hearing Innovation's rights,
titles and interests in accounts receivable, inventory, property plant and
equipment and proceeds of specified products whether now existing or here after
arising or acquired after the date of the agreement. (See Note 10 for further
discussion)
4. INVENTORIES
Inventories are summarized as follows:
March 31,
1999
---------
Raw materials 1,694,550
Work-in-process 728,289
Finished goods 304,272
----------
$2,727,111
==========
7
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MISONIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO INTERIM PERIODS IS UNAUDITED) CONTINUED
--------------------------------------------------------------------
5. 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. ("MDA") and its wholly-owned subsidiary, LySonix, Inc.,
("Lysonix") as Licensees for the Misonix ultrasonic soft tissue aspirator. In
December of 1998, an additional reserve was taken against all remaining
receivables from MDA and Lysonix totaling $369,903. The allowance for doubtful
accounts of $1,592,235 and $477,668 relates to product shipments and royalties,
respectively. A notice of default on the license agreement with these parties
has been transmitted by the Company pursuant to which the license agreement was
terminated on January 11, 1999. (See Note 9)
6. STOCK BASED COMPENSATION
On October 7, 1998, the Board of Directors adopted, and on January 13, 1999, the
shareholders approved the 1998 Employee Stock Option Plan covering an aggregate
of 500,000 common shares of the Company.
7. DEBT
On January 22, 1999, Labcaire purchased a manufacturing facility in North
Somerset, England to house their operations. The transaction totaled or
approximately $2,000,000 and was financed with a mortgage loan from Midland Bank
plc. which as of March 31, 1999, had an outstanding balance of $1,258,593.
Midland Bank plc also reduced their line of credit with Labcaire. The revised
agreement, dated December 4, 1998, reduces the available credit from $871,500 to
$581,000 and requires that Labcaire pay the existing loan balance down to
$581,000 by January 31, 1999. On December 11, 1998, the Company transferred
$335,900 to Labcaire to satisfy this requirement. During the third quarter of
fiscal 1999, the line of credit was temporarily increased to pay refundable
sales tax on their new facility $290,500. The new terms also stipulate that
Labcaire's accounts receivable must be at least 175% of the outstanding balance
on the line of credit at all times, and that Labcaire must show an after tax
profit of at least $166,000 for the prior four quarters. As of March 31, 1999
$735,708 was outstanding under this line of credit.
8. 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 $129,172 for 9,286 shares (2.65%) of Labcaire's common stock.
This represents the fiscal 1998 buy- back portion, as defined in the Agreement.
8
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MISONIX, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
(INFORMATION WITH RESPECT TO INTERIM PERIODS IS UNAUDITED) CONTINUED
--------------------------------------------------------------------
9. COMMITMENTS AND CONTINGENCIES
EMPLOYEE AGREEMENTS
The Company has entered into an employee agreement with its chief executive
officer which expires on October 31, 2000. This agreement provides for an annual
base compensation of $250,000 with an annual bonus at the discretion of the
Board of Directors. The agreement also provides for a guaranteed initial bonus
of $225,000 to be paid in January 2000.
LEGAL PROCEEDINGS
The Company, MDA and MDA's wholly-owned subsidiary, Lysonix, were sued for
alleged patent infringement by Mentor Corporation. The case was heard in U.S.
District Court in January 1999. On February 5, 1999, the jury found for the
plaintiff. As a result of this outcome, the Company and its licensee are
precluded from selling the ultrasonic soft tissue aspirator. The amount of
damages are approximately $4,904,000 against the Company and the licensees of
its device. (See Note 10 for further discussion.)
10. SUBSEQUENT EVENTS
On April 30, 1999, the Company and Focus Surgery, Inc. ["Focus"] a
privately-held Indianapolis firm, jointly announced an agreement in principle
whereby Misonix will invest $3 million to obtain an approximately 20% equity
position in Focus. The agreement further provides for a series of development
and manufacturing agreements whereby Misonix would upgrade existing Focus
products and create new products based on high intensity focused ultrasound
(HIFU) technology for the non-invasive treatment of tissue for certain medical
applications. The agreement in principal contemplates and is subject to the
finalization and execution of formal, legally binding agreements between the two
companies. This agreement with Focus was consummated on May 7, 1999.
On May 3, 1999, the Company entered into an agreement for the settlement of the
patent litigation instituted by Mentor against Misonix. The terms of the
settlement being presented to the District Court in Los Angeles hearing the
matter are comprised of (a) a settlement and release by Mentor of Misonix in the
patent litigation, (b) a cross licensing agreement whereby each would license
the other to use each other's patent and technology, (c) a manufacturing and
supply agreement whereby Misonix would ultimately become the sole source of
ultrasonic liposuction equipment sold by Mentor, whether under the Mentor or the
Misonix patent and technology, (d) Misonix would make a prepayment of $1,500,000
as an advance royalty to Mentor under the cross licensing agreement, (e) Misonix
would be selected to develop and manufacture the next generation of liposuction
equipment, and (f) Mentor would have sole worldwide sales and marketing rights
to the products. The settlement is subject to court
9
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MISONIX, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
(INFORMATION WITH RESPECT TO INTERIM PERIODS IS UNAUDITED) CONTINUED
--------------------------------------------------------------------
approval and the execution and delivery of formal documents implementing the
cross licensing, supply and development agreements, which is anticipated to
occur within thirty days. The settlement agreement does not affect Mentor's
claims against the Misonix licensees, Medical Device Alliance, Inc. and Lysonix,
Inc., whose rights under the license agreement have previously been terminated
by Misonix. On May 10, 1999 the Company brought an action against these former
licensees seeking collection of indebtedness and enforcement of its security
interest against remaining portion of inventory and for other relief.
On May 11, 1999, Misonix and Hearing Innovations Incorporated (Hearing
Innovations) jointly announced an agreement in principal whereby Misonix will
invest $750,000 to obtain an approximately 7% equity position in Hearing
Innovations. The $750,000 interest will be provided from a $500,000 additional
capital contribution and the conversion of the $250,000 note receivables into
equity. The agreements also state that upon the exercise of the first warrant,
Misonix has the right to manufacture Hearing Innovations ultrasonic products and
also has the right to create a joint venture for the marketing and sale of
Hearing Innovations' ultrasonic tinnitus masker device.
10
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MISONIX, INC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Nine and three months Ended March 31, 1999 and 1998
Net Sales: Net sales of the Company's medical, scientific and industrial
products for the nine months ended March 31, 1999, decreased $109,910 or 1% to
$17,244,068 from $17,353,978 for the nine months ended March 31, 1998. Net sales
for the Company's medical, scientific and industrial products for the three
months ended March 31, 1999 decreased $696,182 or 11% to $5,820,288 from
$6,516,470 for the three months ended March 31, 1998. The decrease in sales is
due to a decrease in medical shipments due to a delay in orders received for our
licensee, US Surgical, as well as a reduction in shipments of Mystaire Division
products due to concentrated efforts on shipments for the fourth quarter for two
major orders. The backlog for unfilled orders as of March 31, 1999 was
$10,033,145.
Gross Profit: Gross Profit decreased from 53.3% of sales for the nine months
ended March 31, 1998 to 49.9% sales for the nine months ended March 31, 1999 due
to an unfavorable mix of high and low margin product deliveries and disposal of
obsolete inventory. Gross Profit increased from 50.7% of sales for the three
months ended March 31, 1998 to 51.2% of sales for the three months ended March
31, 1999. The increase is due to a favorable mix of high and low margin product
deliveries.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses increased from $5,245,296 (30.2% of sales) for the nine
months ended March 31, 1998 to $5,599,413 (32% of sales) for the nine months
ended March 31, 1999 due to higher selling expenses in addition to legal fees
associated with the Mentor Patent Litigation.. (See Note 9) Selling, general and
administrative expenses increased from $1,862,492 (28.5% for sales) for the
three months ended March 31, 1998 to $2,050,907 (35.2% of sales) for the three
months ended March 31, 1999. This increase relates to an increase in consulting
and accounting expenses related to the change in the financial management of the
Company.
Bad Debt Expense: Bad debt expense increased from $36,000, for the nine
months ended March 31, 1998 to $2,115,300 for the nine months ended March 31,
1999. 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
MDA and its wholly-owned subsidiary, Lysonix, Inc., as Licensees for the Misonix
Ultrasonic soft tissue aspirator. In December 1998, an additional reserve of
$369,903 was provided for all remaining receivables from MDA and Lysonix, Inc.,
to bring the reserve to $2,069,903 for MDA. A notice of default on the license
agreement with these parties has been transmitted by the Company which declared
the license agreement was terminated on January 11, 1999. On May , 1999 the
Company brought an action against licensee seeking collection of indebtedness
and enforcement of security interest against remaining portion of inventory.
Without the effects of this charge, the Company would have reported net income
of $2,116,783 or $.32 diluted earnings per share for the nine months ended March
31, 1999 as compared to net income of $2,886,620 or $.43 diluted earnings per
share for the nine months ended March 31, 1998. Due to this charge, the Company
reported a net profit of $750,647 or $.11 diluted earnings per share for the
nine months ended March 31, 1999.
Research and Development Expenses: Research and development expenses were
$704,581 for the nine months ended March 31, 1998 and $827,060 for the nine
months ended March 31, 1999. Research and
11
<PAGE>
MISONIX, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
development expenses were $256,878 for the three months ended March 31, 1998 and
$384,551 for the three months ended March 31, 1999. The increase in this area is
predominately due to development costs associated with the Company's medical
devices and ultrasonic products.
Other Income (Expense): Other income during the nine months ended March 31, 1999
was $1,012,727 compared to $746,123 for the nine months ended March 31, 1998.
Other income for the three months ended March 31, 1999 was $272,644 as compared
to $259,986 for the three months ended March 31, 1998. This increase was
principally due to increased royalty income received from the Company's licensee
on sales of medical devices and interest income on investments.
Income Taxes: The Company is currently providing for income taxes at a rate of
34%. The estimated payments made to date exceed the income tax provision and
result in prepaid income taxes rather than income taxes payable which is
classified in the balance sheet as prepaid expenses and other current assets.
Liquidity and Capital Resources: Working capital at March 31, 1999 and June 30,
1998 was $18.4 and $18.0 million, respectively. Cash and investments increased
by approximately $2.83 million from June 30, 1998. The increase is due to
increased cash flow from operations, royalties received from the Company's
licensees on sale of medical devices and interest income. This increase was
partially offset by entering into an agreement with Hearing Innovations, the
purchase of a manufacturing facility in North Somerset, England, and the
additional investment in the Labcaire subsidiary.
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.
On January 22, 1999, Labcaire, the Company's 89.34% owned subsidiary, purchased
a manufacturing facility in North Somerset, England to house their operations.
The transaction, totaling $2.1 million, consisted of a purchase price of
$1,660,000, closing costs of $117,860 and refundable VAT of $290,500. The
purchase was financed in part by an intercompany loan of $335,900 and by a
$1,294,800 mortgage loan from Midland Bank plc in North Somerset. Borrowings
under the facility bear interest at prime plus 2% and are collateralized by a
security interest in all assets of Labcaire. The loan is payable in monthly
installments of $ 12,876 per month, including interest, over a term of fifteen
years starting in February of 1999. There is also a 1% prepayment penalty for
early retirement of the loan. As of March 31, 1999, $1,258,593 was the
outstanding balance of the loan.
As a result of the mortgage loan described above, Midland Bank plc revised their
line of credit with Labcaire. The revised agreement, dated December 4, 1998,
reduces the available credit from $871,500 to $581,000 and requires Labcaire to
pay the existing loan balance down to $581,000 by January 31, 1999. On December
11, 1998 the Company transferred $335,900 to Labcaire to satisfy this
requirement. During the third quarter of fiscal 1999, the line of credit was
temporarily increased by $290,500 to pay refundable sales taxes on their new
facility. As of March 31, 1999, $735,708 was outstanding under this facility.
12
<PAGE>
MISONIX, INC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
On March 10, 1999, the Company entered into an agreement with Hearing
Innovations, whereby Hearing Innovations promises to pay to the Company, on or
before the first anniversary date of the agreement, the principal amount of
$250,000. This amount bears no interest. The note is secured by a lien on all
Hearing Innovation's right, title and interest in accounts receivable,
inventory, property plant and equipment and proceeds of specified products
whether now existing or hereafter arising or acquired. On May 11, 1999 Misonix
and Hearing Innovations jointly announced an agreement in principle whereby
Misonix will invest $750,000 to obtain an approximately 7% equity position in
Hearing Innovations. The $750,000 interest will be provided from $500,000
additional paid in capital and the conversion of the $250,000 note receivable
into equity. This agreement further provides for the issuance of warrants that
if exercised gives Misonix the right to invest in Hearing Innovations. If both
warrants are exercised, it would bring Misonix's equity position to
approximately 15% in Hearing Innovations.
The Company believes that its existing capital resources will enable it to
maintain its current and planned operations for a least 12 months from the date
hereof.
Year 2000 Compliance: During the first quarter of Fiscal 1998, the Company
commenced a Year 2000 date conversion project to address necessary changes,
testing and implementation in respect to its internal computer systems. Project
completion is scheduled for June 1, 1999. To date, the cost of this project has
not been material to the Company's results of operations and liquidity and the
Company does not anticipate that the cost of completing the project will be
material to its results of operations or liquidity in fiscal 1999. Management
anticipates that the Company's Year 2000 date conversion project as it relates
to the Company's internal systems will be completed on a timely basis.
The Company's applicable products are Year 2000 compliant.
The Company is currently seeking information regarding Year 2000 compliance from
its vendors, customers and manufacturers. Project completion for this phase is
planned for the middle of 1999. However, given the reliance on third-party
information as it relates to their compliance programs and the difficulty of
determining potential errors on the part of the external service suppliers, no
assurance can be given that the Company's information systems or operations will
not be affected by mistakes, if any, of third parties or third-party failures to
complete the Year 2000 project on a timely basis. There can be no assurance that
the systems of other companies on which the Company's systems rely will be
timely converted or that any such failures to convert by another company would
not have an adverse effect on the Company's systems.
The cost of the Company's Year 2000 project and the date on which the Company
believes it will complete the necessary modifications are based on the Company's
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of resources, third party modification
plans and other factors. The Company presently believes that the Year 2000 issue
will not pose significant operational problems for its internal information
systems and products. However, if the
13
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MISONIX, INC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
anticipated modifications and conversions are not completed on a timely basis,
or if the systems of other companies on which the Company's systems and
operations rely are not converted on a timely basis, the Year 2000 issue could
have an adverse effect on the Company's operations.
The Company does not currently have any contingency plans in place to address
the failure of timely conversion of its and/or third-party systems in respect of
the Year 2000 issue.
Euro Conversion: The January 1, 1999 scheduled adoption of the Euro created a
single-currency market in much of Europe. For a transition period from January
1, 1999 through January 1, 2002 the existing local currencies are anticipated to
remain legal tender as denominations of the Euro. The Company does not
anticipate that its operations will be materially adversely effected by the
conversion to the Euro. The Company has analyzed the impact of conversion to the
Euro on its existing system and operations and implemented modifications to its
systems to enable the Company to handle Euro invoicing for the transaction which
commenced in 1999. The Company anticipates that the cost of such modifications
should not have a material adverse effect on its results of operations or
liquidity.
In the opinion of management, inflation has not had a material effect on the
operations of the Company.
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.
14
<PAGE>
MISONIX, INC.
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form S-8
A report on Form S-8 was filed on April 20, 1999.
15
<PAGE>
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: May 12, 1999
MISONIX, INC.
--------------------------------------------------
(Registrant)
By: /s/ Michael A. McManus, Jr.
----------------------------------------------
Michael A. McManus, Jr.
President, Chief Executive Officer
By: /s/ Richard Zaremba
----------------------------------------------
Richard Zaremba
Vice President and
Chief Financial Officer
16
MISONIX, INC.
COMPUTATION OF EPS-TREASURY STOCK METHOD
NINE MONTH CALCULATION
03/31/99
Avg. number of common shares o/s. 5,842,937 ========== ==========
Net income for the period DATE AVERAGE
PRICE
COMMON
Diluted EPS STOCK
----------- ========== ==========
Average # of shares under options/
warrants outstanding 1,081,833 8.16
07/31/98 7.00
08/31/98 5.25
Option price per share 0.50 - $6.00 09/30/98 5.88
10/31/98 5.06
Proceeds upon exercise of optio $1,731,701 11/30/98 5.75
12/31/98 5.88
Market price of stock: 01/31/99 5.43
Average $5.53 02/28/99 3.27
------------ 03/31/99 3.58
Treasury shares that could be ---------
repurchased with proceeds Total 55.26
(proceeds/avg. price) 313,147 =========
(proceeds/closing price) ============ Average 5.53
=========
Excess of shares under option over
treasury shares that could be
repurchased 768,686
============
Common stock equivalent shares
(incremental shares) 768,686
Average number of common shares 5,842,937
outstanding ------------
Total average number of common
and common equivalent shares 6,611,623
============
Diluted EPS $0.00
=====
<TABLE>
<CAPTION>
% of Assumed
Granted Periods o/s Weighted Avg Exercise $ Proceeds
------- ----------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C>
Original A. GERSTENFELD 3,000 100% 3,000 $2.17 $6,510
Original J. LABRIZZI 90,000 34% 30,219 $0.50 $15,110
Original R. LEE 30,000 100% 30,000 $0.96 $28,800
Original B. SWEEZY 2,250 97% 2,193 $0.50 $1,097
Non-Employe G. GELMAN 688,500 100% 688,500 $0.73 $502,605
Non-Employe H. ALLIGER 75,000 100% 75,000 $0.73 $54,750
Non-Employe A. GERSTENFELD 15,000 100% 15,000 $0.73 $10,950
Non-Employe G. GELMAN 15,000 11% 1,588 $3.07 $4,875
Non-Employe H. ALLIGER 15,000 11% 1,588 $3.07 $4,875
Non-Employe A. GERSTENFELD 15,000 11% 1,588 $3.07 $4,875
1996 J. LABRIZZI 60,000 67% 40,292 $4.00 $161,168
1996 P. GERSTHEIMER 7,500 56% 4,188 $4.00 $16,752
1996 M. McMANUS 165,000 64% 105,985 $5.06 $536,284
1996 R. ZAREMBA 15,000 11% 1,588 $3.07 $4,875
1996 R. MANNA 7,500 100% 7,500 $4.00 $30,000
1996 R. MANNA 15,000 11% 1,588 $3.07 $4,875
1996 R. LEE 15,000 11% 1,588 $3.07 $4,875
1996 C. THOMAS 15,000 11% 1,588 $3.07 $4,875
1996 D. NG 6,000 11% 635 $3.07 $1,949
1996 T. NOVAK 6,000 11% 635 $3.07 $1,949
1996 D. VOIC 7,500 11% 794 $3.07 $2,438
1996 TOP EMPLOYEES 5000 OR LES 31,000 11% 3,281 $5.50 $18,046
1996 OTHER EMPLOYEES 5,108 26% 1,305 $3.07 $4,006
1998 R. MANNA 5,000 26% 1,277 $5.50 $7,024
1998 B. LEE 4,000 26% 1,022 $5.50 $5,621
1998 M. McMANUS 85,000 64% 54,599 $5.06 $276,271
1998 M. McMANUS 50,000 11% 5,292 $3.07 $16,246
------ ----- ----- -------
TOTAL 1,448,358 1,081,833 1,731,701
========= ========= =========
</TABLE>
Page 1
<PAGE>
MISONIX, INC.
COMPUTATION OF EPS-TREASURY STOCK METHOD
THREE MONTH CALCULATION
3/31/99
<TABLE>
<CAPTION>
------------------------------------------------------------------
Avg. number of common shares o/s 5,910,783
Net income for the period
------------------------------------------------------------------
Diluted EPS AVERAGE
------------ PRICE
COMMON
STOCK
-----
<S> <C> <C> <C>
Average # of shares under options
outstanding 887,289
Option price per share $0.50 - $5.00
12/31/98 5.88
Proceeds upon exercise of options $837,929 01/31/99 5.4284615
02/28/99 3.274592857
Market price of stock: 03/31/99 3.579565217
------------------
Average $4.54
Total 18.16262
==================
Treasury shares that could be
repurchased with proceeds Average 4.54
==================
(proceeds/avg. price) 184,566
===================
(proceeds/closing price)
------------------
Excess of shares under option over
treasury shares that could be
repurchased 702,723
===================
Common stock equivalent shares
(incremental shares) 702,723
Average number of common shares
outstanding 5,910,783
----------------
Total average number of common
and common equivalent shares 6,613,506
================
EPS #VALUE!
===================
</TABLE>
Page 2
<PAGE>
<TABLE>
<CAPTION>
% of Assumed
Granted Period o/s Wghtd Avg Exercise $ Proceeds
------- ---------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
Orignal A. GERSTENFELD 3,000 100% 3,000 $2.17 $6,510
Orignal B. SWEEZY 2,250 92% 2,075 $0.50 $1,038
Orignal R. LEE 30,000 100% 30,000 $0.96 $28,800
Non-Employee G. GELMAN 688,500 100% 688,500 $0.73 $502,605
Non-Employee H. ALLIGER 75,000 100% 75,000 $0.73 $54,750
Non-Employee A. GERSTENFELD 15,000 100% 15,000 $0.73 $10,950
Non-Employee G. GELMAN 15,000 32% 4,833 $3.07 $14,837
Non-Employee H. ALLIGER 15,000 32% 4,833 $3.07 $14,837
Non-Employee A. GERSTENFELD 15,000 32% 4,833 $3.07 $14,837
1996 R. ZAREMBA 15,000 32% 4,833 $3.07 $14,837
1996 R. MANNA 7,500 100% 7,500 $4.00 $30,000
1996 R. MANNA 15,000 32% 4,833 $3.07 $14,837
1996 R. LEE 15,000 32% 4,833 $3.07 $14,837
1996 C. THOMAS 15,000 32% 4,833 $3.07 $14,837
1996 D. NG 6,000 32% 1,933 $3.07 $5,934
1996 T. NOVAK 6,000 32% 1,933 $3.07 $5,934
1996 D. VOIC 7,500 32% 2,417 $3.07 $7,420
1996 TOP EMPLOYEES 5000 OR LESS 31,000 32% 9,989 $3.07 $30,666
1998 M. McMANUS 50,000 32% 16,111 $3.07 $49,461
-------------- --------------- ------------
TOTALS 1,026,750 887,289 837,929
============= =============== ============
</TABLE>
Page 3
<PAGE>
MISONIX, INC.
AVERAGE NUMBER OF SHARES OUTSTANDING
3/31/99
THREE NINE
MONTH MONTH
CALCULATION CALCULATION
----------- -----------
JUNE 5,767,680
JULY 5,767,680
AUGUST 5,767,720
SEPTEMBER 5,767,720
OCTOBER 5,857,720
NOVEMBER 5,857,720
DECEMBER 5,865,220 5,865,220
JANUARY 5,925,220 5,925,220
FEBRUARY 5,925,220 5,925,220
MARCH 5,927,470 5,927,470
APRIL
MAY
JUNE
---------- ----------
23,643,130 58,429,370
DIVIDED BY 4 10
---------- ----------
AVERAGE 5,910,783 5,842,937
Page 4
<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> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 6,384,053
<SECURITIES> 7,447,095
<RECEIVABLES> 6,537,876
<ALLOWANCES> 2,338,175
<INVENTORY> 2,727,111
<CURRENT-ASSETS> 21,711,793
<PP&E> 5,030,947
<DEPRECIATION> 2,054,184
<TOTAL-ASSETS> 25,778,218
<CURRENT-LIABILITIES> 3,268,157
<BONDS> 0
0
0
<COMMON> 59,275
<OTHER-SE> 20,221,229
<TOTAL-LIABILITY-AND-EQUITY> 25,778,218
<SALES> 17,244,068
<TOTAL-REVENUES> 17,244,068
<CGS> 8,646,076
<TOTAL-COSTS> 17,187,849
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63,307
<INCOME-PRETAX> 1,066,286
<INCOME-TAX> 315,639
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 750,647
<EPS-PRIMARY> .13
<EPS-DILUTED> .11
</TABLE>
