FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period of __________ to ____________
Commission file number: 1-10986
MISONIX, INC.
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(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 (631) 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 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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date:
Outstanding at
Common Stock April 30, 2000
------------ --------------
$.01 par value 5,922,417
<PAGE>
MISONIX, INC.
Index
Part I. FINANCIAL INFORMATION Page
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of
March 31, 2000 (Unaudited) and June 30, 1999 3
Consolidated Statements of Operations
Nine Months Ended March 31, 2000
and 1999 (Unaudited) 4
Consolidated Statements of Operations
Three Months Ended March 31, 2000
and 1999 (Unaudited) 5
Consolidated Statements of Cash Flows
Nine Months ended March 31, 2000
and 1999 (Unaudited) 6
Notes to Consolidated Financial Statements 7-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-13
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS.
MISONIX, INC.
CONSOLIDATED BALANCE SHEETS
==========================================
<TABLE>
<CAPTION>
MARCH 31, June 30
2000 1999
ASSETS (UNAUDITED) (See Note1)
- ------ ------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,857,077 $ 8,361,231
Investments held to maturity 3,034,364 3,987,309
Accounts receivable, net of allowance for
doubtful accounts of $129,467 and $88,757 5,795,807 6,073,919
Inventories 5,068,067 2,936,960
Deferred income taxes 191,777 131,788
Prepaid expenses and other current assets 854,219 611,818
Total current assets 22,801,311 22,103,025
Property, plant and equipment, net 3,194,681 2,964,778
Deferred income taxes 142,522 181,484
Goodwill, less accumulated amortization
of $154,218 and $89,463 1,374,045 502,295
Investments in Focus Surgery, Inc.
and Hearing Innovations, Inc.,
less accumulated amortization
of $150,308 and $25,417 and cumulative
equity in losses of $339,476 and $68,880,
respectively 3,249,919 2,955,703
Other assets 70,871 71,805
------------ ------------
Total assets $ 30,833,349 $ 28,779,090
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 510,944 $ 499,398
Accounts payable 2,189,039 2,356,877
Accrued expenses and other current liabilities 901,460 2,089,231
Income taxes payable 1,129,643 272,814
Current maturities of long-term debt
and capital lease obligations 214,970 162,699
Total current liabilities 4,946,056 5,381,019
Long-term debt and capital lease obligations 1,325,370 1,271,814
Deferred income 427,386 445,620
Minority interest 877,737 138,252
Stockholders' equity:
Common stock, $.01 par value-shares authorized
10,000,000; 5,965,317 and 5,927,470 issued 59,653 59,275
Additional paid-in capital 21,794,319 21,719,553
Retained earnings (deficit) 1,658,991 (226,326)
Treasury stock, 42,900 shares in 2000 (219,006) --
Accumulated other comprehensive loss (37,157) (10,117)
Total stockholders' equity 23,256,800 21,542,385
------------ ------------
Total liabilities and stockholders' equity $ 30,833,349 $ 28,779,090
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
MISONIX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
=====================================
<TABLE>
<CAPTION>
For the nine months ended
March 31,
------------------------------------
2000 1999
---- ----
<S> <C> <C>
Net sales $ 20,587,326 $ 17,244,068
Cost of goods sold 10,989,538 8,646,076
------------ ------------
Gross profit 9,597,788 8,597,992
Operating expenses:
Selling, general and administrative expenses 6,059,116 5,599,413
Research and development 1,071,764 827,060
Bad debt (recovery) expense (401,846) 2,115,300
------------ ------------
Total operating expenses 6,729,034 8,541,773
------------ ------------
Income from operations 2,868,754 56,219
Other income (expense):
Interest income 488,089 470,641
Interest expense (116,989) (63,307)
Option/license fees 18,234 44,006
Royalty income 460,837 565,037
Amortization of investments (150,308) --
Foreign exchange loss (2,950) (1,489)
Miscellaneous income (expense) 6,033 (2,161)
------------ ------------
Income before equity in loss of Focus Surgery, Inc.,
equity in loss of Hearing Innovations, Inc.,
minority interest and income taxes 3,571,700 1,068,946
Equity in loss of Focus Surgery, Inc. (305,928) --
Equity in loss of Hearing Innovations, Inc. (33,548) --
Minority interest in net income of consolidated
subsidiaries (33,977) (2,660)
------------ ------------
Income before income taxes 3,198,247 1,066,286
Income tax provision (1,312,930) (315,639)
------------ ------------
Net income $ 1,885,317 $ 750,647
============ ============
Net income per share - Basic $ .32 $ .13
============ ============
Net income per share - Diluted $ .29 $ .11
============ ============
Weighted average common shares outstanding 5,942,538 5,842,937
============ ============
Diluted weighted average common shares outstanding 6,494,904 6,611,623
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
MISONIX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
=====================================
<TABLE>
<CAPTION>
For the three months ended
March 31,
------------------------------------
2000 1999
---- ----
<S> <C> <C>
Net sales $ 6,820,221 $ 5,820,288
Cost of goods sold 3,540,543 2,838,224
----------- -----------
Gross profit 3,279,678 2,982,064
Operating expenses:
Selling, general and administrative expenses 2,296,777 2,050,907
Research and development 479,260 384,551
Bad debt (recovery) expense (441,941) 15,000
----------- -----------
Total operating expenses 2,334,096 2,450,458
----------- -----------
Income from operations 945,582 531,606
Other income (expense):
Interest income 159,551 143,368
Interest expense (39,276) (36,523)
Option/license fees 6,078 6,077
Royalty income 150,540 155,251
Amortization of investments (57,725) --
Foreign exchange (loss) gain (1,272) 4,143
Miscellaneous income -- 328
----------- -----------
Income before equity in loss of Focus Surgery, Inc.,
equity in loss of Hearing Innovations, Inc.,
minority interest and income taxes 1,163,478 804,250
Equity in loss of Focus Surgery, Inc. (104,000) --
Equity in loss of Hearing Innovations, Inc. (16,774) --
Minority interest in net loss of consolidated subsidiaries 7,289 17,078
----------- -----------
Income before income taxes 1,049,993 821,328
Income tax provision (480,578) (255,704)
----------- -----------
Net income $ 569,415 $ 565,624
=========== ===========
Net income per share - Basic $ .10 $ .10
=========== ===========
Net income per share - Diluted $ .09 $ .09
=========== ===========
Weighted average common shares outstanding 5,918,271 5,910,783
=========== ===========
Diluted weighted average common shares outstanding 6,545,527 6,613,506
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
MISONIX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
=====================================
<TABLE>
<CAPTION>
For the nine months ended
March 31,
------------------------------------
2000 1999
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,885,317 $ 750,647
----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Bad debt (recovery) expense (401,846) 2,115,300
Deferred income tax (benefit) expense (21,027) 27,290
Depreciation and amortization 552,964 273,625
Loss on disposal of equipment 111,661 --
Non-cash compensation charge 10,768 13,459
Deferred income (18,234) (44,007)
Foreign currency loss 2,950 1,489
Minority interest in net income of subsidiaries 33,977 2,660
Equity in loss of Focus Surgery, Inc. 305,928 --
Equity in loss of Hearing Innovations, Inc. 33,548 --
Change in operating assets and liabilities:
Accounts receivable 937,167 1,846,538
Inventories (1,519,354) 284,802
Prepaid expenses and other current assets (500,043) 191,018
Other assets 506 5,326
Accounts payable and accrued expenses (1,955,979) (1,952,065)
Income taxes payable 856,830 --
----------- -----------
Net cash provided by operating activities 315,133 3,516,082
----------- -----------
INVESTING ACTIVITIES
Acquisition of property, plant and equipment (246,282) (1,983,224)
Purchase of investments held to maturity (3,004,064) (15,814,623)
Redemption of investments held to maturity 3,957,009 14,775,000
Purchase of Labcaire stock (173,777) (129,172)
Cash paid for acquisition of Hearing Innovations, Inc. (784,000) --
Loan to Hearing Innovations 250,000 (250,000)
Cash paid for acquisition of Sonora Medical Systems, Inc.,
net of cash acquired (227,233) --
----------- -----------
Net cash used in investing activities (228,347) (3,402,019)
----------- -----------
FINANCING ACTIVITIES
Proceeds from short-term borrowings, net 11,546 200,822
Payment of revolving line of credit (222,388) --
Principal payments on capital lease obligations (156,305) (44,818)
Proceeds from long-term debt -- 1,290,276
Payment of long-term debt (39,173) (31,683)
Proceeds from exercise of stock options 64,376 316,688
Purchase of treasury stock (219,006) --
----------- -----------
Net cash (used in) provided by financing activities (560,950) 1,731,285
Effect of exchange rates on assets and liabilities (29,990) (54,206)
----------- -----------
Net (decrease) increase in cash and cash equivalents (504,154) 1,791,142
Cash and cash equivalents at beginning of period 8,361,231 4,592,911
----------- -----------
Cash and cash equivalents at end of period $ 7,857,077 $ 6,384,053
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 116,989 $ 48,191
Income taxes paid $ 564,350 $ 1,962,005
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE>
MISONIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
==========================================
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals considered
necessary for a fair presentation) have been included. Operating results
for the three- and nine-month periods ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the year
ending June 30, 2000.
The balance sheet at June 30, 1999 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-KSB
for the year ended June 30, 1999.
2. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, 2000 JUNE 30, 1999
-------------- -------------
<S> <C> <C>
Raw materials $ 2,454,755(a),(b) $ 2,111,270
Work-in-process 973,164(b) 331,744
Finished goods 1,640,148(a) 493,946
------------ ------------
$ 5,068,067 $ 2,936,960
============ ============
</TABLE>
(a) 32% of inventory increase, or approximately $676,000, was due to the
inclusion of the return of inventory from LySonix. (See Liquidity and
Capital Resources for further discussion)
(b) 58% of inventory increase, or approximately $1,200,000, was due to the
inclusion of Sonora inventory. (See Note 5 for Sonora acquisition)
3. REVOLVING LINE OF CREDIT
On April 24, 1999, Acoustic Marketing Research Inc, doing business as
Sonora Medical Systems, Inc. ("Sonora") (See Note 5 for Sonora
acquisition), entered into a credit facility with Norwest Bank Colorado,
National Association (the "Bank") that provides Sonora with a $250,000
revolving line of credit for working capital requirements. The term of this
agreement is for approximately one year, maturing May 15, 2000. This credit
facility allows for interest to be calculated utilizing the Bank's Prime
Rate plus 1% due monthly (9.5% at March 31, 2000). This credit facility
contains standard covenants. The terms provide for the repayment of the
debt in full on its maturity date. Sonora elected to pay down the revolving
line of credit on March 10, 2000. As of March 31, 2000, there was no
balance outstanding leaving $250,000 available on its revolving line of
credit.
7
<PAGE>
MISONIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
==========================================
4. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
The following summarizes accrued expenses and other current liabilities:
<TABLE>
<CAPTION>
MARCH 31, 2000 JUNE 30, 1999
-------------- -------------
<S> <C> <C>
Accrued payroll and vacation $ 106,697 $ 169,367
Accrued sales tax (5,711) 113,696
Accrued commissions and bonuses 129,507 419,833
Customer deposits 196,499 942,119
Professional fees 85,908 169,963
Other 388,560 274,253
----------- -----------
$ 901,460 $ 2,089,231
=========== ===========
</TABLE>
5. ACQUISITIONS
HEARING INNOVATIONS, INC.
On October 18, 1999, the Company and Hearing Innovations, Inc. ("Hearing
Innovations") completed the agreement whereby the Company invested an
additional $350,000 and cancelled the notes receivable aggregating $400,000
in exchange for a 7% equity investment in Hearing Innovations. Warrants to
purchase additional shares that would bring the Company's interest in
Hearing Innovations to over 15% were also part of this agreement. Upon
exercise of the warrants, the Company has the right to manufacture Hearing
Innovations' ultrasonic products and also has the right to create a joint
venture with Hearing Innovations for the marketing and sale of its
ultrasonic tinnitus masker device. As of the date of the acquisition, the
cost of the investment ($750,000 plus acquisition costs of $34,000) is
being amortized on a straight-line basis over its estimated life of 10
years. The Company's portion of the net losses of Hearing Innovations were
recorded since the date of acquisition in accordance with the equity method
of accounting. (See Note 7)
LABCAIRE SYSTEMS LTD.
In October 1999, under the terms of the revised purchase agreement (the
"Labcaire Agreement") with Labcaire (as discussed in the Company's Annual
Report on Form 10-KSB for the year ended June 30, 1999), the Company paid
approximately $174,000 for 9,286 shares (2.65%) of the outstanding common
stock of Labcaire bringing the acquired interest to 92%. This represents
the fiscal 2000 buy-back portion, as defined in the Labcaire Agreement.
8
<PAGE>
MISONIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
==========================================
SONORA MEDICAL SYSTEMS, INC.
On November 16, 1999, the Company acquired a 51% stake in Sonora for $1.4
million, which was paid to Sonora. The sum is being utilized by Sonora to
increase inventory and expand marketing, sales and research and development
efforts. An additional 4.7% was acquired on February 25, 2000 for $208,000
bringing the acquired interest to 55.7%. Sonora, located in Longmont,
Colorado, is an ISO 9002 certified refurbisher of high-performance
ultrasound systems and replacement transducers for the medical diagnostic
ultrasound industry. Sonora also offers a full range of aftermarket
products and services such as its own ultrasound probes and transducers,
and other services that can extend the useful life of its customers'
ultrasound imaging systems beyond the usual five to seven years. The
agreement includes an option for the Company to increase its investment by
34.3% under certain circumstances. The acquisition was accounted for as a
purchase. Accordingly, results of Sonora are included in the consolidated
statement of operations from the date of acquisition and acquired assets
and liabilities have been recorded at their estimated fair value at the
date of acquisition. The excess of the cost of the acquisition ($1,550,000
plus acquisition costs of $101,000, which includes a brokerage fee of
$72,000) over the fair value of net assets acquired is being amortized on a
straight-line basis over a period of five years.
6. LICENSING AGREEMENT FOR MEDICAL TECHNOLOGY
On March 30, 2000, the Company and Medical Device Alliance, Inc., ("MDA")
and LySonix, Inc. ("LySonix"), signed a new ten-year Exclusive License
Agreement ("Agreement") for the marketing of the soft tissue aspirator for
aesthetic and cosmetic surgery applications. The Agreement calls for
LySonix to purchase the soft tissue aspirators and exclusively represent
the Company's products for the fragmentation and aspiration of soft tissue.
7. SUBSEQUENT EVENT
On April 27, 2000, the Company entered into a loan agreement where by
Hearing Innovations is required to pay the Company the total principal
amount of $24,000 due July 1, 2000. The note bears interest of 8% per
annum. The note is secured by a lien on all Hearing Innovation's rights,
titles and interest at in accounts receivable, inventory, property, plant
and equipment and processes of specified products whether now existing or
after acquired after the date of the loan agreement.
9
<PAGE>
MISONIX, INC.
==========================================
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
NINE MONTHS AND THREE MONTHS ENDED MARCH 31, 2000 AND 1999
NET SALES: Net sales of the Company's medical, scientific and industrial
products increased $3,343,258 (19.4%) from $17,244,068 in the nine months ended
March 31, 1999 to $20,587,326 in the nine months ended March 31, 2000. Net sales
for the Company's medical, scientific and industrial products increased $999,933
(17.2%) from $5,820,288 in the three months ended March 31, 1999 to $6,820,221
in the three months ended March 31, 2000. The increase for the nine month period
is due to an increase in medical device sales from the consolidated revenues of
Sonora Medical Systems, Inc. ("Sonora"), and wet scrubber (Mystaire) sales,
partially offset by lower domestic fume enclosure sales. This increase for the
quarter ended March 31, 2000 is due to an increase in medical device sales, from
the consolidated revenues of Sonora, wet scrubber (Mystaire), and ultrasonic
industrial sales, partially offset by lower Labcaire and domestic fume enclosure
sales. The Company's backlog of unfilled orders was $9,219,560 at March 31,
2000.
GROSS PROFIT: Gross profit decreased from 49.9% of sales in the nine months
ended March 31, 1999 to 46.6% of sales in the nine months ended March 31, 2000.
Gross profit decreased from 51.2% of sales in the three months ended March 31,
1999 to 48.1% of sales in the three months ended March 31, 2000. The decrease
for the nine and three months as compared to the same periods in the prior year,
is due to an unfavorable mix of high and low margin product deliveries.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses increased 8.2% or $459,703 from $5,599,413 (32.5% of
sales) for the nine months ended March 31, 1999 to $6,059,116 (29.4% of sales)
for the nine months ended March 31, 2000. Selling, general and administrative
expenses increased 12% or $245,870 from $2,050,907 (35.2% of sales) for the
three months ended March 31, 1999 to $2,296,777 (33.6% of sales) for the three
months ended March 31, 2000. The increase for the quarter is due to the
consolidation of results from Sonora. The increase for the nine month period is
due to increased sales and marketing efforts in industrial and scientific
products as well as the inclusion of results from Sonora.
RESEARCH AND DEVELOPMENT EXPENSES: Research and development expenses increased
from $827,060 in the nine months ended March 31, 1999 to $1,071,764 in the nine
months ended March 31, 2000. Research and development expenses increased from
$384,551 in the three months ended March 31, 1999 to $479,260 in the three
months ended March 31, 2000. The increased development costs are associated with
an increase in additional products under development and outside clinical costs.
BAD DEBT (RECOVERY) EXPENSE: Bad debt (recovery) expense decreased from an
expense of $2,115,300 for the nine months ended March 31, 1999 to a recovery of
$401,846 for the nine months ended March 31, 2000. On October 22, 1998, the
Company reserved $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. On June 30, 1999, the MDA
and LySonix accounts receivable of $2,069,903 was written off against the bad
debt reserve.
10
<PAGE>
MISONIX, INC.
==========================================
On March 30, 2000, the Company and MDA's subsidiary, LySonix, signed a new
ten-year Exclusive License Agreement ("Agreement") for the marketing of the soft
tissue aspirator for aesthetic and cosmetic surgery applications. The Agreement
calls for LySonix to purchase the soft tissue aspirators and exclusively
represent the Company's products for the fragmentation and aspiration of soft
tissue. The Company was paid in full for the amounts due and owing by the return
of inventory by MDA and LySonix, which is in accordance with the Agreement. The
Company recorded the receipt of inventory at the lower of cost or market,
thereby a recovery of bad debt expense of approximately $462,000 was recorded
during the third quarter of fiscal 2000.
OTHER INCOME (EXPENSE): Other income during the nine months ended March 31, 1999
was $1,012,727. During the nine months ended March 31, 2000, other income was
$702,946. Other income during the three months ended March 31, 1999 was
$272,644. During the three months ended March 31, 2000, other income was
$217,896. This decrease for the nine month period was principally due to
decreased royalty income received from the Company's licensees on the sales of
medical devices, an increase in interest expense due to additional borrowings
related to the purchase of the new Labcaire facility and amortization of the
investments in capital stock of Focus Surgery, Inc. ("Focus Surgery") and
Hearing Innovations, Inc. ("Hearing Innovations"). The decrease for the quarter
is due to the amortization of the investment in capital stock of Focus Surgery
and Hearing Innovations.
INCOME TAXES: The tax provision for the nine months ended March 31, 2000 was
$1,312,930 (41.1% of income before taxes) as compared to a tax provision of
$315,639 (29.6% of income before taxes) for March 31, 1999. The tax provision
for the three months ended March 31, 2000 was $480,578 (45.8% of income before
taxes) as compared to a tax provision of $255,704 (31.1% of income before taxes)
for the three months ended March 31, 1999. This increase is the result of an
increase in income before income taxes over that of the prior year and the
amortization of goodwill and certain investments and equity in losses of
investments which are not tax deductible.
LIQUIDITY AND CAPITAL RESOURCES:
Working capital at March 31, 2000 and June 30, 1999 was $17,855,255 and
$16,722,006, respectively. The increase is due to cash flow from operations,
partially offset by the acquisition of treasury stock and fixed assets and the
investments in Labcaire and Sonora.
On March 10, 1999, the Company entered into a bridge loan agreement with Hearing
Innovations, whereby Hearing Innovations was required to pay to the Company, on
or before March 10, 2000, the principal amount of $250,000. The loan was entered
into in anticipation of the upcoming agreement for a 7% equity investment in
Hearing Innovations by the Company. During the first quarter of fiscal year
2000, the Company entered into four additional secured loan agreements whereby
Hearing Innovations was required to pay the Company the total principal amounts
of $30,000 due October 10, 1999, $50,000 due June 29, 2000, $50,000 due July 29,
2000, and $20,000 due August 30, 2000. These notes bore interest at 8% per
annum.
On October 18, 1999, the Company and Hearing Innovations completed the agreement
whereby the Company invested an additional $350,000 and cancelled the notes
receivable (discussed above) aggregating $400,000 in exchange for a 7% equity
investment in Hearing Innovations. Warrants to purchase additional shares that
would bring the Company's interest in Hearing Innovations to over 15% were also
part of this agreement. Upon exercise of the warrants, the Company has the right
to manufacture Hearing Innovations' ultrasonic products and also has the right
to create a joint venture with Hearing Innovations for the marketing and sale of
its ultrasonic tinnitus masker device.
11
<PAGE>
MISONIX, INC.
==========================================
At the date of the acquisition, the cost of the investment ($750,000 plus
acquisition costs of $34,000) is being amortized on a straight-line basis over
its estimated life of 10 years. The Company's portion of the net losses of
Hearing Innovations were recorded since the date of acquisition in accordance
with the equity method of accounting.
In October 1999, under the terms of the revised purchase agreement (the
"Labcaire Agreement") with Labcaire (as discussed in the Company's Annual Report
on Form 10-KSB for the year ended June 30, 1999), the Company paid approximately
$174,000 for 9,286 shares (2.65%) of the outstanding common stock of Labcaire
bringing the acquired interest to 92%. This represents the fiscal 2000 buy-back
portion, as defined in the Labcaire Agreement.
On November 16, 1999, the Company acquired a 51% stake in Sonora for $1.4
million, which was paid to Sonora. The sum is being utilized by Sonora to
increase inventory and expand marketing, sales and research and development
efforts. An additional 4.7% was acquired on February 25, 2000 for $208,000
bringing the acquired interest to 55.7%. Sonora, located in Longmont, Colorado,
is an ISO 9002 certified refurbisher of high-performance ultrasound systems and
replacement transducers for the medical diagnostic ultrasound industry. Sonora
also offers a full range of aftermarket products and services such as its own
ultrasound probes and transducers, and other services that can extend the useful
life of its customers' ultrasound imaging systems beyond the usual five to seven
years. The agreement includes an option for the Company to increase its
investment by 34.3% under certain circumstances. The acquisition was accounted
for as a purchase. Accordingly, results of Sonora are included in the
consolidated statement of operations from the date of acquisition and acquired
assets and liabilities have been recorded at their estimated fair value at the
date of acquisition. The excess of the cost of the acquisition ($1,550,000 plus
acquisition costs of $101,000 which includes a brokerage fee of $72,000) over
the fair value of net assets acquired is being amortized on a straight-line
basis over a period of five years.
The Company, on January 11, 1999, terminated its license agreement with MDA and
LySonix due to default by MDA for non-payment for product shipment and royalties
owed. In May 1999, the Company began an action against such licensees seeking
collection of indebtedness and enforcement of security interests held on the
inventory in their possession.
On March 30, 2000, the Company and MDA's subsidiary, LySonix, signed a new
ten-year Exclusive License Agreement ("Agreement") for the marketing of the soft
tissue aspirator for aesthetic and cosmetic surgery applications. The Agreement
calls for LySonix to purchase the soft tissue aspirators and exclusively
represent the Company's products for the fragmentation and aspiration of soft
tissue. The Company was paid in full for the amounts due and owing by the return
of inventory by MDA and LySonix, which is in accordance with the Agreement. The
Company, recorded the receipt of inventory at the lower of cost or market; as a
result, a recovery of bad debt expense of approximately $462,000 was recorded
during the third quarter of fiscal 2000.
12
<PAGE>
MISONIX, INC.
==========================================
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 has not had any material operational problems for its internal
information systems and products or external service suppliers with respect to
year 2000. The Company is monitoring any possible problems of systems or any
external service suppliers' operational problems, of which none has been
detected.
Forward Looking Statements: This report contains certain 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,
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, new product development activities
by the Company and related parties in which it has investments, product mix in
sales, results of joint venture and investment in related entities, future
economic, competitive and market conditions, the outcome of legal proceedings,
particularly those including patent litigation with Mentor Corporation as well
as management business decisions.
13
<PAGE>
MISONIX, INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
In May 1999, the Company began an action against MDA and LySonix
seeking among other things, collection of indebtedness and enforcement
of security interests held on the inventory in their possession.
The Company, MDA, and MDA's wholly owned subsidiary, LySonix, were
defendants in an action alleging patent infringement filed by Mentor
Corporation ("Mentor"). On June 10, 1999, the United States District
Court, Central District of California, found for the defendants that
there was no infringement upon Mentor's patent, thereby reversing the
jury verdict. Mentor has subsequently filed an appeal. Based upon the
current status of the matters, management believes the outcome of this
appeal will not have a material adverse effect on the Company's
consolidated financial position and results of operations.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 11 - Computation of Net Earning Per Share
Exhibit 27 - Financial Data Schedule
(b) There were no reports on Form 8-K filed during the quarter ended
March 31, 2000.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 10, 2000
MISONIX, INC.
---------------------------------------
(Registrant)
By: __________________________________
Michael A. McManus, Jr.
President, Chief Executive Officer
By: __________________________________
Richard Zaremba
Vice President
Chief Financial Officer,
Treasurer and Secretary
15
(Unaudited)
<TABLE>
<CAPTION>
BASIC DILUTED
Nine Months Ended Nine Months Ended
March 31, March 31,
------------------ ------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 1,885,317 $ 750,647 $1,885,317 $ 750,647
=========== ========== ========== ==========
Weighted average common
shares outstanding 5,942,538 5,842,937 5,942,538 5,842,937
=========== ==========
Weighted average common
share equivalents:
Options and warrants -- -- 552,366 768,686
---------- ----------
Weighted average common
shares and common share
equivalents outstanding 5,942,538 5,842,937 6,494,904 6,611,623
=========== ========== ========== ==========
Net income per share $ .32 $ .13 $ .29 $ .11
=========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
BASIC DILUTED
Three Months Ended Three Months Ended
March 31, March 31,
------------------ ------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 569,415 $ 565,624 $ 569,415 $ 565,624
=========== ========== ========== ==========
Weighted average common
shares outstanding 5,918,271 5,910,783 5,918,271 5,910,783
=========== ==========
Weighted average common
share equivalents:
Options and warrants -- -- 627,256 702,723
---------- ----------
Weighted average common
shares and common share
equivalents outstanding 5,918,271 5,910,783 6,545,527 6,613,506
=========== ========== ========== ==========
Net income per share $ .10 $ .10 $ .09 $ .09
=========== ========== ========== ==========
</TABLE>
<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> 12-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 7,857,077
<SECURITIES> 3,034,364
<RECEIVABLES> 5,925,274
<ALLOWANCES> 129,467
<INVENTORY> 5,068,067
<CURRENT-ASSETS> 22,801,311
<PP&E> 4,222,163
<DEPRECIATION> 1,027,482
<TOTAL-ASSETS> 30,833,349
<CURRENT-LIABILITIES> 4,946,056
<BONDS> 0
0
0
<COMMON> 59,653
<OTHER-SE> 23,197,147
<TOTAL-LIABILITY-AND-EQUITY> 30,833,349
<SALES> 20,587,326
<TOTAL-REVENUES> 20,587,326
<CGS> 10,989,538
<TOTAL-COSTS> 17,718,572
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 116,989
<INCOME-PRETAX> 3,198,247
<INCOME-TAX> 1,312,930
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,885,317
<EPS-BASIC> .32
<EPS-DILUTED> .29
</TABLE>
