Unassociated Document
FORM
10-Q
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
(Mark
One)
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the
quarterly period ended March
31, 2008
OR
o |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
For
the
transition period from _______ to ________
Commission
file number: 1-10986
(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, NY
|
|
11735
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
(631)
694-9555
|
(Registrant’s
telephone number, including area
code)
|
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
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of accelerated
filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check
one):
|
Large
accelerated filer o
|
Accelerated
filer o
|
|
|
|
|
|
|
Non-accelerated
filer o
|
Smaller
reporting company x
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the
Exchange
Act).
Yes o No x
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
12, 2008
|
|
Common
Stock, $.01 par value
|
|
|
7,001,369
|
|
MISONIX,
INC.
INDEX
|
|
Page
|
Part
I - FINANCIAL
INFORMATION
|
|
|
|
Item
1. Financial
Statements:
|
|
|
|
Consolidated
Balance Sheets as of March 31, 2008 (Unaudited) and June 30,
2007
|
3
|
|
Consolidated
Statements of Operations Nine months ended March 31, 2008 and
2007
(Unaudited)
|
4
|
|
|
Consolidated
Statements of Operations Three months ended March 31, 2008 and
2007
(Unaudited)
|
5
|
|
|
Consolidated
Statement of Stockholders’ Equity Nine months ended March 31, 2008
(Unaudited)
|
6
|
|
|
Consolidated
Statements of Cash Flows Nine months ended March 31, 2008 and
2007
(Unaudited)
|
7
|
|
|
Notes
to Consolidated Financial Statements
|
8
|
|
|
Item
2. Management’s
Discussion and Analysis of Financial Condition and
Results of Operations
|
17
|
|
|
Item
3. Quantitative
and Qualitative Disclosures About Market Risk
|
23
|
|
|
Item
4. Controls
and Procedures
|
24
|
|
|
Part
II - OTHER
INFORMATION
|
|
|
|
Item
1A. Risk
Factors
|
25
|
|
|
Item
6. Exhibits
|
25
|
|
|
Signatures
|
26
|
PART
I – FINANCIAL INFORMATION
Item
1. Financial Statements.
MISONIX,
INC. and Subsidiaries
Consolidated
Balance Sheets
|
|
March 31,
2008
|
|
June 30,
2007
|
|
|
|
unaudited
|
|
Derived from audited
financial statements
|
|
Assets
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash
|
|
$
|
1,607,529
|
|
$
|
2,900,358
|
|
Accounts
receivable, less allowance for doubtful accounts of $222,708
and $313,981, respectively
|
|
|
8,334,961
|
|
|
7,679,466
|
|
Inventories,
net
|
|
|
12,401,011
|
|
|
11,903,294
|
|
Deferred
income taxes
|
|
|
1,028,988
|
|
|
1,028,988
|
|
Prepaid
expenses and other current assets
|
|
|
1,277,836
|
|
|
1,936,243
|
|
Total
current assets
|
|
|
24,650,325
|
|
|
25,448,349
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
4,341,773
|
|
|
4,728,367
|
|
Deferred
income taxes
|
|
|
3,068,901
|
|
|
2,827,009
|
|
Goodwill
|
|
|
5,772,022
|
|
|
5,008,549
|
|
Other
assets
|
|
|
738,317
|
|
|
733,470
|
|
Total
assets
|
|
$
|
38,571,338
|
|
$
|
38,745,744
|
|
|
|
|
|
|
|
|
|
Liabilities
and stockholders’ equity
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Revolving
credit facilities and notes payable
|
|
$
|
4,801,356
|
|
$
|
4,326,088
|
|
Accounts
payable
|
|
|
4,965,851
|
|
|
4,872,941
|
|
Accrued
expenses and other current liabilities
|
|
|
3,884,377
|
|
|
3,957,643
|
|
Foreign
income taxes payable
|
|
|
690,942
|
|
|
672,330
|
|
Current
portion of deferred gain from sale and leaseback of
building
|
|
|
159,195
|
|
|
160,000
|
|
Current
maturities of capital lease obligations
|
|
|
296,508
|
|
|
294,257
|
|
Total
current liabilities
|
|
|
14,798,229
|
|
|
14,283,259
|
|
|
|
|
|
|
|
|
|
Capital
lease obligations
|
|
|
215,810
|
|
|
177,059
|
|
Deferred
lease liability
|
|
|
356,419
|
|
|
380,068
|
|
Deferred
income taxes
|
|
|
534,761
|
|
|
300,206
|
|
Deferred
gain from sale and leaseback of building
|
|
|
1,313,354
|
|
|
1,438,966
|
|
Deferred
income
|
|
|
397,992
|
|
|
494,261
|
|
Total
liabilities
|
|
|
17,616,565
|
|
|
17,073,819
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interest
|
|
|
200,628
|
|
|
265,284
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
Common
stock, $.01 par value—shares authorized 10,000,000; 7,079,169
issued and 7,001,369 outstanding
|
|
|
70,792
|
|
|
70,792
|
|
Additional
paid-in capital
|
|
|
25,022,706
|
|
|
24,871,444
|
|
Accumulated
deficit
|
|
|
(4,279,840
|
)
|
|
(3,507,788
|
)
|
Accumulated
other comprehensive income
|
|
|
352,911
|
|
|
384,617
|
|
Treasury
stock, 77,800 shares
|
|
|
(412,424
|
)
|
|
(412,424
|
)
|
Total
stockholders’ equity
|
|
|
20,754,145
|
|
|
21,406,641
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
38,571,338
|
|
$
|
38,745,744
|
|
See
Accompanying Notes to Consolidated Financial Statements.
MISONIX,
INC.
and Subsidiaries
Consolidated
Statements of Operations
(Unaudited)
|
|
For the nine months ended
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
33,935,316
|
|
$
|
30,865,888
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
19,222,501
|
|
|
17,687,270
|
|
Gross
profit
|
|
|
14,712,815
|
|
|
13,178,618
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
Selling
expenses
|
|
|
5,580,322
|
|
|
5,524,786
|
|
General
and administrative expenses
|
|
|
7,596,223
|
|
|
7,321,668
|
|
Research
and development expenses
|
|
|
2,369,683
|
|
|
2,383,903
|
|
Total
operating expenses
|
|
|
15,546,228
|
|
|
15,230,357
|
|
Loss
from operations
|
|
|
(833,413
|
)
|
|
(2,051,739
|
)
|
|
|
|
|
|
|
|
|
Other
income:
|
|
|
|
|
|
|
|
Interest
income
|
|
|
35,345
|
|
|
53,225
|
|
Interest
expense
|
|
|
(353,070
|
)
|
|
(357,075
|
)
|
Royalty
income and license fees
|
|
|
539,413
|
|
|
672,263
|
|
Royalty
expense
|
|
|
(262,867
|
)
|
|
(16,928
|
)
|
Other
|
|
|
179,129
|
|
|
4,857
|
|
Total
other income
|
|
|
137,950
|
|
|
356,342
|
|
|
|
|
|
|
|
|
|
Loss
before minority interest and income taxes
|
|
|
(695,463
|
)
|
|
(1,695,397
|
)
|
|
|
|
|
|
|
|
|
Minority
interest in net income (loss) of consolidated subsidiaries
|
|
|
47,580
|
|
|
(12,819
|
)
|
|
|
|
|
|
|
|
|
Loss
before income taxes
|
|
|
(743,043
|
)
|
|
(1,682,578
|
)
|
Income
tax benefit
|
|
|
(205,562
|
)
|
|
(634,680
|
)
|
Net
loss
|
|
$
|
(537,481
|
)
|
$
|
(1,047,898
|
)
|
Net
loss per share – Basic
|
|
$
|
(.08
|
)
|
$
|
(.15
|
)
|
|
|
|
|
|
|
|
|
Net
loss per share – Diluted
|
|
$
|
(.08
|
)
|
$
|
(.15
|
)
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding – Basic
|
|
|
7,001,369
|
|
|
6,923,044
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding – Diluted
|
|
|
7,001,369
|
|
|
6,923,044
|
|
See
Accompanying Notes to Consolidated Financial Statements.
MISONIX,
INC.
and Subsidiaries
Consolidated
Statements of Operations
(Unaudited)
|
|
For
the three months
ended
March
31,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
11,803,026
|
|
$
|
10,583,924
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
6,920,580
|
|
|
6,123,927
|
|
Gross
profit
|
|
|
4,882,446
|
|
|
4,459,997
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
Selling
expenses
|
|
|
1,993,137
|
|
|
2,003,430
|
|
General
and administrative expenses
|
|
|
2,470,147
|
|
|
2,614,237
|
|
Research
and development expenses
|
|
|
724,131
|
|
|
735,518
|
|
Total
operating expenses
|
|
|
5,187,415
|
|
|
5,353,185
|
|
Loss
from operations
|
|
|
(304,969
|
)
|
|
(893,188
|
)
|
|
|
|
|
|
|
|
|
Other
income:
|
|
|
|
|
|
|
|
Interest
income
|
|
|
10,759
|
|
|
11,111
|
|
Interest
expense
|
|
|
(101,890
|
)
|
|
(130,582
|
)
|
Royalty
income and license fees
|
|
|
206,695
|
|
|
213,788
|
|
Royalty
expense
|
|
|
(99,399
|
)
|
|
(5,577
|
)
|
Other
|
|
|
57,005
|
|
|
(7,473
|
)
|
Total
other income
|
|
|
73,170
|
|
|
81,267
|
|
|
|
|
|
|
|
|
|
Loss
before minority interest and income taxes
|
|
|
(231,799
|
)
|
|
(811,921
|
)
|
|
|
|
|
|
|
|
|
Minority
interest in net income (loss) of consolidated subsidiaries
|
|
|
24,269
|
|
|
(38,318
|
)
|
|
|
|
|
|
|
|
|
Loss
before income taxes
|
|
|
(256,068
|
)
|
|
(773,603
|
)
|
Income
tax benefit
|
|
|
(62,031
|
)
|
|
(244,567
|
)
|
Net
loss
|
|
|
(194,037
|
)
|
|
(529,036
|
)
|
Net
loss per share – Basic
|
|
$
|
(.03
|
)
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
Net
loss per share – Diluted
|
|
$
|
(.03
|
)
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding – Basic
|
|
|
7,001,369
|
|
|
6,962,802
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding – Diluted
|
|
|
7,001,369
|
|
|
6,962,802
|
|
See
Accompanying Notes to Consolidated Financial Statements.
MISONIX,
INC.
and Subsidiaries
Consolidated
Statement of Stockholders’ Equity
(Unaudited)
Nine
months ended March 31, 2008
|
|
Common
Stock, $.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Par
Value
|
|
Treasury
Stock
|
|
|
|
|
|
|
|
|
|
|
|
Number
of shares
|
|
Amount
|
|
Number of
shares
|
|
Amount
|
|
Additional
paid-in capital
|
|
Accumulated
deficit
|
|
Accumulated
other comprehensive income
|
|
Total
stockholders’ equity
|
|
Balance,
June 30, 2007
|
|
|
7,079,169
|
|
$
|
70,792
|
|
|
(77,800
|
)
|
$
|
(412,424
|
)
|
$
|
24,871,444
|
|
$
|
(3,507,788
|
)
|
$
|
384,617
|
|
$
|
21,406,641
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(537,481
|
)
|
|
-
|
|
|
(537,481
|
)
|
Foreign
currency translation adjustment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(31,706
|
)
|
|
(31,706
|
)
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(569,187
|
)
|
Cumulative
transition adjustment for FIN 48
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(234,571
|
)
|
|
-
|
|
|
(234,571
|
)
|
Stock-based
compensation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
151,262
|
|
|
-
|
|
|
-
|
|
|
151,262
|
|
Balance,
March 31, 2008
|
|
|
7,079,169
|
|
$
|
70,792
|
|
|
(77,800
|
)
|
$
|
(412,424
|
)
|
$
|
25,022,706
|
|
$
|
(4,279,840
|
)
|
$
|
352,911
|
|
$
|
20,754,145
|
|
See
Accompanying Notes to Consolidated Financial Statements.
MISONIX,
INC.
and Subsidiaries
Consolidated
Statements of Cash Flows
(Unaudited)
|
|
For the nine months ended
March 31,
|
|
|
|
2008
|
|
2007
|
|
Operating
activities
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(537,481
|
)
|
$ |
(1,047,898
|
)
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization and other non-cash items
|
|
|
1,268,696
|
|
|
1,467,533
|
|
Bad
debt expense (recovery)
|
|
|
(56,405
|
)
|
|
81,807
|
|
Deferred
income tax benefit
|
|
|
(246,753
|
)
|
|
(739,076
|
)
|
Loss
on disposal of property, plant and equipment
|
|
|
63,159
|
|
|
117,054
|
|
Minority
interest in net income (loss) of subsidiaries
|
|
|
47,580
|
|
|
(12,819
|
)
|
Stock-based
compensation
|
|
|
151,262
|
|
|
140,341
|
|
Deferred
income
|
|
|
(96,269
|
)
|
|
(75,013
|
)
|
Deferred
leasehold costs
|
|
|
(144,233
|
)
|
|
17,791
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(624,458
|
)
|
|
(1,369,184
|
)
|
Inventories
|
|
|
(669,705
|
)
|
|
(847,951
|
)
|
Income
taxes
|
|
|
21,584
|
|
|
826,813
|
|
Prepaid
expenses and other current assets
|
|
|
615,601
|
|
|
(174,766
|
)
|
Accounts
payable and accrued expenses
|
|
|
40,369
|
|
|
(40,726
|
)
|
Foreign
income taxes payable
|
|
|
-
|
|
|
39,894
|
|
Other
|
|
|
(19,944
|
)
|
|
(803,461
|
)
|
Net
cash used in operating activities
|
|
|
(186,997
|
)
|
|
(2,419,661
|
)
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
Acquisition
of property, plant and equipment
|
|
|
(367,958
|
)
|
|
(559,279
|
)
|
Investment
in UKHIFU Limited
|
|
|
(37,781
|
)
|
|
-
|
|
Acquisition
of minority interest
|
|
|
(839,653
|
)
|
|
-
|
|
Net
cash used in investing activities
|
|
|
(1,245,392
|
)
|
|
(559,279
|
)
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
Proceeds
from short-term borrowings
|
|
|
18,519,219
|
|
|
5,648,062
|
|
Payments
of short-term borrowings
|
|
|
(18,032,773
|
)
|
|
(2,302,175
|
)
|
Principal
payments on capital lease obligations
|
|
|
(348,398
|
)
|
|
(273,066
|
)
|
Proceeds
from exercise of stock options
|
|
|
-
|
|
|
134,570
|
|
Payments
of long-term debt
|
|
|
-
|
|
|
(44,556
|
)
|
Net
cash provided by financing activities
|
|
|
138,048
|
|
|
3,162,835
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
1,512
|
|
|
7,703
|
|
Net
(decrease) increase in cash
|
|
|
(1,292,829
|
)
|
|
191,598
|
|
Cash
at beginning of period
|
|
|
2,900,358
|
|
|
675,400
|
|
Cash
at end of period
|
|
$
|
1,607,529
|
|
$
|
866,998
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
Cash
paid for:
|
|
|
|
|
|
|
|
Interest
|
|
$
|
363,311
|
|
$
|
330,621
|
|
Income
taxes
|
|
$
|
19,607
|
|
$ |
(762,309
|
)
|
Supplemental
disclosure of noncash investing and
financing activities:
|
|
|
|
|
|
|
|
Capital
lease additions
|
|
$
|
391,900
|
|
$
|
133,146
|
|
Inventory
transferred to property, plant and equipment
|
|
|
-
|
|
$
|
413,567
|
|
See
Accompanying Notes to Consolidated Financial Statements.
MISONIX,
INC.
and Subsidiaries
Notes
to Consolidated Financial Statements
(Information
with respect to interim periods is 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 accounting principles generally accepted in the United States 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 nine months ended
March 31, 2008 are not necessarily indicative of the results that may be
expected for the year ending June 30, 2008 or any interim period.
The
balance sheet at June 30, 2007 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-K for the
year ended June 30, 2007.
2.
Net
Loss Per Share of Common Stock
In
accordance with Statement of Financial Accounting Standards (“SFAS”) No. 128,
“Earnings Per Share”, basic net loss per common share (“basic EPS”) is computed
by dividing net loss by the weighted average number of common shares
outstanding. Diluted net loss per common share (“diluted EPS”) is computed by
dividing net loss by the weighted average number of common shares and dilutive
common share equivalents outstanding. Diluted EPS for periods with a net loss
is
the same as basic EPS, as the inclusion of the effect of common stock
equivalents then outstanding would be anti-dilutive. For this reason, we
excluded from the calculation of diluted EPS all outstanding options for the
nine and three-month periods ended March 31, 2008 and 2007.
3. Comprehensive
(Loss) Income
Total
comprehensive loss was $569,187 and $199,652 for the nine months and three
months ended March 31, 2008 and $779,723 and $547,901 for the nine months and
three months ended March 31, 2007, respectively. The components of comprehensive
loss are net loss and foreign currency translation adjustments.
4. Stock-Based
Compensation
The
Company adopted the fair-value recognition provisions of SFAS 123R, “Share-Based
Payment” (“SFAS No. 123R”), effective July 1, 2005. Compensation cost recognized
in the nine and three-month periods ended March 31, 2008 and 2007 include
compensation cost for all share-based payments granted prior to, but not yet
vested as of, July 1, 2005, based on the grant date fair value estimated in
accordance with the original provisions of SFAS No. 123, and compensation cost
for all share-based payments granted subsequent to July 1, 2005, based on the
grant date fair value estimated in accordance with the provisions of SFAS
123R.
Stock
options are granted with exercise prices not less than the fair market value
of
our common stock at the time of the grant, with an exercise term (as determined
by the Committee administering the applicable option plan (the “Committee”)) not
to exceed 10 years. The Committee determines the vesting period for the
Company’s stock options. Generally, such stock options have vesting periods of
immediate to four years.
Certain option awards provide for accelerated vesting upon meeting specific
retirement, death or disability criteria, and upon a change in control. During
the three-month periods ended March 31, 2008 and 2007, the Company granted
options to purchase 0 and 75,000 shares of the Company’s common stock,
respectively, and during the nine month-periods ended March 31, 2008 and 2007,
the Company granted options to purchase 61,850 and 127,400 shares of the
Company’s common stock, respectively.
MISONIX,
INC.
and Subsidiaries
Notes
to Consolidated Financial Statements
(Information
with respect to interim periods is unaudited)
Stock-based
compensation expense for the nine month-periods ended March 31, 2008 and 2007
was approximately $151,000 and $140,000, respectively. Stock-based compensation
expense for the three- month periods ended March 31, 2008 and 2007 was $53,000
and $40,000, respectively. Compensation expense is recognized in the general
and
administrative expenses line item of the Company’s statements of operations on a
straight-line basis over the vesting periods. As of March 31, 2008, there was
$392,208 of total unrecognized compensation cost related to non-vested
share-based compensation arrangements to be recognized over a weighted-average
period of 2.3 years.
Total
cash received from the exercise of stock options was $0 and $134,570 for the
nine-month periods ended March 31, 2008 and 2007, respectively. SFAS No. 123R
requires that cash flows from tax benefits attributable to tax deductions in
excess of the compensation cost recognized for those options (excess tax
benefits) be classified as financing cash flows.
We
estimated the fair value of stock options using the following
assumptions:
|
|
For the Nine Months
March 31,
|
|
For the Three Months
March
31,
|
|
|
|
2008
|
|
2007
|
|
2007
|
|
Risk-free
interest rate
|
|
|
4.3
|
%
|
|
4.67
|
%
|
|
4.48
|
%
|
Expected
option life in years
|
|
|
6.5
|
|
|
6.0
|
|
|
6.0
|
|
Expected
stock price volatility
|
|
|
54.7
|
%
|
|
53.8
|
%
|
|
52.3
|
%
|
Expected
dividend yield
|
|
|
0
|
%
|
|
0
|
%
|
|
0
|
%
|
Weighted-average
fair value of options granted
|
|
$
|
2.51
|
|
$
|
2.57
|
|
$
|
2.99
|
|
The
expected life was based on historical exercises and terminations. The expected
volatility over the expected life of the options is determined using historical
volatilities based on historical stock prices. The expected dividend yield
is 0%
as the Company has historically not declared dividends and does not expect
to
declare any in the future.
MISONIX,
INC.
and Subsidiaries
Notes
to Consolidated Financial Statements
(Information
with respect to interim periods is unaudited)
Changes
in outstanding stock options during the nine months ended March 31, 2008 were
as
follows:
|
|
Options
|
|
|
|
Number
of Shares
|
|
Weighted Average
Exercise Price
|
|
Weighted Average Remaining Contractual Life
(years)
|
|
Aggregate Intrinsic Value
|
|
Outstanding
as of June 30, 2007
|
|
|
1,802,566
|
|
$
|
5.88
|
|
|
5.4
|
|
|
|
|
Granted
|
|
|
61,850
|
|
|
4.33
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
Forfeited
|
|
|
11,380
|
|
|
6.04
|
|
|
|
|
|
|
|
Expired
|
|
|
25,000
|
|
|
14.80
|
|
|
|
|
|
|
|
Outstanding
as of March 31, 2008
|
|
|
1,828,036
|
|
$
|
5.70
|
|
|
5.1
|
|
$
|
106,719
|
|
Exercisable
and vested at March 31, 2008
|
|
|
1,663,912
|
|
$
|
5.79
|
|
|
4.5
|
|
$
|
74,380
|
|
Available
for grant at March 31, 2008
|
|
|
604,627
|
|
|
|
|
|
|
|
|
|
|
5.
Income
Taxes
The
Company adopted the provisions of Financial Accounting Standards Board (“FASB”)
Interpretation No. 48 (“FIN 48”), an interpretation of SFAS 109, effective July
1, 2007. In response to the issuance of FIN 48, the Company reviewed its
uncertain tax positions in accordance with the recognition standards established
by FIN 48. As a result of this review, the Company has adjusted its estimate
of
its uncertain tax positions by recognizing an additional liability (including
interest) of approximately $235,000 through a charge to accumulated deficit.
The
liability is included in deferred income taxes payable. There have not been
any
new uncertain income tax positions identified in the nine and three month
periods ended March 31, 2008. The Company does not expect any material changes
to the estimated amount of liability associated with its uncertain tax positions
through July 1, 2008.
The
Company generally recognizes interest and penalties related to uncertain tax
positions through income tax expense. As of July 1, 2007, the Company had
accrued approximately $32,000 for the payment of tax-related interest. An
additional $12,000 was accrued during the nine months ended March 31,
2008.
There
are
no federal, state or foreign income tax audits in process as of March 31, 2008.
Open tax years related to federal and state income tax filings are for the
years
ended June 30, 2005, 2006 and 2007. The Company files state tax returns in
New
York and Colorado and its tax returns in those states have never been examined.
The Company’s foreign subsidiaries, Labcaire Systems Ltd. (“Labcaire”), Misonix,
Ltd. and UKHIFU Limited (“UKHIFU”) file tax returns in England. The England
Inland Revenue Service has not examined these tax returns.
In
June
2006, the FASB ratified the consensus reached by the Emerging Issues Tax Force
in Issue No. 06-3 (“EITF 06-3”), “How Taxes Collected from Customers and
Remitted to Governmental Authorities Should Be Presented in the Income Statement
(That is, Gross versus Net Presentation).” The scope of EITF 06-3 includes any
tax assessed by a governmental authority that is directly imposed on a
revenue-producing activity between a seller and a customer and may include,
but
is not limited to, sales, use, value added, and some excise taxes. EITF 06-3
also concluded that the presentation of taxes within its scope on either a
gross
(included in revenues and costs) or net (excluded from revenues) basis is an
accounting policy decision subject to appropriate disclosure. EITF 06-3 is
effective for periods beginning after December 15, 2006. The Company currently
presents these taxes on a net basis and has elected not to change its
presentation method.
MISONIX,
INC. and
Subsidiaries
Notes
to Consolidated Financial Statements
(Information
with respect to interim periods is unaudited)
6.
Inventories
Inventories
are summarized as follows:
|
|
March
31,
2008
|
|
June
30,
2007
|
|
Raw
material
|
|
$
|
6,453,615
|
|
$
|
6,593,458
|
|
Work–in–process
|
|
|
3,153,288
|
|
|
2,624,212
|
|
Finished
goods
|
|
|
4,845,888
|
|
|
4,599,040
|
|
|
|
|
14,452,791
|
|
|
13,816,710
|
|
Less
valuation reserve
|
|
|
2,051,780
|
|
|
1,913,416
|
|
|
|
$
|
12,401,011
|
|
$
|
11,903,294
|
|
7.
Accrued
Expenses and Other Current Liabilities
The
following summarizes accrued expenses and other current
liabilities:
|
|
March
31,
2008
|
|
|
|
|
|
|
|
|
|
Customer
deposits and deferred contracts
|
|
$
|
1,020,109
|
|
$
|
1,084,412
|
|
Accrued
payroll and vacation
|
|
|
1,212,680
|
|
|
567,296
|
|
Accrued
VAT on sale of Labcaire building
|
|
|
-
|
|
|
631,229
|
|
Accrued
VAT and sales tax
|
|
|
483,386
|
|
|
118,176
|
|
Accrued
commissions and bonuses
|
|
|
416,074
|
|
|
484,022
|
|
Accrued
professional fees
|
|
|
127,353
|
|
|
47,413
|
|
Litigation
|
|
|
324,000
|
|
|
419,000
|
|
Other
|
|
|
300,775
|
|
|
606,095
|
|
|
|
$
|
3,884,377
|
|
$
|
3,957,643
|
|
8.
Revolving
Credit Facilities
On
December 29, 2006, the Company and its subsidiaries, Acoustic Marketing
Research, Inc. d/b/a Sonora Medical Systems (“Sonora”) and Hearing Innovations,
Inc. (“Hearing Innovations”) (the Company, Sonora and Hearing Innovations
collectively referred to as the “Borrowers”) and Wells Fargo Bank entered into a
(i) Credit and Security Agreement and a (ii) Credit and Security Agreement
Export-Import Subfacility (collectively referred to as the “Credit Agreements”).
The aggregate credit limit under the Credit Agreements is $8,000,000 consisting
of a revolving facility in the amount of up to $8,000,000. Up to $1,000,000
of
the revolving facility is available under the Export-Import Agreement as a
subfacility for Export-Import working capital financing. All credit facilities
under the Credit Agreements mature on December 29, 2009. Payment of amounts
outstanding under the Credit Agreements may be accelerated upon the occurrence
of an Event of Default (as defined in the Credit Agreements). All loans and
advances under the Credit Agreements are secured by a first priority security
interest in all of the Borrowers’ accounts receivable, letter-of-credit rights,
and all other business assets. The Borrowers have the right to terminate or
reduce the credit facility prior to December 29, 2009 by paying a fee based
on
the aggregate credit limit (or reduction, as the case may be) as follows: (i)
during year one of the Credit Agreements, 3%; (ii) during year two of the Credit
Agreements, 2%; and (iii) during year three of the Credit Agreements,
1%.
MISONIX,
INC.
and Subsidiaries
Notes
to Consolidated Financial Statements
(Information
with respect to interim periods is unaudited)
The
Credit Agreements, as amended, contain financial covenants requiring that the
Borrowers (i) on a consolidated basis not have a Net Loss (as defined in the
Credit Agreements) of more than (a) $40,000 for the fiscal quarter ended March
31, 2008 and (b) $175,000 for the fiscal quarter ending June 30, 2008; and
(ii)
not incur or contract to incur Capital Expenditures (as defined in the Credit
Agreements) of more than $1,000,000 in the aggregate in any fiscal year or
more
than $1,000,000 in any one transaction. At March 31, 2008, the Borrowers were
in
compliance with all financial covenants under the Credit
Agreements.
The
available amount under the Credit Agreements is the lesser of $8,000,000 or
the
amount calculated under the Borrowing Base (as defined in the Credit
Agreements). The Borrowers must maintain a minimum outstanding amount of
$1,250,000 under the Credit Agreements at all times and pay a fee equal to
the
interest rate set forth on any such shortfall. Interest on amounts borrowed
under the Credit Agreements is payable at Wells Fargo’s prime rate of interest
plus 1% per annum floating, payable monthly in arrears. The default rate of
interest is 3% higher than the rate otherwise payable. A fee of ½ % per annum on
the Unused Amount (as defined in the Credit Agreements) is payable monthly
in
arrears. At March 31, 2008, the balance outstanding under the Credit Agreement
was $2,830,656 and an additional $833,496 was available under this line of
credit.
Labcaire
has a debt purchase agreement with Lloyds TSB Commercial Finance (“Lloyds”). The
amount of this facility bears interest at Lloyd’s base rate (5.5%) at March 31,
2008 plus 2.0% and fluctuates based on the outstanding United Kingdom and
European receivables. The agreement expires September 28, 2008. The agreement
covers all United Kingdom and European sales. At March 31, 2008, the balance
outstanding under this credit facility was $1,619,949 and Labcaire was in
compliance with all financial covenants.
9.
Commitments
and Contingencies
A
jury in
the District Court of Boulder County, Colorado has returned a verdict against
Sonora in the amount of $419,000 which was recorded by the Company during the
fourth quarter of fiscal 2005. The judgment was decreased to $324,000 and the
$95,000 reduction is included in other income during the three months ended
March 31, 2008. The case involved royalties claimed on recoating of
transesophogeal probes, which is a process performed by Sonora. Approximately
80% of the judgment was based on the jury’s estimate of royalties for potential
sales of the product in the future. Sonora has moved for judgment
notwithstanding the verdict based on, among other things, the award of damages
for future royalties. Sonora has also moved for a new trial in the
case.
The
Company is a defendant in claims and lawsuits arising in the ordinary course
of
business. The Company believes that it has meritorious defenses to such claims
and lawsuits and is vigorously contesting them. Although the outcome of
litigation cannot be predicted with certainty, the Company believes
that these actions will not have a material adverse effect on the Company’s
consolidated financial position or results of operations.
On
September 6, 2007, but effective as of August 30, 2007, the Company and William
H. Phillips (“Phillips”) entered into a Settlement Agreement (the “Agreement”).
Pursuant to the Agreement, the Company and Phillips resolved certain disputes
between them concerning the purchase price to be paid by the Company for shares
of the common stock of Sonora owned by Phillips. The Company owned ninety (90%)
percent of the outstanding shares of Sonora prior to the execution of the
Agreement.
Pursuant
to the Agreement, the Company paid Phillips the aggregate sum of $1,214,780
(the
“Purchase Price”). The Company paid Phillips $296,118 on June 7, 2007, $311,272
on August 30, 2007 and $306,220 on November 28, 2007. The Company paid the
final
installment of $301,169 on February 28, 2008. As of March 1, 2008, the Company
owns 95% of the outstanding shares of Sonora.
MISONIX,
INC.
and Subsidiaries
Notes
to Consolidated Financial Statements
(Information
with respect to interim periods is unaudited)
The
effect of this transaction was to increase goodwill by $969,800, decrease
minority interest by $149,737 and record interest expense of
$95,242.
10.
Recent
Accounting Standards
In
March
2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial
Assets” (“SFAS 156”), an amendment of SFAS 140, “Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities”. SFAS 156
requires all separately recognized servicing assets and servicing liabilities
to
be initially measured at fair value, if practicable, and permits an entity
to
subsequently measure those servicing assets and servicing liabilities at fair
value. SFAS 156 is effective for fiscal years beginning after September 15,
2006. The Company adopted SFAS 156 effective July 1, 2007 and the adoption
of
SFAS 156 did not have a material effect on the Company’s consolidated financial
position or results of operations.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
157”). SFAS 157 provides a new single authoritative definition of fair value and
provides enhanced guidance for measuring the fair value of assets and
liabilities and requires additional disclosures related to the extent to which
companies measure assets and liabilities at fair value, the information used
to
measure fair value, and the effect of fair value measurements on earnings.
This
Statement is effective as of the beginning of an entity’s first fiscal year
beginning after November 15, 2007. The Company is currently evaluating the
impact that the adoption of SFAS 157 may have on the Company’s consolidated
financial position and results of operations.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS 159”), which provides
companies with an option to report selected financial assets and liabilities
at
fair value in an attempt to reduce both complexity in accounting for financial
instruments and the volatility in earnings caused by measuring related assets
and liabilities differently. This Statement is effective as of the beginning
of
an entity’s first fiscal year beginning after November 15, 2007. The Company is
currently evaluating the impact that the adoption of SFAS 159 may have on the
Company’s consolidated financial position and results of
operations.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements — an amendment of ARB No. 51” (“SFAS 160”).
SFAS 160 amends ARB No. 51 to establish accounting and reporting standards
for
the noncontrolling interest in a subsidiary and for the deconsolidation of
a
subsidiary. It clarifies that a noncontrolling interest in a subsidiary, which
is sometimes referred to as a minority interest, is an ownership interest in
the
consolidated entity that should be reported as equity in the consolidated
financial statements. Among other requirements, this Statement requires
consolidated net income to be reported at amounts that include the amounts
attributable to both the parent and noncontrolling interest. It also requires
disclosure, on the face of the consolidated statement of operations, of the
amounts of consolidated net income (loss) attributable to the parent and to
the
noncontrolling interest. SFAS 160 is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15, 2008.
Earlier adoption is prohibited. The Company is currently evaluating the impact
that the adoption of SFAS 160 may have on the Company’s consolidated financial
position and results of operations.
11.
Related
Party
The
Company has subcontracted Focus Surgery, Inc. (“Focus”) to perform research and
development activities for which the Company recorded expenses of $229,200
and
$44,000 to Focus during the nine months ended March 31, 2008 and 2007,
respectively, which amounts are recorded as research and development expenses
in
the accompanying statements of operations. During fiscal 2004, Focus entered
into an exclusive agreement with the Company to distribute the Sonablate® 500 in
the European market.
MISONIX,
INC. and
Subsidiaries
Notes
to Consolidated Financial Statements
(Information
with respect to interim periods is unaudited)
The
Company purchased approximately $510,000 and $578,000 of product from Focus
during the nine months ended March 31, 2008 and 2007, respectively. Total sales
to Focus were approximately $407,000
and $584,000 for the nine months ended March 31, 2008 and 2007, respectively.
Accounts receivable due from Focus at March 31, 2008 and June 30, 2007 were
approximately $149,000 and $4,000, respectively. Accounts payable to Focus
totaled approximately $497,000 and $508,000 at March 31, 2008 and June 30,
2007,
respectively.
On
March
3, 2008 the Company, USHIFU, LLC (“USHIFU”), FS Acquisition Company and certain
other stockholders of Focus entered into a Stock Purchase Agreement (the “Focus
Agreement”). Pursuant to the Focus Agreement, the Company agreed to sell to
USHIFU the 2,500 shares of Series M Preferred Stock of Focus owned by the
Company for a cash payment of $837,500. The Company will also receive at the
closing of the transactions contemplated by the Focus Agreement (the “Closing”)
fifty percent (50%) of the outstanding principal and accrued interest of loans
previously made by the Company to Focus with the remaining fifty percent (50%)
of such amount due eighteen (18) months from the Closing. The balance of the
debt owed to the Company by Focus at March 31, 2008 is approximately
$1,335,000.
Consummation
of the transactions contemplated by the Focus Agreement is subject to
fulfillment of customary conditions as well as (i) USHIFU obtaining no less
than
$10,000,000.00 of new financing through the issuance of equity in USHIFU or
an
affiliate thereof; (ii) repayment of fifty percent (50%) of the debt due to
the
Company and to Takai Hospital Supply Co., Ltd (“THS”); (iii) dismissal of the
pending arbitration between USHIFU and Focus; (iv) the execution of amendments
to certain distributorship and license agreements between Focus and an affiliate
of THS; (v) the execution of amendments to and/or agreements concerning certain
distributorship, license and manufacturing arrangements between Focus and the
Company; and (vi) the execution of employment and joint venture agreements
between the President of Focus and Focus.
The
Company’s investments in Focus for both equity and debt were totally written
down in 2001 as a result of both the debt and equity being deemed impaired.
Under the impairment treatment, the equity and debt have been carried on our
balance sheet at a zero value since 2001, therefore this amount will be totally
incremental to earnings. Additionally, since in 2001 we were not certain of
any
capital gain offset, we established a tax valuation reserve which will also
be
partially reversed at Closing. Upon the Closing, we will realize approximately
$1,500,000 in non-recurring income or approximately $.21 per share.
12.
Business
Segments
The
Company operates in two business segments which are organized by product types:
medical devices and laboratory and scientific products. Medical devices include
the AutoSonix™ ultrasonic cutting and coagulatory system, the Sonablate 500®
(used to treat prostate cancer), refurbishing of high-performance ultrasound
systems and replacement transducers for the medical diagnostic ultrasound
industry, ultrasonic lithotriptor, ultrasonic neuroaspirator (used for
neurosurgery), soft tissue aspirator (used primarily for the cosmetic surgery
market) and the wound debrider. Laboratory and scientific products include
the
Sonicator Ultrasonic liquid processor, Aura ductless fume enclosure and the
Labcaire ISIS and Guardian endoscope disinfectant systems. The Company evaluates
the performance of the segments based upon income from operations before general
and administrative expenses. The accounting policies of the segments are the
same as those described in the summary of significant accounting policies (Note
1) in the Company’s Annual Report on Form 10-K for the year ended June 30, 2007.
Certain
items are maintained at the corporate headquarters (corporate) and are not
allocated to the segments. They primarily include general and administrative
expenses. General and administrative expenses at the Company’s Sonora, Labcaire,
UKHIFU and Misonix, Ltd. subsidiaries are included in corporate and
unallocated amounts in the tables below. The Company does not allocate assets
by
segment. Summarized financial information for each of the segments is as
follows:
MISONIX,
INC. and Subsidiaries
|
Notes
to Consolidated Financial Statements
|
(Information
with respect to interim periods is
unaudited)
|
For
the
nine months ended March 31, 2008
|
|
Medical Device Products
|
|
Laboratory and Scientific Products
|
|
Corporate and Unallocated
|
|
Total
|
|
Net sales
|
|
$
|
17,854,832
|
|
$
|
16,080,484
|
|
$
|
-
|
|
$
|
33,935,316
|
|
Cost
of goods sold
|
|
|
9,053,042
|
|
|
10,169,459
|
|
|
-
|
|
|
19,222,501
|
|
Gross
profit
|
|
|
8,801,790
|
|
|
5,911,025
|
|
|
-
|
|
|
14,712,815
|
|
Selling
expenses
|
|
|
3,566,860
|
|
|
2,013,462
|
|
|
-
|
|
|
5,580,322
|
|
Research
and development
|
|
|
1,569,483
|
|
|
800,200
|
|
|
-
|
|
|
2,369,683
|
|
General
and administrative
|
|
|
-
|
|
|
-
|
|
|
7,596,223
|
|
|
7,596,223
|
|
Total
operating expenses
|
|
|
5,136,343
|
|
|
2,813,662
|
|
|
7,596,223
|
|
|
15,546,228
|
|
Income
(loss) from operations
|
|
$
|
3,665,447
|
|
$
|
3,097,362
|
|
$
|
(7,596,223
|
)
|
$
|
(833,413
|
)
|
For
the
nine months ended March 31, 2007
|
|
Medical Device Products
|
|
Laboratory and Scientific
Products
|
|
Corporate and Unallocated
|
|
Total
|
|
Net
sales
|
|
$
|
17,082,915
|
|
$
|
13,782,973
|
|
$
|
-
|
|
$
|
30,865,888
|
|
Cost
of goods sold
|
|
|
9,595,991
|
|
|
8,091,279
|
|
|
-
|
|
|
17,687,270
|
|
Gross
profit
|
|
|
7,486,924
|
|
|
5,691,694
|
|
|
-
|
|
|
13,178,618
|
|
Selling
expenses
|
|
|
3,701,453
|
|
|
1,823,333
|
|
|
-
|
|
|
5,524,786
|
|
Research
and development
|
|
|
1,503,853
|
|
|
880,050
|
|
|
-
|
|
|
2,383,903
|
|
General
and administrative
|
|
|
-
|
|
|
-
|
|
|
7,321,668
|
|
|
7,321,668
|
|
Total
operating expenses
|
|
|
5,205,306
|
|
|
2,703,383
|
|
|
7,321,668
|
|
|
15,230,357
|
|
Income
(loss) from operations
|
|
$
|
2,281,618
|
|
$
|
2,988,311
|
|
$
|
(7,321,668
|
)
|
$
|
(2,051,739
|
)
|
MISONIX,
INC. and Subsidiaries
|
Notes
to Consolidated Financial Statements
|
(Information
with respect to interim periods is
unaudited)
|
For
the
three months ended March 31, 2008
|
|
Medical Device Products
|
|
Laboratory and Scientific Products
|
|
Corporate and Unallocated
|
|
Total
|
|
Net
sales
|
|
$
|
6,518,512
|
|
$
|
5,284,514
|
|
$
|
-
|
|
$
|
11,803,026
|
|
Cost
of goods sold
|
|
|
3,389,720
|
|
|
3,530,860
|
|
|
-
|
|
|
6,920,580
|
|
Gross
profit
|
|
|
3,128,792
|
|
|
1,753,654
|
|
|
-
|
|
|
4,882,446
|
|
Selling
expenses
|
|
|
1,271,232
|
|
|
721,905
|
|
|
-
|
|
|
1,993,137
|
|
Research
and development
|
|
|
450,418
|
|
|
273,713
|
|
|
-
|
|
|
724,131
|
|
General
and administrative
|
|
|
-
|
|
|
-
|
|
|
2,470,147
|
|
|
2,470,147
|
|
Total
operating expenses
|
|
|
1,721,650
|
|
|
995,618
|
|
|
2,470,147
|
|
|
5,187,415
|
|
Income
(loss) from operations
|
|
$
|
1,407,142
|
|
$
|
758,036
|
|
$
|
(2,470,147
|
)
|
$
|
(304,969
|
)
|
For
the
three months ended March 31, 2007:
|
|
Medical Device Products
|
|
Laboratory and Scientific Products
|
|
Corporate and Unallocated
|
|
Total
|
|
Net
sales
|
|
$
|
6,031,451
|
|
$
|
4,552,473
|
|
$
|
-
|
|
$
|
10,583,924
|
|
Cost
of goods sold
|
|
|
3,415,415
|
|
|
2,708,512
|
|
|
-
|
|
|
6,123,927
|
|
Gross
profit
|
|
|
2,616,036
|
|
|
1,843,961
|
|
|
-
|
|
|
4,459,997
|
|
Selling
expenses
|
|
|
1,357,631
|
|
|
645,799
|
|
|
-
|
|
|
2,003,430
|
|
Research
and development
|
|
|
454,827
|
|
|
280,691
|
|
|
-
|
|
|
735,518
|
|
General
and administrative
|
|
|
-
|
|
|
-
|
|
|
2,614,237
|
|
|
2,614,237
|
|
Total
operating expenses
|
|
|
1,812,458
|
|
|
926,490
|
|
|
2,614,237
|
|
|
5,353,185
|
|
Income
(loss) from operations
|
|
$
|
803,578
|
|
$
|
917,471
|
|
$
|
(2,614,237
|
)
|
$
|
(893,188
|
)
|
The
Company’s revenues are generated from various geographic regions. The following
is an analysis of net sales by geographic region:
|
|
Nine
Months ended March 31,
|
|
Three
Months ended March 31,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
United
States
|
|
$
|
18,394,922
|
|
$
|
17,913,069
|
|
$
|
6,500,446
|
|
$
|
5,988,210
|
|
United
Kingdom
|
|
|
10,643,913
|
|
|
8,275,812
|
|
|
3,606,265
|
|
|
2,835,142
|
|
Europe
|
|
|
1,854,825
|
|
|
2,536,617
|
|
|
664,350
|
|
|
843,293
|
|
Asia
|
|
|
1,454,322
|
|
|
1,394,017
|
|
|
310,971
|
|
|
640,683
|
|
Canada
and Mexico
|
|
|
513,151
|
|
|
331,296
|
|
|
242,265
|
|
|
149,163
|
|
Middle
East
|
|
|
230,488
|
|
|
87,413
|
|
|
93,577
|
|
|
31,176
|
|
Other
|
|
|
843,695
|
|
|
327,664
|
|
|
385,152
|
|
|
95,627
|
|
|
|
$
|
33,935,316
|
|
$
|
30,865,888
|
|
$
|
11,803,026
|
|
$
|
10,583,924
|
|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
Nine
months ended March 31, 2008 and 2007
Net
sales:
Net
sales increased $3,069,428 to $33,935,316 for the nine months ended March 31,
2008 from $30,865,888 for the nine months ended March 31, 2007. This difference
in net sales is principally due to an increase in laboratory and scientific
products sales of $2,297,511 to $16,080,484 for the nine months ended March
31,
2008 from $13,782,973 for the nine months ended March 31, 2007. This difference
in net sales is also due to an increase in sales of medical device products
of
$771,917 to $17,854,832 for the nine months ended March 31, 2008 from
$17,082,915 for the nine months ended March 31, 2007. The increase in sales
of
medical device products is due to an increase in sales of therapeutic medical
device products of $237,704 plus an increase of $534,213 in sales of diagnostic
medical device products. The increase in sales of therapeutic medical device
products was primarily attributable to the increased sales of the Company’s
ultrasonic surgical aspirator of $1,087,376, an increase in sales of the
Company’s ultrasonic assisted liposuction product of $971,670, and an increase
in sales of the Company’s wound debridement product of $85,157, which were
partially offset by a decrease in AutoSonix sales to United States Surgical
(“USS”), a subsidiary of Covidien Ltd., of $561,492, a decrease in Sonablate
500® unit sales of $1,343,479 and a decrease in sales of other therapeutic
medical device products of $1,526. The increase in sales of diagnostic medical
device products was attributable to several new customers, an increase in
customer demand for several new products and increased repair capability. The
increase in sales of laboratory and scientific products is due to a $2,025,941
increase in Labcaire Systems, Ltd. (“Labcaire”) products sales, an increase of
ultrasonic product sales of $436,923 and an increase of $382,767 in ductless
fume enclosure product sales, partially offset by a $548,118 decrease in sales
of wet scrubber products. The Company has limited the opportunities it pursues
for wet scrubber products. The increase in Labcaire sales of $2,025,941 is
due
to shipments of its new ISIS endoscope cleaning system and the strengthening
of
the English Pound versus the U.S. dollar which accounted for approximately
$510,000 of the sales increase. The increase in ductless fume enclosure product
sales and ultrasonic product sales is due to an increase in customer demand
for
several products and is not attributable to a single customer, distributor
or
any other specific factor.
Export
sales from the United States are remitted in U.S. dollars and export sales
for
Labcaire are remitted in English Pounds. UKHIFU Limited (“UKHIFU”) sales are
remitted in English Pounds and Misonix, Ltd. sales to date have been remitted
in
English pounds and Euros. To the extent that the Company’s revenues are
generated in English Pounds, its operating results were translated for reporting
purposes into U.S. dollars using weighted average rates of 2.01 and 1.91 for
the
nine months ended March 31, 2008 and 2007, respectively. A strengthening of
the
English Pound and Euro, in relation to the U.S. dollar, will have the effect
of
increasing recorded revenues and profits, while a weakening of the English
Pound
and Euro will have the opposite effect. Since the Company’s operations in
England generally set prices and bids for contracts in English Pounds, a
strengthening of the English Pound, while increasing the value of its UK assets,
might place the Company at a pricing disadvantage in bidding for work from
manufacturers based overseas. The Company collects its receivables predominately
in the currency of the country the subsidiary resides in. The Company has not
engaged in foreign currency hedging transactions, which include forward exchange
agreements. See Item 3. “Quantitative and Qualitative Disclosures About Market
Risk.”
Gross
profit:
Gross
profit increased to 43.4% for the nine months ended March 31, 2008 from 42.7%
for the nine months ended March 31, 2007. Gross profit for laboratory and
scientific products decreased to 36.8% for the nine months ended March 31,
2008
from 41.3% for the nine months ended March 31, 2007 due to lower margins at
Labcaire due to higher costs related to the ISIS units shipped. Gross profit
for
medical device products increased to 49.3% for the nine months ended March
31,
2008 from 43.8% for the nine months ended March 31, 2007. Gross profit for
therapeutic medical device products was positively impacted by a favorable
product mix due to increased sales of ultrasonic surgical aspirator products
in
foreign markets which have higher selling prices, increased sales of the
ultrasonic surgical aspirator products in the United States and increased sales
of ultrasonic assisted liposuction products which have higher gross profits
than
the AutoSonix products. The March 2008 period also benefited from a favorable
mix of diagnostic medical device products sales.
Selling
expenses:
Selling
expenses increased $55,536 to $5,580,322 for the nine months ended March 31,
2008 from $5,524,786 for the nine months ended March 31, 2007. Laboratory and
scientific products selling expenses increased $190,128, predominately due
to
increased selling and service expenses at Labcaire related to higher sales
and
the impact of the stronger English Pound of approximately $68,000. Selling
expenses for therapeutic medical device products decreased $82,477, principally
due to decreased clinical trial expenses, consulting fees and exhibition
expenses, which were partially offset by increased salaries related to
additional staff. Selling expenses related to diagnostic medical device products
decreased $52,116, principally due to decreased costs associated with
consignment equipment.
General
and administrative expenses:
General
and administrative expenses increased $274,555 from $7,321,668 in the nine
months ended March 31, 2007 to $7,596,223 in the nine months ended March 31,
2008. General and administrative expenses increased for the nine months ended
March 31, 2008, principally due to increased staffing expense of $225,428,
increased depreciation expense of $134,986, increased recruiting fees of
$104,109, increased bank fees of $64,452 and higher consulting fees of $90,740,
which were partially offset by decreased insurance expense of $170,703,
decreased bad debt expense of $135,500 and lower rent expense of $26,982. The
decrease in bad debt expense was due to receiving a check in April 2008 from
a
customer to pay a past due balance which was reserved for in prior periods.
The
higher consulting fees include approximately $150,000 related
to the implementation of Section 404(a) of the Sarbanes-Oxley Act of
2002.
The
Company entered into revolving credit facility with Wells Fargo Bank on December
29, 2006 and bank fees in the 2008 period are for nine months compared to three
months in the 2007 period.
Research
and development expenses: Research
and development expenses decreased $14,220 from $2,383,903 for the nine months
ended March 31, 2007 to $2,369,683 for the nine months ended March 31, 2008.
Research and development expenses for medical device products increased $65,630.
Therapeutic medical device products research and development expenses increased
approximately $13,000, primarily due to milestone charges of $210,000 from
Focus
Surgery, Inc. (“Focus”) related to the High Intensity Focused Ultrasound kidney
cancer research project, and increased amortization expense of $23,000, which
was partially offset by reduced salary, consulting and other expenses of
approximately $139,000, and approximately $81,000 of decreased other expenses.
Research and development expenses for diagnostic medical device products
increased $52,812 related to developing new products and services which were
introduced during the current fiscal year. Laboratory and scientific products
research and development expenses decreased $79,850 due to reduced efforts
on
the Labcaire ISIS product which was introduced and launched in the fourth
quarter of fiscal 2007 and completing the S-4000 digital Sonicator product
introduced during the first quarter of fiscal 2008.
Other
income:
Other
income for the nine months ended March 31, 2008 was $137,950 as compared to
other income of $356,342 for the nine months ended March 31, 2007. The decrease
of $218,392 was primarily due to decreased royalty income and license fees
of
$132,850 from USS, increased royalty expense of $167,751 at Acoustic Marketing
Research, Inc. d/b/a Sonora Medical Systems (“Sonora”) related to licensed probe
repair technology and sale of Acoustic Power tanks, increased royalty expense
related to the Company’s Lysonix product of $78,188, decreased interest expense
of $4,005 and decreased interest income of $17,880. The March 2008 period
includes $150,000 in income from the realization of a previously impaired
Secured Cumulative Convertible Debenture from Focus. Other expense in the March
31, 2008 period includes a $65,000 legal expense related to the settlement
of a
lawsuit by a former employee of the Company and a reduction in legal liability
of $95,000 relating to litigation against Sonora.
Income
taxes:
The
effective tax rate was 27.7% for the nine months ended March 31, 2008, as
compared to an effective tax rate of 37.7% for the nine months ended March
31,
2007. The effective tax rate for the nine months ended March 31, 2007 was
favorably impacted by an additional $98,000 of Research and Experimentation
Credits provided by the enactment of the Tax Relief and Healthcare Act of 2006
(HR6111) which retroactively extended the tax credit for Research and
Experimentation expenditures. The March 2008 effective income tax rate differs
from the statutory rate due to the impact of permanent differences related
to
SFAS123R stock-based compensation and non-deductible entertainment expenses
on
taxable income. In addition, the $150,000 income from the realization of a
previously written off debt from Focus was not tax effected because the Company
did not record an income tax benefit when the debt was originally written
off.
Three
months ended March 31, 2008 and 2007
Net
sales:
Net
sales increased $1,219,102 to $11,803,026 for the three months ended March
31,
2008 from $10,583,924 for the three months ended March 31, 2007. The increase
in
net sales is due to an increase in laboratory and scientific products sales
of
$732,041 to $5,284,514 for the three months ended March 31, 2008 from $4,552,473
for the three months ended March 31, 2007. Sales of medical device products
increased $487,061 to $6,518,512 for the three months ended March 31, 2008
from
$6,031,451 for the three months ended March 31, 2007. The increase in sales
of
medical device products is due to an increase in sales of therapeutic medical
device products of $230,702 plus an increase of $256,359 in sales of diagnostic
medical device products. The increase in sales of therapeutic medical device
products was primarily attributable to an increase in sales of the Company’s
surgical aspirator product of $238,945 and an increase in the sales of the
ultrasonic assisted liposuction product of $477,227, partially offset by a
decrease in sales of other therapeutic medical device products of $485,470,
primarily related to a decrease in sales of the Company’s Sonablate 500® of
$310,000 and a decrease in sales of the Company’s lithotriptor medical device
products of $163,000. The increase in sales of diagnostic medical device
products was not attributable to a single customer, distributor or any other
specific factor. The increase in sales of laboratory and scientific products
is
due to a $512,045 increase in Labcaire products sales, an increase of $167,355
in ultrasonic product sales and an increase of $52,641 ductless fume enclosure
product sales. The increase in Labcaire sales of $512,045 is due to shipments
of
its new ISIS endoscope cleaning system and the strengthening of the English
Pound versus the U.S. dollar which accounted for approximately $50,000 of the
sales increase. The increase in ductless fume enclosure product sales and
ultrasonic product sales is due to an increase in customer demand for several
products and is not attributable to a single customer, distributor or any other
specific factor.
Export
sales from the United States are remitted in U.S. dollars and export sales
for
Labcaire are remitted in English Pounds. UKHIFU sales are remitted in English
Pounds and Misonix, Ltd. sales to date have been remitted in Euros. To the
extent that the Company’s revenues are generated in English Pounds, its
operating results were translated for reporting purposes into U.S. dollars
using
weighted average rates of 1.98 and 1.95 for the three months ended March 31,
2008 and 2007, respectively. A strengthening of the English Pound and Euro,
in
relation to the U.S. dollar, will have the effect of increasing recorded
revenues and profits, while a weakening of the English Pound and Euro will
have
the opposite effect. Since the Company’s operations in England generally set
prices and bids for contracts in English Pounds, a strengthening of the English
Pound, while increasing the value of its UK assets, might place the Company
at a
pricing disadvantage in bidding for work from manufacturers based overseas.
The
Company collects its receivables predominately in the currency of the country
the subsidiary resides in. The Company has not engaged in foreign currency
hedging transactions, which include forward exchange agreements. See Item 3.
“Quantitative and Qualitative Disclosures About Market Risk.”
Gross
profit:
Gross
profit decreased to 41.4% for the three months ended March 31, 2008 from 42.1%
for the three months ended March 31, 2007. Gross profit for medical device
products increased to 48.0% for the three months ended March 31, 2008 from
43.4%
for the three months ended March 31, 2007. Gross profit for laboratory and
scientific products decreased to 33.2% for the three months ended March 31,
2008
from 40.5% for the three months ended March 31, 2007. Gross profit for medical
device products was favorably impacted by increased sales of Lysonix and
neuroaspirator products and a decrease in AutoSonix products sales. The
neuroaspirator and ultrasonic assisted liposuction products have higher gross
profits than the AutoSonix products. The increased margin from increased sales
of neuroaspirator and ultrasonic assisted liposuction products was partially
offset by decreased sales of the Sonablate 500®. The March 2008 quarter also
benefited from a favorable mix of high and low margin product deliveries of
diagnostic medical device products sales. The decrease in gross profit in the
March 2008 quarter for laboratory and scientific products is due to lower
margins at Labcaire due to higher costs related to the first ISIS units shipped,
and an unfavorable mix of high and low margin product deliveries of fume
products.
Selling
expenses:
Selling
expenses decreased $10,293 to $1,993,137 for the three months ended March 31,
2008 from $2,003,430 for the three months ended March 31, 2007. Laboratory
and
scientific products selling expenses increased $76,106, predominantly due to
an
increase in commissions and advertising expenses of approximately $33,000
related to increased sales of the Company’s ultrasonic and fume products and
increased selling and servicing expenses of approximately $43,000 at Labcaire
related to increased sales. Medical device products selling expenses decreased
$86,399, principally due to a decrease in consulting expenses of $215,000,
exhibition expenses of $44,000, and clinical expenses of $32,000, partially
offset by increased salary expense of $114,000 relocation expenses of $44,000
and advertising expenses of $22,000 and increased travel expense of
$23,000.
General
and administrative expenses:
General
and administrative expenses decreased $144,090 from $2,614,237 in the three
months ended March 31, 2007 to $2,470,147 in the three months ended March 31,
2008. General and administrative expenses decreased for the three months ended
March 31, 2008 primarily due to reversing a bad debt expense of $226,000 due
to
receiving a check in April 2008 from a customer to pay a past due balance
reserved for in prior periods and lower insurance costs of $59,300. These
decreases were partially offset by increased consulting fees of $131,191,
related to the implementation of Section 404(a) of the Sarbanes-Oxley Act of
2002, and increased directors’ fees of $10,418.
Research
and development expenses: Research
and development expenses decreased $11,387 from $735,518 for the three months
ended March 31, 2007 to $724,131 for the three months ended March 31, 2008.
Laboratory and scientific products research and development expenses decreased
approximately $6,978 due to reduced use of subcontractors and components
relating to the Labcaire ISIS product which was introduced and launched in
the
fourth quarter of fiscal 2007. Research and development expenses for medical
device products decreased $4,409. Medical device products research and
development expenses for therapeutic medical device products increased
approximately $1,960 primarily due to higher amortization costs of $36,933,
partially offset by lower product development labor charges of $28,633, as
well
as lower salary related expenses of $5,336 and legal expenses of $2,751.
Research and development expenses for diagnostic medical device products
decreased approximately $6,369 due to lower consulting expenses of $32,629,
partially offset by higher labor related expenses of $25,461.
Other
income:
Other
income for the three months ended March 31, 2008 was $73,170 as compared to
other income of $81,267 for the three months ended March 31, 2007. The decrease
was primarily due to increased royalty expense of approximately $94,000 related
to sales of licensed probe repair technology, sales of Acoustic Power tanks
and
sales of the Company’s ultrasonic assisted liposuction products. The March 2008
period included litigation expense of $65,000 related to the settlement of
a
former employee lawsuit. In addition, royalty income and license fees from
USS
were approximately $7,000 less in the March 2008 period than the March 2007
period. These decreases to other income were partially offset by a $95,000
reduction in the litigation award against Sonora and a refund of value added
taxes paid of approximately $32,000. Interest expense decreased approximately
$29,000 principally due to decreased borrowing by Labcaire which was partially
offset by interest related to the purchase of shares of Sonora from a
shareholder.
Income
taxes:
The
effective tax rate was 24.2% for the three months ended March 31, 2008, as
compared to an effective tax rate of 31.6% for the three months ended March
31,
2007. The March 31, 2008 effective income tax rate differs from the statutory
rate due to the impact of permanent differences related to SFAS 123R stock-based
compensation and non-deductible entertainment expenses on taxable income.
Critical
Accounting Policies:
The
Company prepares its consolidated financial statements in accordance with
accounting principles generally accepted in the United States of America.
Certain of these accounting policies require the Company to make estimates
and
judgments that affect the reported amounts of assets, liabilities, revenues
and
expenses, and the related disclosure of contingent assets and liabilities,
revenues and expenses. On an ongoing basis, the Company bases its estimates
on
historical data and experience, when available, and on various other assumptions
that are believed to be reasonable under the circumstances, the combined results
of which form the basis for making judgments about the carrying values of assets
and liabilities that are not readily apparent from other sources.
Actual
results may differ from these estimates. There have been no material changes
in
the Company’s critical accounting policies and estimates from those discussed in
Item 7 of the Company’s Annual Report on Form 10-K for the year ended June 30,
2007.
Recent
Accounting Standards
In
March
2006, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standards (“SFAS”) No. 156, “Accounting for Servicing of
Financial Assets” (“SFAS 156”), an amendment of SFAS 140, “Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities”.
SFAS 156 requires all separately recognized servicing assets and servicing
liabilities to be initially measured at fair value, if practicable, and permits
an entity to subsequently measure those servicing assets and servicing
liabilities at fair value. SFAS 156 is effective for fiscal years beginning
after September 15, 2006. The Company adopted SFAS 156 effective July 1, 2007
and the adoption of SFAS 156 did not have a material effect on the Company’s
consolidated financial position or results of operations.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
157”). SFAS 157 provides a new single authoritative definition of fair value and
provides enhanced guidance for measuring the fair value of assets and
liabilities and requires additional disclosures related to the extent to which
companies measure assets and liabilities at fair value, the information used
to
measure fair value, and the effect of fair value measurements on earnings.
SFAS
157 is effective as of the beginning of an entity’s first fiscal year beginning
after November 15, 2007. The Company is currently evaluating the impact that
the
adoption of SFAS 157 may have on the Company’s consolidated financial position
and results of operations.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS 159”), which provides
companies with an option to report selected financial assets and liabilities
at
fair value in an attempt to reduce both complexity in accounting for financial
instruments and the volatility in earnings caused by measuring related assets
and liabilities differently. This Statement is effective as of the beginning
of
an entity’s first fiscal year beginning after November 15, 2007. The Company is
currently evaluating the impact that the adoption of SFAS 159 may have on the
Company’s consolidated financial position and results of
operations.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements — an amendment of ARB No. 51” (“SFAS 160”).
SFAS 160 amends ARB No. 51 to establish accounting and reporting standards
for
the noncontrolling interest in a subsidiary and for the deconsolidation of
a
subsidiary. It clarifies that a noncontrolling interest in a subsidiary, which
is sometimes referred to as a minority interest, is an ownership interest in
the
consolidated entity that should be reported as equity in the consolidated
financial statements. Among other requirements, this Statement requires
consolidated net income to be reported at amounts that include the amounts
attributable to both the parent and noncontrolling interest. It also requires
disclosure, on the face of the consolidated statement of operations, of the
amounts of consolidated net income (loss) attributable to the parent and to
the
noncontrolling interest. SFAS 160 is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15, 2008.
Earlier adoption is prohibited. The Company is currently evaluating the impact
that the adoption of SFAS 160 may have on the Company’s consolidated financial
position and results of operations.
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 (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, product mix in sales, results of joint ventures and
investments in related entities, future economic, competitive and market
conditions, and the outcome of legal proceedings as well as management business
decisions.
Liquidity
and Capital Resources
Working
capital at March 31, 2008 and June 30, 2007 was $9,852,096 and $11,165,090,
respectively. For the nine months ended March 31, 2008, cash used in operations
totaled $186,997. A major source of cash from operations was the receipt of
$629,000 held by the Bank of America (“BOA”) to secure a standby letter of
credit after the Company terminated its credit agreement with BOA. This amount
was included in prepaid expenses and other current assets at June 30, 2007.
The
major use of cash from operations was related to increased accounts receivable
and inventories of approximately $624,000 and $670,000, respectively, during
the
nine months ended March 31, 2008. The increases were attributable to the
Company’s Labcaire subsidiary. For the nine months ended March 31, 2008, cash
used in investing activities totaled $1,245,392, primarily consisting of the
purchase of property, plant and equipment during the regular course of business
and the purchase of shares of the common stock of Sonora increasing the
Company’s ownership to 95%. For the nine months ended March 31, 2008, cash
provided by financing activities was $138,048, primarily consisting of proceeds
from short-term borrowings of $18,519,000, partially offset by principal
payments on short-term borrowings and capital lease obligations of approximately
$18,033,000 and $348,000, respectively.
Revolving
Credit Facilities
On
December 29, 2006, the Company and its subsidiaries, Sonora and Hearing
Innovations, Inc. (“Hearing Innovations”) (the Company, Sonora and Hearing
Innovations collectively referred to as the “Borrowers”) and Wells Fargo Bank
entered into a (i) Credit and Security Agreement and a (ii) Credit and Security
Agreement Export-Import Subfacility (collectively referred to as the “Credit
Agreements”). The aggregate credit limit under the Credit Agreements is
$8,000,000 consisting of a revolving facility in the amount of up to $8,000,000.
Up to $1,000,000 of the revolving facility is available under the Export-Import
Agreement as a subfacility for Export-Import working capital financing. All
credit facilities under the Credit Agreements mature on December 29, 2009.
Payment of amounts outstanding under the Credit Agreements may be accelerated
upon the occurrence of an Event of Default (as defined in the Credit
Agreements). All loans and advances under the Credit Agreements are secured
by a
first priority security interest in all of the Borrowers’ accounts receivable,
letter-of-credit rights, and all other business assets. The Borrowers have
the
right to terminate or reduce the credit facility prior to December 29, 2009
by
paying a fee based on the aggregate credit limit (or reduction, as the case
may
be) as follows: (i) during year one of the Credit Agreements, 3%; (ii) during
year two of the Credit Agreements, 2%; and (iii) during year three of the Credit
Agreements, 1%.
The
Credit Agreements, as amended, contain financial covenants requiring that the
Borrowers (i) on a consolidated basis not have a Net Loss (as defined in the
Credit Agreements) of more than (a) $40,000 for the fiscal quarter ended March
31, 2008 and (b) $175,000 for the fiscal quarter ending June 30, 2008 and (ii)
not incur or contract to incur Capital Expenditures (as defined in the Credit
Agreements) of more than $1,000,000 in the aggregate in any fiscal year or
more
than $1,000,000 in any one transaction. At March 31, 2008, the Borrowers were
in
compliance with all financial covenants under the Credit
Agreements.
The
available amount under the Credit Agreements is the lesser of $8,000,000 or
the
amount calculated under the Borrowing Base (as defined in the Credit
Agreements). The Borrowers must maintain a minimum outstanding amount of
$1,250,000 under the Credit Agreements at all times and pay a fee equal to
the
interest rate set forth on any such shortfall. Interest on amounts borrowed
under the Credit Agreements is payable at Wells Fargo’s prime rate of interest
plus 1% per annum floating, payable monthly in arrears. The default rate of
interest is 3% higher than the rate otherwise payable. A fee of ½ % per annum on
the Unused Amount (as defined in the Credit Agreements) is payable monthly
in
arrears. At March 31, 2008, the balance outstanding under the Credit Agreement
was $2,830,656 and an additional $833,496 was available under this line of
credit.
Labcaire
has a debt purchase agreement with Lloyds TSB Commercial Finance. The amount
of
this facility bears interest at the bank’s base rate (5.5% at March 31, 2008)
plus 2% and fluctuates based upon the outstanding United Kingdom and European
receivables. The agreement expires September 28, 2008. The agreement covers
all
United Kingdom and European sales. At March 31, 2008, the balance outstanding
under this credit facility was $1,619,949 and Labcaire was in compliance with
all financial covenants.
Off-Balance
Sheet Arrangements
The
Company has no off-balance sheet arrangements that have or are reasonably likely
to have a current or future effect on the Company’s financial condition, changes
in financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that is material to the
Company.
Other
In
the
opinion of management, inflation has not had a material effect on the operations
of the Company.
Item
3. Quantitative and Qualitative Disclosures About Market
Risk.
Market
Risk:
The
principal market risks (i.e., the risk of loss arising from adverse changes
in
market rates and prices) to which the Company is exposed are interest rates
on
short-term investments and foreign exchange rates, which generate translation
gains and losses due to the English Pound to U.S. Dollar conversion of Labcaire,
Misonix, Ltd. and UKHIFU.
Foreign
Exchange Rates:
Approximately
33.1% and 31.9% of the Company’s revenues in the nine-month and three-month
period ended March 31, 2008, respectively, were received in English Pounds
currency. To the extent that the Company’s revenues are generated in English
Pounds, its operating results were translated for reporting purposes into U.S.
Dollars using rates of 2.01 and 1.91 for the nine months ended March 31, 2008
and 2007, respectively, and 1.98 and 1.95 for the three months ended March
31,
2008 and 2007, respectively. A strengthening of the English Pound, in relation
to the U.S. Dollar, will have the effect of increasing reported revenues and
profits, while a weakening will have the opposite effect. Since the Company’s
operations in England generally set prices and bids for contracts in English
Pounds, a strengthening of the English Pound, while increasing the value of
its
UK assets, might place the Company at a pricing disadvantage in bidding for
work
from manufacturers based overseas. The Company collects its receivables
predominately in the currency of the country the subsidiary resides in. Misonix,
Ltd. invoices certain customers in Euros and as a result there is an exchange
rate exposure between the English Pound and the Euro. The Company has not
engaged in foreign currency hedging transactions, which include forward exchange
agreements.
Interest
Rate Risk:
The
Company earns interest on cash balances and pays interest on debt incurred.
In
light of the Company’s existing cash, results of operations, terms of its debt
obligations and projected borrowing requirements, the Company does not believe
a
10% change in interest rates would have a significant impact on its consolidated
financial position.
Item
4. Controls and Procedures.
Our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Exchange Act) are designed to ensure that information required to
be
disclosed in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the rules and forms of the Securities and Exchange Commission. The Company
carried out an evaluation, under the supervision and with the participation
of
the Company’s management, including the Company’s Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation
of the Company’s disclosure controls and procedures as of March 31, 2008 and,
based on their evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the Company’s disclosure controls and procedures are
effective.
There
has
been no change in the Company’s internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred
during the three months ended March 31, 2008 that has materially affected,
or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
Part
II-
OTHER INFORMATION
Item
1A.
Risk Factors
Risks
and
uncertainties that, if they were to occur, could materially adversely affect
our
business or that could cause our actual results to differ materially from the
results contemplated by the forward-looking statements contained in this Report
and other public statements were set forth in the “Item 1A. Risk Factors”
section of our Annual Report on Form 10-K for the year ended June 30, 2007.
There have been no material changes from the risk factors disclosed in that
Form
10-K.
Item
6. Exhibits
Exhibit
31.1- Rule 13a-14(a)/15d-14(a) Certification
Exhibit
31.2- Rule 13a-14(a)/15d-14(a) Certification
Exhibit
32.1- Section 1350 Certification of Chief Executive Officer
Exhibit
32.2- Section 1350 Certification of Chief Financial Officer
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
12,
2008
|
MISONIX,
INC. |
|
|
(Registrant) |
|
By:
|
/s/
Michael A. McManus, Jr.
|
|
|
|
Michael
A. McManus, Jr.
|
|
|
President
and Chief Executive Officer
|
|
|
|
|
|
|
|
By:
|
/s/
Richard Zaremba
|
|
|
|
Richard
Zaremba
|
|
|
Senior
Vice President, Chief Financial Officer,
|
|
|
Treasurer
and Secretary
|