UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
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ANNUAL
REPORT PURSUANT TO SECTION
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13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For
the fiscal year ended June
30, 2008
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OR
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TRANSITION
REPORT PURSUANT TO SECTION
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13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For
the transition period from ______ to ______
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Commission
file number: 1-10986
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MISONIX,
INC.
(Exact
name of registrant as specified in its charter)
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New
York
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11-2148932
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(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer
Identification
No.)
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1938
New Highway, Farmingdale, New York
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11735
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(Address
of principal executive offices) |
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(Zip
Code) |
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Registrant’s
telephone number, including area code: (631)
694-9555
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Securities
registered pursuant to Section 12(b) of the Act:
Title
of each class
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Name
of each exchange on which registered
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Common
Stock, $.01 par value
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Nasdaq
Global Market
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Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act.
o
Yes
x
No
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
o
Yes
x
No
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. x
Yes
o
No
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” 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). o
Yes
x
No
The
aggregate market value of the voting stock held by non-affiliates of the
registrant on December 31, 2007 (computed by reference to the closing price
of
such stock on such date) was approximately $28,878,000.
There
were 7,001,369 shares of Common Stock outstanding at September 24,
2008.
None
With
the
exception of historical information contained in this Form-10K, content herein
may contain “forward looking statements” that are made pursuant to the Safe
Harbor Provisions of the Private Securities Litigation Reform Act of 1995.
These
statements are based on management’s current expectations and are subject to
uncertainty and changes in circumstances. Investors are cautioned that
forward-looking statements involve risks and uncertainties that could cause
actual results to differ materially from the statements made. The factors
include general economic conditions, delays and risks associated with the
performance of contracts, risks associated with international sales and currency
fluctuations, uncertainties as a result of research and development, acceptable
results from clinical studies, including publication of results and
patient/procedure data with varying levels of statistical relevance, risks
involved in introducing and marketing new products, potential acquisitions,
consumer and industry acceptance, litigation and/or contemplated 510 (k)
filings, the ability to achieve and maintain profitability in the Company’s
business lines, and other factors discussed in this Annual Report on Form 10-K,
subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
The
Company disclaims any obligation to update its forward-looking
statements.
Item
1. Business.
Overview
MISONIX,
INC.
(“Misonix” or the "Company") is a New York corporation which, through its
predecessors, was first organized in 1959. The Company designs, manufactures,
markets and develops minimally invasive ultrasonic medical device products.
The
Company also develops and markets ultrasonic equipment for use in the scientific
and laboratory markets and ductless fume enclosures for filtration of gaseous
contaminates in the laboratory and forensic markets.
The
Company’s operations outside the United States consist of a 100% ownership in
Labcaire Systems, Ltd. (“Labcaire”), which is based in North Somerset, England.
This business consists of designing, manufacturing, servicing and marketing
the
ISIS and Guardian endoscope disinfection systems and air-handling systems for
the protection of personnel, products and the environment from airborne hazards.
The Company also has a 60% ownership in UKHIFU Limited (“UKHIFU”), located in
Bristol, England, which is the sales/marketing and service arm of the Company
for the ablation of prostate cancer in the United Kingdom (“UK”). The Company
has a 100% ownership in Misonix, Ltd. which is located in North Somerset,
England. This business is the sales, marketing, distribution and servicing
arm
for the Company’s medical device products in Europe.
The
Company's 95% owned subsidiary, Acoustic Marketing Research, Inc. doing business
as Sonora Medical Systems (“Sonora”), located in Longmont, Colorado, is an ISO
9001 certified depot level repair facility for MRI and diagnostic ultrasound
subsystems, as well as a factory level repair center for diagnostic ultrasound
transducers. In addition, Sonora manufactures test equipment to appropriately
diagnose failures with ultrasound systems and probes and to establish baseline
performance and maintain quality assurance programs for ultrasound systems.
The
Company’s 100% owned subsidiary, Hearing Innovations, Inc. (“Hearing
Innovations”), is a development company with patented HiSonic ultrasonic
technology for the treatment of profound deafness and tinnitus.
In
fiscal
2008, approximately 46% of the Company's net sales were to foreign markets.
Labcaire, which manufactures and sells the Company’s fume enclosure line as well
as its own range of laboratory and medical environmental control products,
represents approximately 64% of the Company’s net sales to foreign markets.
Labcaire also distributes the Company’s ultrasonic equipment for use in
scientific and industrial markets, predominately in the UK. Sales by the Company
in other major industrial countries are made primarily through distributors.
There were no additional risks for products sold by Labcaire as compared to
other products marketed and sold by Misonix in the United States. Labcaire
experiences minimal currency exposure since the major portion of its revenues
are from the UK. Labcaire revenues outside the UK are predominately remitted
in
British Pounds.
Misonix
represented approximately 19% of the net sales to foreign markets in fiscal
2008. These sales had no additional risks as most sales are secured by letters
of credit and are remitted to Misonix in U.S. currency.
Sonora
represented approximately 11% of the net sales to foreign markets in fiscal
2008. These sales had additional risks as most sales are not secured by letters
of credit or do not involve a long term customer where credit risk is minimal.
These sales are remitted to Sonora in U.S. currency.
Misonix,
Ltd. sales represented approximately 1% of net sales to foreign markets in
fiscal 2008 and were invoiced in Euros. These sales had the normal credit risks.
UKHIFU
operates in the UK and invoices in British pounds, its sales represented 5%
of
net sales to foreign markets in fiscal 2008.
Medical
Devices
In
October 1996, the Company entered into a twenty-year license agreement (the
“USS
License”) with United States Surgical, a unit of Covidien Ltd. (“USS”). The USS
License covers the further development of the Company’s medical technology
relating to ultrasonic cutting, which uses high frequency sound waves to
coagulate and divide tissue for both open and laproscopic surgery. The USS
License gives USS exclusive worldwide marketing and sales rights for this
technology and device. Total sales of this device were approximately $3,629,000,
$4,464,000 and $4,461,000 for the fiscal years ended June 30, 2008, 2007 and
2006, respectively. Total royalties from sales of this device were approximately
$691,000, $827,000 and $810,000 for the fiscal years ended June 30, 2008, 2007
and 2006, respectively.
In
June
2002, the Company entered into a ten-year worldwide, royalty-free, distribution
agreement with Byron Medical, Inc. (“Byron”) for the sale, marketing and
distribution of the Lysonix soft tissue aspirator used for cosmetic surgery.
This agreement is a standard agreement for such distribution in that it
specifies the product to be distributed, the terms of the agreement and the
price to be paid for product covered under the agreement. Total sales of this
device were approximately $1,596,000, $501,000 and $1,195,000 for the fiscal
years ended June 30, 2008, 2007 and 2006, respectively.
Fibra
Sonics, Inc.
On
February 8, 2001, the Company acquired certain assets and liabilities of Fibra
Sonics, Inc. (“Fibra Sonics”), a Chicago-based, privately held producer and
marketer of ultrasonic medical devices for approximately $1,900,000. This
acquisition gave the Company access to three important new medical markets,
namely, neurology with its Neuro Aspirator product, urology with the Company’s
lithotripsy product and ophthalmology. Subsequent to the acquisition, the
Company relocated the assets of Fibra Sonics to the Company’s Farmingdale
facility.
UKHIFU
Limited
On
March
27, 2006, the Company, through its wholly owned subsidiary Misonix, Ltd.,
acquired a 60% equity position in UKHIFU from Imaging Equipment which owns
the
remaining 40%. UKHIFU is in the business providing Sonablate 500® equipment to
doctors, on a fee for service basis, to use for the ablation of cancerous tissue
in the prostate and is the sales/marketing and service arm of the Company in
the
UK for Sonablate 500 equipment.
In
addition to the original investment, the Company made payments of approximately
$50,000 and $60,000 to Imaging Equipment during the years ended June 30, 2008
and June 30, 2007, respectively. The additional payments were recorded as
goodwill.
Focus
Surgery, Inc.
On
May 3,
1999, the Company entered into an agreement with Focus Surgery, Inc. (“Focus”)
to obtain a 20% equity position in Focus for $3,050,000 and representation
on
its Board of Directors. Additionally, the Company has options and warrants
to
purchase an additional 5% of the equity of Focus. Focus is located in
Indianapolis, Indiana. The agreement provides for a series of development and
manufacturing agreements whereby the Company would upgrade existing Focus
products, currently the Sonablate 500, and create new products based on high
intensity focused ultrasound (“HIFU”) technology for the non-invasive treatment
of tissue for certain medical applications. The Company has the right to utilize
HIFU technology for the treatment of both benign and cancerous tumors of the
breast, liver and kidney and the right of first refusal to purchase 51% of
the
equity of Focus. In February 2001, the Company exercised its right to start
research and development for the treatment of kidney and liver tumors utilizing
HIFU technology. During fiscal 2005, Focus entered into an exclusive agreement
with the Company to distribute the Sonablate 500 in the European market. On
July
1, 2008, the Company closed the transaction with USHIFU, LLC (“USHIFU”) whereby
the Company sold its equity portion in Focus to USHIFU and was paid one half
of
the amount of its outstanding debt plus interest owed to Misonix by Focus with
the remaining amount to be paid in 18 months. On July 1, 2008, the Company
received $679,366.34 which represents one half of the outstanding debt plus
interest and $837,500 for the Company’s 2,500 shares of Series M Preferred Stock
of Focus.
On
July
14, 2004, Hearing Innovations sent all shareholders and creditors a plan for
reorganization and disclosure statement. The Company committed to fund Hearing
Innovations up to $150,000 for the reorganization plan. Hearing Innovations
filed for relief under Chapter 11 of the U.S. Bankruptcy Code in September
2004.
The Plan of Reorganization of Hearing Innovations was confirmed by the court
on
January 13, 2005. Based upon the final decree, and the approval by the court
of
the Bankruptcy Plan, the Company owns 100% of the equity in Hearing
Innovations.
Sonora
Medical Systems
On
November 16, 1999, the Company acquired a 51% interest in Sonora for
approximately $1,400,000. Sonora authorized and issued new common stock for
the
51% interest. Sonora utilized the proceeds of such sale to increase inventory
and expand marketing, sales, and research and development efforts. An additional
4.7% was acquired from the principals of Sonora on February 25, 2000, for
$208,000, bringing the acquired interest to 55.7%. The principals of Sonora
sold
an additional 34.3% to Misonix on June 1, 2000 for approximately $1,407,000,
bringing the acquired interest to 90%. The acquisition of Sonora was accounted
for under the purchase method of accounting. Accordingly, results of operations
for Sonora are included in the consolidated statement of income from the date
of
acquisition and acquired assets and liabilities have been recorded at their
estimated fair values at the date of acquisition. The excess of the cost of
the
acquisition ($2,957,000 plus acquisition costs of $101,000, which includes
a
broker fee of $72,000) over the fair value of net assets acquired was $1,622,845
and is being treated as goodwill. During fiscal 2007, William H. Phillips,
a
principal of Sonora, exercised his right to require Misonix to purchase his
5%
equity portion in Sonora based upon a formula of two times sales. At June 30,
2007, the Company acquired 1.25% for approximately $296,000 of which $242,000
was recorded as goodwill, a reduction in minority interest of $38,000 and
$16,000 was included in interest expense. During the year ended June 30, 2008,
the Company acquired the remaining 3.75% for approximately $918,000 of which
$727,000 was recorded as goodwill, a reduction of minority interest of $112,000
and $79,000 was included in interest expense bringing the total acquired
interest to 95%.
On
July
27, 2000, Sonora acquired 100% of the assets of CraMar Technologies, Inc.
(“CraMar”), an ultrasound equipment servicer for approximately $311,000. The
assets of the Colorado-based, privately-held operations of CraMar were relocated
to Sonora’s facility in Longmont, Colorado. The acquisition was accounted for
under the purchase method of accounting. Accordingly, acquired assets have
been
recorded at their estimated fair values at the date of acquisition. The excess
of the cost of the acquisition ($272,908 plus acquisition costs of $37,898,
which includes a broker fee of $25,000) over the fair value of net assets
acquired was $257,899 and is being treated as goodwill.
On
October 12, 2000, Sonora acquired the assets of Sonic Technologies Laboratory
Services (“Sonic Technologies”), an ultrasound acoustic measurement and testing
laboratory, for approximately $320,000. The assets of the Hatboro,
Pennsylvania-based operations of privately-held Sonic Technologies were
relocated to Sonora’s facility in Longmont, Colorado. The acquisition was
accounted for under the purchase method of accounting. Accordingly, acquired
assets and liabilities have been recorded at their estimated fair values at
the
date of acquisition. The excess of the cost of the acquisition ($270,000 plus
acquisition costs of $51,219, which includes a broker fee of $25,000) over
the
fair value of net assets acquired was $301,219 and is being treated as
goodwill.
Laboratory
and Scientific Products
The
Company’s other revenue producing activities consist of the manufacture and sale
of Sonicator ultrasonic liquid processors and cell disruptors, Aura™ ductless
fume hood products and ISIS, Guardian and Jet AER autoscope reprocessing,
disinfecting and rinsing equipment.
Since
1959, the Sonicator line of products has been at the leading edge of ultrasound
technology for the laboratory. Misonix has developed the application of
sonication as it is currently used in research laboratories to disrupt cells
and
bacteria, accelerate chemical reactions in the extraction of proteins from
cells
and in genomic and proteomic research. Over the years our engineering staff
has
greatly improved the design and performance of the instrument to include a
variety of ultrasonic generators, horns and probe accessories to handle
virtually any laboratory application and the term Sonicator has become
synonymous with ultrasonic liquid processing. The Company’s products are
proprietary in that they primarily utilize ultrasound as a technology base
to
solve laboratory, scientific and medical issues. The Company has technical
expertise in ultrasound and utilizes ultrasound in many applications, which
management believes makes the Company unique. The Company’s ultrasound
technology is the core surrounding its business model.
The
Aura
ductless fume hood products offer 40 years of experience in providing safe
work
environments to medical, pharmaceutical, biotech, semiconductor, law
enforcement, federal and local government laboratories. We manufacture a
complete line of ductless fume enclosures to control and eliminate hazardous
vapors, noxious odors and particulates in the laboratory. All fume enclosure
products utilize either activated carbon or HEPA filters to capture contaminants
and are a cost effective alternative to standard laboratory fume hoods that
require expensive ductwork to vent contaminants to the outside. Misonix also
offers laminar airflow stations and PCR enclosures. Misonix Ductless Fume Hoods
meet or exceed applicable OSHA, ANSI, NFPA, SEFA and ASHRAE standards for
ductless fume hoods. School Demonstration Ductless Fume Hoods have proven to
be
a valuable addition to hundreds of high school science laboratories. Multiple
application filters allow for the use of a variety of chemicals and a clear
back
panel enables students to view demonstrations from all sides.
The
technology used in the Aura ductless fume enclosures has also been adapted
for
specific uses in crime laboratories. The Forensic Evidence Cabinet protects
wet
evidence from contamination while it is drying and simultaneously protects
law
enforcement personnel from evidence that can be noxious and hazardous. The
Cyanoacrylate (liquid glue) Fuming Chamber is used by fingerprinting experts
to
develop fingerprints on non-porous surfaces while providing protection from
hazardous cyanoacrylate fumes.
In
June
1992, the Company initially acquired an 81.4% interest in Labcaire for $545,169.
The total acquisition cost exceeded the fair value of the net assets acquired
by
$241,299, which is being treated as goodwill. The balance of the capital stock
of Labcaire was owned by current and former employees of Labcaire who, under
a
purchase agreement (the “Labcaire Agreement”), sold one-seventh of their total
holdings of Labcaire shares to the Company in each of seven consecutive years,
commencing with the fiscal year ended June 30, 1996. As of June 30, 2003 the
Company owned 100% of Labcaire. Under the Labcaire Agreement, the Company
purchased such shares at a price equal to one-seventh of each executive’s
prorata share of 8.5 times Labcaire’s earnings before interest, taxes, and
management charges for the preceding fiscal year, which amount is being treated
as goodwill. Total goodwill associated with Labcaire is $1,214,808 of which
$1,063,294 remains at June 30, 2008.
Labcaire
has developed, manufactures and sells an automatic endoscope disinfection system
(“Autoscope”), which is used predominantly in hospitals. The Autoscope
disinfects and rinses several endoscopes while abating the noxious disinfectant
fumes produced by the cleaning process. In fiscal 2007, Labcaire introduced
the
ISIS Autoscope version to incorporate a number of enhancements to comply with
the UK HTM 2030 guidelines. HTM 2030 guidelines, among other things, describe
the handling of endoscopes to minimize the transfer of bio matter from one
patient to the next. Labcaire's business also consists of designing,
manufacturing, servicing and marketing air handling systems for the protection
of personnel, products and the environment from airborne hazards. These systems
are similar to the Aura fume enclosures in that they extract noxious fumes
through a series of filters to introduce clean air back into the environment,
but have expanded their applications. There are no additional risks for products
sold by Labcaire as compared to other products marketed and sold by the Company
in the United States. Labcaire experiences minimal currency exposures since
a
major portion of its revenues are from the UK. Revenues outside the UK are
remitted in British Pounds. Labcaire is also the UK distributor of the Company's
ultrasonic laboratory and scientific products. Labcaire manufactures class
100
biohazard safety enclosures, used in laboratories to provide sterile
environments and to protect lab technicians from airborne contaminants, and
class 100 laminar flow enclosures. Labcaire also manufactures the Company's
ductless fume enclosures for the European market and sells the enclosures under
its trade name.
Market
and Customers
Medical
Devices
The
Company relies on its licensee, USS, a significant customer, for marketing
its
ultrasonic Auto Sonix surgical device. The Company relies on distributors such
as Byron, a wholly owned subsidiary of Mentor Corporation (“Mentor”), Aesculap,
Inc. and independent distributors for the marketing of its other medical
products. The Company sells its SonicOne Wound Debridement System through
independent representatives throughout the United States and through
distributors outside the United States.
Sonora
relies on direct salespersons and distributors for the marketing of its
ultrasonic medical devices. Focus is utilizing the Company, in an exclusive
agreement, to distribute the Sonablate 500 in the European market and Russia,
which allows the Company to sell directly to end users such as doctors,
hospitals and distributors. The Company sells the Sona Star Ultrasonic Surgical
Aspiration System directly to end users and distributors
internationally.
In
June
2002, the Company entered into a ten-year worldwide, royalty-free, distribution
agreement with Mentor for the sale, marketing and distribution of the Lysonix
2000/3000 soft tissue aspirator used for cosmetic surgery. In June 2007, the
Company terminated the supply and distribution agreement due to Mentor’s breach
of the agreement. In September 2007, the Company completed a new agreement
with
Mentor for domestic sales of its ultrasound assisted liposuction product, the
Lysonix 3000. Mentor agreed to minimum purchase order provisions for the Lysonix
3000 for a one year term commencing September 30, 2007, and successive annual
renewals upon mutual agreement by the companies.
Laboratory
and Scientific Products
The
Company relies on direct salespersons, distributors, manufacturing
representatives and catalog listings for the marketing of its laboratory and
scientific products. The Company currently sells its products through five
manufacturers’ representative firms, twenty distributors in the United States
and fourteen internationally. The Company currently employs one direct sales
person who operates outside the Company's offices and conducts direct marketing
on a regional basis.
The
market for the Company's ductless fume enclosures includes laboratory or
scientific environments in which workers may be exposed to noxious fumes or
vapors. The products are suited to laboratories in which personnel perform
functions which release noxious fumes or vapors (including hospital and medical
laboratories), industrial processing (particularly involving the use of
solvents) and soldering, and other general chemical processes. The products
are
particularly suited to users in the pharmaceutical, semiconductor,
biotechnology, and forensic industries.
The
largest market for the Company's Sonicator includes research and clinical
laboratories worldwide. In addition, the Company has expanded its sales of
the
ultrasonic processor into industrial markets such as paint, pigment, ceramic
and
pharmaceutical manufacturers.
In
fiscal
2008, approximately 46% of the Company's net sales were to foreign markets.
Labcaire acts as the European distributor of the Company's laboratory and
scientific products and manufactures and sells the Company’s fume enclosure line
as well as its own range of laboratory and hospital environmental control
products, such as the ISIS Autoscope cleaning device. Sales by the Company
in
other major industrial countries are made through distributors.
Manufacturing
and Supply
Medical
Devices
The
Company manufactures and assembles its medical device products and Focus
products at its production facility located in Farmingdale, New York. The
Company's products include components manufactured by other companies in the
United States. The Company is not dependent upon any single source of supply
and
has no long-term supply agreements. The Company believes that it will not
encounter difficulty in obtaining materials, supplies and components adequate
for its anticipated short-term needs.
Sonora
manufactures and refurbishes its products at its facility in Longmont, Colorado.
Sonora is not dependent upon any single source of supply and has no long-term
supply agreements. The Company does not believe that Sonora will encounter
difficulty in obtaining materials, supplies and components adequate for its
anticipated short-term needs.
Laboratory
and Scientific Products
The
Company manufactures and assembles the majority of its laboratory and scientific
products at its production facility located in Farmingdale, New York. The
Company's products include components manufactured by other companies in the
United States. The Company believes that it will not encounter difficulty in
obtaining materials, supplies and components adequate for its anticipated
short-term needs. The Company is not dependent upon any single source of supply
and has no long-term supply agreements.
Labcaire
manufactures and assembles its products at its facility located in North
Somerset, England. The Company does not believe that Labcaire will encounter
difficulty in obtaining materials, supplies and components adequate for its
anticipated short-term needs. Labcaire is not dependent upon any single source
of supply and has no long-term supply agreements.
Competition
Medical
Devices
Competition
in the medical device products and the medical repair and refurbishment industry
is rigorous with many companies having significant capital resources, large
research laboratories and extensive distribution systems in excess of the
Company’s. Some of the Company’s major competitors are Johnson & Johnson,
Inc., Valley Lab, a division of Tyco Healthcare, Integra Life Sciences, Inc.,
EDAP, TMS S.A., Ambassador Medical, a subsidiary of GE Medical, Philips and
Siemens.
Laboratory
and Scientific Products
Competitors
in the ultrasonic industry for laboratory and scientific products range from
large corporations with greater production and marketing capabilities to smaller
firms specializing in single products. The Company believes that its significant
competitors in the manufacturing and distribution of industrial ultrasonic
devices are Branson Ultrasonics, a division of Emerson Electric Co., and Sonics
& Materials, Inc. It is possible that other companies in the industry are
currently developing products with the same capabilities as those of the
Company. The Company believes that the features of its Sonicator and the
Company's customer assistance in connection with particular applications give
the Sonicator a competitive advantage over comparable products.
The
Company believes that specific advantages of its fume enclosures include
efficiency and other product features, such as durability and ease of operation.
Ductless fume enclosure advantages are the quality of the product and
versatility of applications. The principal competitors for the Company’s
ductless fume enclosure are Captair, Inc., Air Science Technologies, Air
Cleaning Systems, Inc. and Lancer UK Ltd.
Regulatory
Requirements
The
Company’s medical device products are subject to the regulatory requirements of
the U.S. Food and Drug Administration (“FDA”). A medical device as defined by
the FDA is an instrument, apparatus, implement, machine, contrivance, implant,
in vitro reagent, or other similar or related article, including a component,
part, or accessory which is recognized in the official National Formulary or
the
United States Pharmacopoeia, or any supplement to such listings, intended for
use in the diagnosis of disease or other conditions, or in the cure, mitigation,
treatment, or prevention of disease, in man or animals, or intended to affect
the structure or any function of the body of man or animals, and which does
not
achieve any of its primary intended purposes through chemical action within
or
on the body of man or animals and which is not dependent upon being metabolized
for the achievement of any of its primary intended purposes (a “medical
device”). The Company’s products that are subject to FDA regulations for product
labeling and promotion comply with all applicable regulations. The Company
is
listed with the FDA as a Medical Device manufacturer and has the appropriate
FDA
Establishment Numbers in place. The Company has a post-market monitoring system
in place such as Complaint Handling and Medical Device Reporting procedures.
All
current devices manufactured and sold by the Company have all the necessary
regulatory approvals. The Company is not aware of any situations which would
be
materially adverse at this time and neither has the FDA sought legal remedies
available, nor have there been any violations of its regulations alleged,
against the Company at present.
Patents,
Trademarks, Trade Secrets and Licenses
Pursuant
to a royalty free license agreement with an unaffiliated third party, the
Company has the right to use the trademark "Sonicator" in the United States.
The
Company also owns trademark registrations for Mystaire in both England and
Germany.
The
following is a list of the U.S. patents which have been issued to the
Company:
Number
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Description
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Issue Date
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Expiration Date
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4,920,954
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Cavitation Device - relating
to the Alliger System for applying ultrasonic arteries using a
generator,
transducer and titanium wire.
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05/01/1990
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08/05/2008
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5,026,167
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Fluid
Processing - relating to the Company's environmental control product
line
for introducing ozone and liquid into the cavitation zone for an
ultrasonic probe.
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06/25/1991
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10/19/2009
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5,032,027
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Fluid
processing - relating to the Company's environmental control product
line
for the intimate mixing of ozone and contaminated water for the
purpose of
purification.
|
|
07/16/1991
|
|
10/19/2009
|
|
|
|
|
|
|
|
5,248,296
|
|
Wire
with sheath - relating to the Company's Alliger System for reducing
transverse motion in its catheters.
|
|
09/23/1993
|
|
12/24/2010
|
|
|
|
|
|
|
|
5,306,261
|
|
Guidewire
guides - relating to the Company's Alliger System for a catheter
with
collapsible wire guide.
|
|
04/26/1994
|
|
01/22/2013
|
|
|
|
|
|
|
|
5,443,456
|
|
Guidewire
guides - relating to the Company's Alliger System for a catheter
with
collapsible wire guide.
|
|
08/22/1995
|
|
02/10/2014
|
|
|
|
|
|
|
|
5,371,429*
|
|
Flow-thru
transducer - relating to the Company's liposuction system and its
ultrasonic laboratory and scientific products for an electromechanical
transducer device.
|
|
12/06/1994
|
|
09/28/2013
|
|
|
|
|
|
|
|
5,397,293
|
|
Catheter
sheath - relating to the Company's Alliger System for an ultrasonic
device
with sheath and transverse motion damping.
|
|
03/14/1995
|
|
11/25/2012
|
|
|
|
|
|
|
|
5,419,761*
|
|
Liposuction
- relating to the Company's liposuction apparatus and associated
method.
|
|
05/30/1995
|
|
08/03/2013
|
|
|
|
|
|
|
|
D409
746
|
|
Cannula
for ultrasonic probe.
|
|
05/11/1999
|
|
05/11/2013
|
|
|
|
|
|
|
|
D408
529
|
|
Cannula
for ultrasonic probe.
|
|
04/20/1989
|
|
04/20/2013
|
|
|
|
|
|
|
|
722
3267
|
|
Ultrasonic
probe with detachable slidable cauterization forceps.
|
|
02/06/2004
|
|
02/06/2024
|
|
|
|
|
|
|
|
D478165
|
|
Cannula
for ultrasonic probe.
|
|
08/05/2003
|
|
08/05/2017
|
|
|
Description
|
|
Issue Date
|
|
Expiration Date
|
5,465,468
|
|
Flow-thru
transducer - relating to the method of making an electromechanical
transducer device to be used in conjunction with the Company’s soft tissue
aspiration system and ultrasonic laboratory and scientific
products.
|
|
11/14/1995
|
|
12/06/2014
|
|
|
|
|
|
|
|
5,516,043
|
|
Atomizer
horn - relating to an ultrasonic atomizing device, which is used
in the
Company’s laboratory and scientific products.
|
|
05/14/1996
|
|
06/30/2014
|
|
|
|
|
|
|
|
5,527,273*
|
|
Ultrasonic
probes - relating to an ultrasonic lipectomy probe to be used with
the
Company’s soft tissue aspiration technology.
|
|
06/18/1996
|
|
10/6/2014
|
|
|
|
|
|
|
|
5,769,211
|
|
Autoclavable
switch - relating to a medical handpiece with autoclavable rotary
switch
to be used in medical procedures.
|
|
06/23/1998
|
|
01/21/2017
|
|
|
|
|
|
|
|
5,072,426
|
|
Shock
wave hydrophone with self-monitoring feature.
|
|
12/10/1991
|
|
02/08/2011
|
|
|
|
|
|
|
|
5,151,084
|
|
Ultrasonic
needle with sleeve that includes a baffle.
|
|
09/29/1992
|
|
07/29/2011
|
|
|
|
|
|
|
|
5,562,609
|
|
Ultrasonic
surgical probe.
|
|
10/08/1996
|
|
10/07/2014
|
|
|
|
|
|
|
|
5,562,610
|
|
Needle
for ultrasonic surgical probe.
|
|
10/08/1996
|
|
10/07/2014
|
|
|
|
|
|
|
|
6,033,375
|
|
Ultrasonic
probe with isolated and Teflon coated outer cannula.
|
|
03/07/2000
|
|
12/23/2017
|
|
|
|
|
|
|
|
6,270,471
|
|
Ultrasonic
probe with isolated outer cannula.
|
|
08/07/2001
|
|
12/23/2017
|
|
|
|
|
|
|
|
6,443,969
|
|
Ultrasonic
blade with cooling.
|
|
09/03/2002
|
|
08/15/2020
|
|
|
|
|
|
|
|
6,379,371
|
|
Ultrasonic
blade with cooling.
|
|
04/30/2002
|
|
11/15/2019
|
|
|
|
|
|
|
|
6,375,648
|
|
Infiltration
cannula with Teflon coated outer surface.
|
|
04/23/2002
|
|
10/02/2018
|
|
|
|
|
|
|
|
6,326,039
|
|
Skinless
sausage or frankfurter manufacturing method and apparatus utilizing
reusable deformable support.
|
|
12/04/2001
|
|
10/31/2020
|
|
|
|
|
|
|
|
D565,444
|
|
Testing
device for acoustic probes and systems
|
|
04/01/08
|
|
1/29/2021
|
|
|
|
|
|
|
|
6,920,776
|
|
Apparatus
and methods for interfacing acoustic testing apparatus with acoustic
probes and systems
|
|
07/26/05
|
|
11/05/2024
|
|
|
|
|
|
|
|
6,928,856
|
|
Apparatus
and methods for interfacing acoustic testing apparatus with acoustic
probes and systems
|
|
08/16/05
|
|
11/05/2024
|
|
|
|
|
|
|
|
7,007,539
|
|
Apparatus
and methods for interfacing acoustic testing apparatus with acoustic
probes and systems
|
|
03/07/06
|
|
04/28/2023
|
|
|
|
|
|
|
|
7,028,529
|
|
Apparatus
and methods for testing acoustic probes and systems
|
|
04/18/06
|
|
04/28/2023
|
|
|
|
|
|
|
|
7,155,957
|
|
Apparatus
and methods for testing acoustic probes and systems
|
|
01/02/07
|
|
12/27/2025
|
|
|
|
|
|
|
|
7,278,289
|
|
Apparatus
and methods for testing acoustic probes and systems
|
|
10/09/07
|
|
04/28/2023
|
Number
|
|
Description
|
|
Issue Date
|
|
Expiration Date
|
6,322,832
|
|
Manufacturing method and
apparatus utilizing reusable deformable support.
|
|
11/27/2001
|
|
10/31/2020
|
|
|
|
|
|
|
|
6,146,674
|
|
Method
and device for manufacturing hot dogs using high power
ultrasound.
|
|
11/14/2000
|
|
05/27/2019
|
|
|
|
|
|
|
|
6,063,050
|
|
Ultrasonic
dissection and coagulation system.
|
|
05/16/2000
|
|
10/16/2017
|
|
|
|
|
|
|
|
6,036,667
|
|
Ultrasonic
dissection and coagulation system.
|
|
03/14/2000
|
|
08/14/2017
|
|
|
|
|
|
|
|
6,582,440
|
|
Non-clogging
catheter for lithotrity.
|
|
06/24/2003
|
|
12/26/2016
|
|
|
|
|
|
|
|
6,578,659
|
|
Ultrasonic
horn assembly.
|
|
06/17/2003
|
|
12/01/2020
|
|
|
|
|
|
|
|
6,454,730
|
|
Thermal
film ultrasonic dose indicator.
|
|
09/24/2002
|
|
04/02/2019
|
|
|
|
|
|
|
|
6,613,056
|
|
Ultrasonic
probe with low-friction bushings.
|
|
09/02/2003
|
|
02/17/2019
|
|
|
|
|
|
|
|
6,648,839
|
|
Ultrasonic
medical treatment device for RF cauterization and related
method.
|
|
11/18/2003
|
|
05/08/2022
|
|
|
|
|
|
|
|
6,660,054
|
|
Fingerprint
processing chamber with airborne contaminant containment and
adsorption.
|
|
12/09/2003
|
|
09/10/2021
|
|
|
|
|
|
|
|
6,736,814
|
|
Ultrasonic
medical treatment device for bipolar RF cauterization and related
method.
|
|
05/18/2004
|
|
02/28/2022
|
|
|
|
|
|
|
|
6,799,729
|
|
Ultrasonic
cleaning probe.
|
|
10/05/2004
|
|
10/05/2021
|
|
|
|
|
|
|
|
6,869,439
|
|
Ultrasonic
dissector.
|
|
03/22/2005
|
|
03/22/2022
|
|
|
|
|
|
|
|
6,902,536
|
|
RF
cauterization and ultrasonic ablation.
|
|
06/07/2005
|
|
06/07/2022
|
|
|
|
|
|
|
|
7,004,282
|
|
Ultrasonic
horn
|
|
02/28/2006
|
|
10/28/2022
|
|
|
|
|
|
|
|
5,151,083
|
|
Apparatus
for Eliminating Air Bubbles in an Ultrasonic Surgical
Device
|
|
09/29/1992
|
|
07/29/2011
|
|
|
|
|
|
|
|
6,377,693**
|
|
Tinnitus
masking using ultrasonic signals
|
|
06/23/1994
|
|
06/23/2014
|
|
|
|
|
|
|
|
6,173,062**
|
|
Frequency
transpositional hearing aid with digital and single sideband modulation
|
|
03/16/1994
|
|
03/16/2014
|
|
|
|
|
|
|
|
6,169,813**
|
|
Frequency
transpositional hearing aid with single sideband
modulation
|
|
03/16/1994
|
|
03/16/2014
|
|
|
|
|
|
|
|
5,663,727**
|
|
Frequency
response analyzer and shaping apparatus and digital hearing enhancement
apparatus and method utilizing the same
|
|
06/23/1995
|
|
06/23/2015
|
*
Patents
valid also in Japan, Europe and Canada.
**
Owned
by Hearing Innovations, Inc.
The
following is a list of the U.S. trademarks which have been issued to the
Company:
Registration
Number
|
|
Registration
Date
|
|
Mark
|
|
Goods
|
|
Renewal Date
|
2,611,532
|
|
08/27/2002
|
|
Mystaire
|
|
Scrubbers Employing
Fine Sprays Passing Through Mesh for Eliminating Fumes and Odors
from
Gases.
|
|
08/27/2012
|
|
|
|
|
|
|
|
|
|
1,219,008
|
|
12/07/1982
|
|
Sonimist
|
|
Ultrasonic
and Sonic Spray Nozzle for Vaporizing Fluid for Commercial, Industrial
and
Laboratory Use.
|
|
03/22/2013
|
|
|
|
|
|
|
|
|
|
1,200,359
|
|
04/03/2002
|
|
Water
Web
|
|
Lamination
of Screens to Provide Mesh to be Inserted in Fluid Stream for Mixing
or
Filtering of Fluids.
|
|
04/03/2013
|
|
|
|
|
|
|
|
|
|
2,051,093
|
|
03/27/2003
|
|
Misonix
|
|
Anti-Pollution
Wet Scrubbers; Ultrasonic Cleaners; Spray Nozzles for Ultrasonic
Cleaners.
|
|
03/27/2009
|
2,051,092
|
|
02/13/2003
|
|
Misonix
|
|
Ultrasonic
Liquid Processors; Ultrasonic Biological Cell Disrupters; Ultrasonic
Cleaners.
|
|
02/13/2009
|
|
|
|
|
|
|
|
|
|
2,320,805
|
|
02/22/2000
|
|
Aura
|
|
Ductless
Fume Enclosures.
|
|
02/22/2010
|
|
|
|
|
|
|
|
|
|
2,812,718
|
|
02/10/2004
|
|
Misonix
|
|
Ultrasonic
medical devices, namely, ultrasonic surgical aspirators, ultrasonic
lithotripters, ultrasonic phacoemulsifiers.
|
|
02/10/2014
|
|
|
|
|
|
|
|
|
|
1,195,570
|
|
07/14/2002
|
|
Astrason
|
|
Portable
Ultrasonic Cleaners featuring Microscopic Shock Waves.
|
|
07/14/2012
|
|
|
|
|
|
|
|
|
|
3,373,435
|
|
01/22/2008
|
|
SonicOne
|
|
Ultrasonic
Surgical Systems
|
|
01/22/2018
|
As
of
June 30, 2008, the Company's backlog (firm orders that have not yet been
shipped) was $10,908,000, as compared to approximately
$7,200,000
as of June 30, 2007. The Company’s backlog relating to laboratory and scientific
products, including Labcaire, was approximately $6,000,000 at June 30, 2008,
as
compared to $3,600,000 as of June 30, 2007. The Company’s backlog relating to
medical devices, including Sonora, was approximately $4,900,000 at June 30,
2008, as compared to approximately $3,600,000 at June 30, 2007.
Employees
As
of
September 12, 2008, the Company, including Labcaire and Sonora, employed a
total
of 235 full-time employees, including 50 in management and supervisory
positions, and 19 part-time employees. The Company considers its relationship
with its employees to be good.
Business
Segments
The
following table provides a breakdown of net sales by business segment for the
periods indicated:
|
|
Fiscal year ended June 30,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
Medical devices
|
|
$
|
24,273,450
|
|
$
|
23,540,628
|
|
$
|
20,928,052
|
|
Laboratory
and scientific
products
|
|
|
21,366,256
|
|
|
18,891,277
|
|
|
18,559,241
|
|
Net
sales
|
|
$
|
45,639,706
|
|
$
|
42,431,905
|
|
$
|
39,487,293
|
|
The
following table provides a breakdown of foreign sales by geographic area during
the periods indicated:
|
|
Fiscal
year ended June 30,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
United
Kingdom
|
|
$
|
14,107,027
|
|
$
|
11,536,440
|
|
$
|
9,392,592
|
|
Europe
|
|
|
2,842,250
|
|
|
3,713,012
|
|
|
2,210,668
|
|
Asia
|
|
|
1,856,016
|
|
|
1,673,480
|
|
|
1,268,799
|
|
Canada
and Mexico
|
|
|
720,783
|
|
|
452,641
|
|
|
640,009
|
|
Middle
East
|
|
|
342,524
|
|
|
115,020
|
|
|
307,810
|
|
Other
|
|
|
1,170,158
|
|
|
608,277
|
|
|
618,202
|
|
|
|
$
|
21,038,758
|
|
$
|
18,098,870
|
|
$
|
14,438,080
|
|
Website
Access Disclosure
The
Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q and
current reports on Form 8-K are available free of charge on the Company’s
website at www.MISONIX.COM
as soon
as reasonably practicable after such material is electronically filed with
or
furnished to the Securities and Exchange Commission (the “SEC”).
Also,
copies of the Company’s annual report will be made available, free of charge,
upon written request.
Item
1A. Risk
Factors.
In
addition to the other information contained in this Annual Report on Form 10-K
and the exhibits hereto, the following risk factors should be considered
carefully in evaluating our business. Our business, financial condition or
results of operations could be materially adversely affected by any of these
risks. This section contains forward-looking statements. You should refer to
the
explanation of the qualifications and limitations on forward-looking statements
set forth immediately prior to the beginning of Item 1 of this Annual Report
on
Form 10-K. Additional risks not presently known to us or that we currently
deem
immaterial may also adversely affect our business, financial condition or
results of operations.
Risks
Related to Our Business
We
are subject to extensive medical device regulation which may impede or hinder
the approval process for our products and, in some cases, may not ultimately
result in approval or may result in the recall or seizure of previously approved
products.
Our
products, development activities and manufacturing processes are subject to
extensive and rigorous regulation by the FDA pursuant to the Federal Food,
Drug,
and Cosmetic Act (the “FDC Act”), by comparable agencies in foreign countries,
and by other regulatory agencies and governing bodies. Under the FDC Act,
medical devices must receive FDA clearance or approval before they can be
commercially marketed in the U.S. In addition, most major markets for medical
devices outside the U.S. require clearance, approval or compliance with certain
standards before a product can be commercially marketed. The process of
obtaining marketing approval or clearance from the FDA for new products, or
with
respect to enhancements or modifications to existing products,
could:
§
|
take
a significant period of time;
|
§
|
require
the expenditure of substantial resources;
|
§
|
involve
rigorous pre-clinical and clinical testing;
|
§
|
require
changes to the products; and
|
§
|
result
in limitations on the indicated uses of the
products.
|
Even
after products have received marketing approval or clearance, product approvals
and clearances by the FDA can be withdrawn due to failure to comply with
regulatory standards or the occurrence of unforeseen problems following initial
approval. There can be no assurance that we will receive the required clearances
from the FDA for new products or modifications to existing products on a timely
basis or that any FDA approval will not be subsequently withdrawn. Later
discovery of previously unknown problems with a product or manufacturer could
result in fines, delays or suspensions of regulatory clearances, seizures or
recalls of products, operating restrictions and/or criminal prosecution. The
failure to receive product approval clearance on a timely basis, suspensions
of
regulatory clearances, seizures or recalls of products or the withdrawal of
product approval by the FDA could have a material adverse effect on our
business, financial condition or results of operations.
We
may not meet regulatory quality standards applicable to our manufacturing and
quality processes, which could have an adverse effect on our business, financial
condition or results of operations.
As
a
device manufacturer, we are required to register with the FDA and are subject
to
periodic inspection by the FDA for compliance with the FDA’s Quality System
Regulation requirements, which require manufacturers of medical devices to
adhere to certain regulations, including testing, quality control and
documentation procedures. In addition, the Federal Medical Device Reporting
regulations require us to provide information to the FDA whenever there is
evidence that reasonably suggests that a device may have caused or contributed
to a death or serious injury or, if a malfunction were to occur, could cause
or
contribute to a death or serious injury. Compliance with applicable regulatory
requirements is subject to continual review and is rigorously monitored through
periodic inspections by the FDA. In the European Community, we are required
to
maintain certain ISO certifications in order to sell our products and must
undergo periodic inspections by notified bodies to obtain and maintain these
certifications.
Future
intellectual property litigation could be costly and disruptive to
us.
We
operate in an industry that is susceptible to significant intellectual property
litigation and, in recent years, it has been common for companies in the medical
device field to aggressively challenge the patent rights of other companies
in
order to prevent the marketing of new devices. Intellectual property litigation
is expensive, complex and lengthy and its outcome is difficult to predict.
Future patent litigation may result in significant royalty or other payments
or
injunctions that can prevent the sale of products and may significantly divert
the attention of our technical and management personnel. In the event that
our
right to market any of our products is successfully challenged, and if we fail
to obtain a required license or are unable to design around a patent, our
business, financial condition or results of operations could be materially
adversely affected.
We
may not be able effectively to protect our intellectual property rights which
could have an adverse effect on our business, financial condition or results
of
operations.
Patents
and other proprietary rights are and will be essential to our business, and
our
ability to compete effectively with other companies will be dependent upon
the
proprietary nature of our technologies. We rely upon trade secrets, know-how,
continuing technological innovations, strategic alliances and licensing
opportunities to develop, maintain and strengthen our competitive position.
We
pursue a policy of generally obtaining patent protection in both the U.S. and
abroad for patentable subject matter in our proprietary devices and also attempt
to review third-party patents and patent applications to the extent publicly
available to develop an effective patent strategy, avoid infringement of
third-party patents, identify licensing opportunities and monitor the patent
claims of others. We currently own numerous U.S. and foreign patents. We also
are party to various license agreements pursuant to which patent rights have
been obtained or granted in consideration for cash or royalty payments. No
assurance can be made that any pending or future patent applications will result
in issued patents, that any current or future patents issued to, or licensed
by,
us will not be challenged or circumvented by our competitors, or that our
patents will not be found invalid.
In
addition, we may have to take legal action in the future to protect our patents,
trade secrets or know-how or to assert them against claimed infringement by
others. Any legal action of that type could be costly and time consuming to
us
and no assurances can be made that any lawsuit will be successful.
The
invalidation of key patents or proprietary rights that we own, or an
unsuccessful outcome in lawsuits to protect our intellectual property, could
have a material adverse effect on our business, financial condition or results
of operations.
Future
product liability claims and other litigation, including private securities
litigation and shareholder derivative suits, may adversely affect our business,
reputation and ability to attract and retain
customers.
The
design, manufacture and marketing of medical device products of the types that
we produce entail an inherent risk of product liability claims. A number of
factors could results in an unsafe condition or injury to, or death of, a
patient with respect to these or other products that we manufacture or sell,
including component failures, manufacturing flaws, design defects or inadequate
disclosure of product-related risks or product-related information. These
factors could result in product liability claims, a recall of one or more of
our
products or a safety alert relating to one or more of our products. Product
liability claims may be brought by individuals or by groups seeking to represent
a class.
We
may not be successful in our strategic initiatives to become primarily a medical
device company.
Our
strategic initiatives intend to further expand our ability to offer customers
effective, quality medical devices that satisfy their needs, as well as focus
the Company on our medical device platform. If we are unsuccessful in our
strategic initiatives, we may be unable to continue to grow our business
significantly or may record asset impairment charges in the future.
Our
future growth is dependent upon the development of new products, which requires
significant research and development, clinical trials and regulatory approvals,
all of which are very expensive and time-consuming and may not result in a
commercially viable product.
In
order
to develop new products and improve current product offerings, we focus our
research and development programs largely on the development of next-generation
and novel technology offerings across multiple programs and opportunities.
We
are performing clinicals for kidney cancer treatment in Europe.
Further,
we anticipate continuing our increased focus and spending on areas such as
HIFU
technologies for the kidney, liver and breast. However, given their early stage
of development, there can be no assurance that these and other technologies
will
achieve technological feasibility, obtain regulatory approval or gain market
acceptance. A delay in the development or approval of these technologies or
our
decision to reduce funding of these projects may adversely impact the
contribution of these technologies to our future growth.
As
a part
of the regulatory process of obtaining marketing clearance from the FDA for
new
products, we conduct and participate in numerous clinical trials with a variety
of study designs, patient populations and trial endpoints. Unfavorable or
inconsistent clinical data from existing or future clinical trials conducted
by
us, by our competitors or by third parties, or the market’s perception of this
clinical data, may adversely impact our ability to obtain product approvals
from
the FDA, our position in, and share of, the markets in which we participate
and
our business, financial condition, results of operations or future
prospects.
New
products may not be accepted in the market.
We
are
now, and will continue to be, developing new products and introducing them
into
the market. There can be no assurance that any new product will be
accepted by the market. New products are sometimes introduced into the market
in
a prototype format and may need later revisions or design changes before they
operate in a manner to be accepted in the market. As a result of the
introduction of new products, there is some risk that revenue expectations
may
not be met and in some cases the product may not achieve market
acceptance.
We
face intense competition and may not be able to keep pace with the rapid
technological changes in the medical devices industry, which could have an
adverse effect on our business, financial condition or results of
operations.
The
medical device product market is highly competitive. We encounter significant
competition across our product lines and in each market in which our products
are sold from various medical device companies, some of which have greater
financial and marketing resources than we do.
Additionally,
the medical device product market is characterized by extensive research and
development and rapid technological change. Developments by other companies
of
new or improved products, processes or technologies, in particular in the cancer
treatment market, may make our products or proposed products obsolete or less
competitive and may negatively impact our revenues. We are required to devote
continued efforts and financial resources to develop or acquire scientifically
advanced technologies and products, apply our technologies cost-effectively
across product lines and markets, attract and retain skilled development
personnel, obtain patent and other protection for our technologies and products,
obtain required regulatory and reimbursement approvals and successfully
manufacture and market our products. Failure to develop new products or enhance
existing products could have a material adverse effect on our business,
financial condition or results of operations.
Because
we derive a significant amount of our revenues from international operations
and
a significant percentage of our growth is expected to come from international
operations, changes in international economic or regulatory conditions could
have a material impact on our business, financial condition or results of
operations.
Sales
outside the U.S. accounted for approximately 46% of our net sales in fiscal
2008. Additionally, a significant percentage of our future growth is expected
to
come from international operations. As a result, profitability from our
international operations may be limited by risks and uncertainties related
to
economic conditions in these regions, foreign currency fluctuations, regulatory
and reimbursement approvals, competitive offerings, infrastructure development,
rights to intellectual property and our ability to implement our overall
business strategy. Further, international markets are also being affected by
economic pressure to contain reimbursement levels and healthcare costs. The
trend in countries around the world, including Japan, toward more stringent
regulatory requirements for product clearance, changing reimbursement models
and
more rigorous inspection and enforcement activities has generally caused or
may
cause medical device manufacturers to experience more uncertainty, delay, risk
and expense.
Consolidation
in the healthcare industry could lead to demands for price concessions or the
exclusion of some suppliers from certain of our significant market segments,
which could have an adverse effect on our business, financial condition or
results of operations.
The
cost
of healthcare has risen significantly over the past decade and numerous
initiatives and reforms initiated by legislators, regulators and third-party
payers to curb these costs have resulted in a consolidation trend in the
healthcare industry, including hospitals. This in turn has resulted in greater
pricing pressures and the exclusion of certain suppliers from important market
segments as group purchasing organizations, independent delivery networks and
large single accounts continue to consolidate purchasing decisions for some
of
our hospital customers. We expect that market demand, government regulation,
third-party reimbursement policies and societal pressures will continue to
change the worldwide healthcare industry, resulting in further business
consolidations and alliances among our customers and competitors, which may
reduce competition, exert further downward pressure on the prices of our
products and may adversely impact our business, financial condition or results
of operations.
We
may experience disruption in supply due to our dependence on our suppliers
to
continue to ship product requirements and our inability to obtain suppliers
of
certain components for our products.
Our
suppliers may encounter problems during manufacturing due to a variety of
reasons, including failure to follow specific protocols and procedures, failure
to comply with applicable regulations, equipment malfunctions, labor shortages
or environmental factors. In addition, we purchase both raw materials used
in
our products and finished goods from various suppliers and can rely on a single
source supplier for certain components of our products where there are no
alternatives are available. Although we anticipate that we have adequate sources
of supply and/or inventory of these components to handle our production needs
for the foreseeable future, if we are unable to secure on a timely basis
sufficient quantities of the materials we depend on to manufacture our products,
if we encounter delays or contractual or other difficulties in our relationships
with these suppliers, or if we cannot find suppliers at an acceptable cost,
then
the manufacture of our products may be disrupted, which could increase our
costs
and have a material adverse effect on our business.
If
we fail to manage any expansion or acquisition, our business could be
impaired.
We
may in
the future acquire one or more technologies, products or companies that
complement our business. We may not be able to effectively integrate these
into
our business and any such acquisition could bring additional risks, exposures
and challenges to our company. In addition, acquisitions may dilute our earnings
per share, disrupt our ongoing business, distract our management and employees,
increase our expenses, subject us to liabilities and increase our risk of
litigation, all of which could harm our business. If we use cash to acquire
technologies, products, or companies, it may divert resources otherwise
available for other purposes. If we use our common stock to acquire
technologies, products, or companies, our shareholders may experience
substantial dilution. If we fail to manage any expansions or acquisition, our
business could be impaired.
Our
agreements and contracts entered into with partners and other third parties
may
not be successful.
We
signed
in the past and may pursue in the future contracts and agreements with third
parties that would assist our marketing, manufacturing, selling, and
distribution efforts. We cannot assure you that any agreements or arrangements
entered into will be successful.
The
current disruptions in the financial markets could affect our ability to obtain
debt financing on favorable terms (or at all) and have other adverse effects
on
us.
The
United States credit markets have recently experienced historic dislocations
and
liquidity disruptions which have caused financing to be unavailable in many
cases and even if available caused spreads on prospective debt financings to
widen considerably. These circumstances have materially impacted liquidity
in
the debt markets, making financing terms for borrowers able to find financing
less attractive, and in many cases have resulted in the unavailability of
certain types of debt financing. Continued uncertainty in the credit markets
may
negatively impact our ability to access debt financing on favorable terms or
at
all. The failure to renew our existing revolving credit facilities when such
facilities expire in December 2009 would have a material adverse affect on
our
financial condition and results of operations. In addition, Federal legislation
to deal with the current disruptions in the financial markets could have an
adverse affect on our financial condition and results of operations.
The
fluctuation of our quarterly results may adversely affect the trading price
of
our common stock.
Our
revenues and results of operations have in the past and will likely vary in
the
future from quarter to quarter due to a number of factors, many of which are
outside of our control and any of which may cause our stock price to fluctuate.
You should not rely on quarter-to-quarter comparisons of our results of
operations as an indication of our future performance. It is likely that in
some
future quarters, our results of operations may be below the expectations of
public market analysts and investors. In this event, the price of our common
stock may fall.
We
may not be able to attract and retain additional key management, sales and
marketing and technical personnel, or we may lose existing key management,
sales
and marketing or technical personnel, which may delay our development and
marketing efforts.
We
depend
on a number of key management, sales and marketing and technical personnel.
The
loss of the services of one or more key employees could delay the achievement
of
our development and marketing objectives. Our success will also depend on our
ability to attract and retain additional highly qualified management, sales
and
marketing and technical personnel to meet our growth goals. We face intense
competition for qualified personnel, many of whom are often subject to competing
employment offers, and we do not know whether we will be able to attract and
retain such personnel.
Future
changes in financial accounting standards or practices or existing taxation
rules or practices may cause adverse or unexpected revenue fluctuations and
affect our reported results of operations.
A
change
in accounting standards or practices or a change in existing taxation rules
or
practices can have a significant effect on our reported results and may even
affect our reporting of transactions completed before the change is effective.
New accounting pronouncements and taxation rules and varying interpretations
of
accounting pronouncements and taxation practice have occurred and may occur
in
the future. Changes to existing rules or the questioning of current practices
may adversely affect our reported financial results or the way we conduct our
business.
Item
1B.
Unresolved
Staff Comments.
Not
Applicable.
Item
2.
Properties.
The
Company occupies approximately 45,500 square feet at 1938 New Highway,
Farmingdale, New York under a lease which expires on June 30, 2010. The rental
amount, which is approximately $40,000 per month and includes a pro rata share
of real estate taxes, water and sewer charges, and other charges which are
assessed on the leased premises or the land upon which the leased premises
are
situated. Labcaire occupies a 20,000 square foot facility in North Somerset,
England, under a lease expiring in June 2017. The rental amount is
approximately $20,000
per month. Labcaire owned the building up until June 2007 when it was sold
for
$3,600,000. Sonora occupies approximately 29,000 square feet in Longmont,
Colorado under a lease expiring in November 2011. The rental amount is
approximately $21,000 per month and includes a pro rata share of real estate
taxes, water and sewer charges, and other charges which are assessed on the
leased premises or the land upon which the leased premises are situated. The
Company believes that the leased facilities are adequate for its present
needs.
Labcaire
sold its building in the UK in June 2007 in a sale and leaseback transaction
with TESCO Ltd. (“Tesco”). Tesco intends to utilize the property to expand its
operations which will require Labcaire to relocate to another facility upon
Tesco’s receiving permission to expand from the local authorities. Labcaire sold
the building for $3.6 million and recorded a deferred gain of $1.6 million
which
will be amortized over the 10 year lease period. Upon Tesco’s receiving
permission to expand its facilities, which is expected in the next 1 to 4 years,
Tesco will cancel the lease. Upon Labcaire’s vacating the premises, Tesco will
pay Labcaire an additional $1.5 million.
Item
3.
Legal
Proceedings.
A
jury in
the District Court of Boulder County, Colorado returned a verdict against Sonora
during the Company’s Fiscal 2005 fourth quarter in the amount of $419,000.
During fiscal 2008, the judgment was decreased to $324,000 and the $95,000
reduction is included in other income. The case involved royalties claimed
on
recoating of transesophogeal probes, which is a process utilized 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.
Item
4.
Submission
of Matters to a Vote of Security Holders.
No
matters were submitted to a vote of the Company's security holders during the
last quarter of the fiscal year ended June 30, 2008.
PART
II
Item
5.
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities.
(a)
|
The
Company's common stock, $.01 par value (“Common Stock”), is listed on the
Nasdaq Global Market (“Nasdaq”) under the symbol
"MSON".
|
The
following table sets forth the high and low sales prices for the Common Stock
during the periods indicated as reported by Nasdaq.
Fiscal
2008
:
|
|
High
|
|
Low
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
6.30
|
|
$
|
3.82
|
|
Second
Quarter
|
|
|
7.00
|
|
|
4.25
|
|
Third
Quarter
|
|
|
4.73
|
|
|
3.69
|
|
Fourth
Quarter
|
|
|
4.41
|
|
|
3.09
|
|
Fiscal
2007
:
|
|
High
|
|
Low
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
5.58
|
|
$
|
3.50
|
|
Second
Quarter
|
|
|
5.03
|
|
|
3.25
|
|
Third
Quarter
|
|
|
7.29
|
|
|
3.80
|
|
Fourth
Quarter
|
|
|
7.49
|
|
|
5.38
|
|
(b)
As of
September 24, 2008, the Company had 7,001,369 shares of Common Stock outstanding
and 74 shareholders of record. This does not take into account shareholders
whose shares are held in “street name” by brokerage houses.
(c)
The
Company has not paid any dividends since its inception. The Company does not
intend to pay any cash dividends in the foreseeable future, but intends to
retain all earnings, if any, for use in its business operations.
Share
Performance Graph
The
following graph compares the cumulative total return on the Company’s Common
Stock during the last five fiscal years with the NASDAQ Total U.S. and Foreign
Return Index and the NASDAQ Medical Devices, Instruments and Supplies Index
during the same period. The graph shows the value, at the end of each of the
last five fiscal years, of $100 invested in the Common Stock or the indices
on
June 30, 2004. The graph depicts the change in value of the Company’s Common
Stock relative to the noted indices as of the end of each fiscal year and not
for any interim period. Historical stock price performance is not necessarily
indicative of future stock price performance.
|
|
2004
|
|
2005
|
|
2006
|
|
2007
|
|
2008
|
|
MISONIX,
INC.
|
|
|
100
|
|
|
80
|
|
|
78
|
|
|
79
|
|
|
42
|
|
NASDAQ
Total U.S. Index
|
|
|
100
|
|
|
101
|
|
|
107
|
|
|
128
|
|
|
112
|
|
NASDAQ
Medical Devices, Instruments and Supplies Index
|
|
|
100
|
|
|
104
|
|
|
109
|
|
|
130
|
|
|
123
|
|
Equity
Compensation Plan Information:
Plan category
|
|
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
|
|
Weighted average exercise
price of outstanding
options, warrants and
rights
|
|
Number of securities
remaining for future
issuance under equity
compensation plans
(excluding securities
reflected in column (a))
|
|
Equity compensation plans approved by
security holders
|
|
(a)
|
|
(b)
|
|
(c)
|
|
I.
1991 Plan
|
|
|
30,000
|
|
$
|
7.38
|
|
|
-
|
|
II.
1996 Director’s Plan
|
|
|
175,000
|
|
|
5.34
|
|
|
-
|
|
III.
1996 Plan
|
|
|
266,278
|
|
|
5.47
|
|
|
-
|
|
IV.
1998 Plan
|
|
|
381,875
|
|
|
6.75
|
|
|
45,277
|
|
V.
2001 Plan
|
|
|
862,838
|
|
|
5.41
|
|
|
8,856
|
|
VI.
2005 Employee
Equity
Incentive Plan
|
|
|
31,850
|
|
|
4.48
|
|
|
468,150
|
|
VII.
2005 Non-Employee
Director
Stock Option Plan
|
|
|
75,000
|
|
|
5.42
|
|
|
125,000
|
|
Equity
compensation
plans
not approved
by
security holders
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total
|
|
|
1,822,841
|
|
$
|
5.71
|
|
|
647,283
|
|
Item
6. Selected
Financial Data.
Selected
statement of operations data:
|
|
Year
Ended June 30,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
Net
sales
|
|
$
|
45,639,706
|
|
$
|
42,431,905
|
|
$
|
39,487,293
|
|
$
|
46,382,976
|
|
$
|
39,059,066
|
|
Net
(loss) income
|
|
|
(2,887,811
|
)
|
|
(1,349,517
|
)
|
|
(3,759,437
|
)
|
|
935,705
|
|
|
1,718,945
|
|
Net
(loss) income per share-
Basic
|
|
$
|
(.41
|
)
|
|
(.19
|
)
|
|
(.55
|
)
|
|
.14
|
|
|
.26
|
|
Net
(loss) income per share-
Diluted
|
|
|
(.41
|
)
|
$
|
(.19
|
)
|
|
(.55
|
)
|
|
.13
|
|
|
.25
|
|
Selected
balance sheet data:
|
|
June
30,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
Total
assets
|
|
$
|
37,250,074
|
|
$
|
38,745,744
|
|
$
|
34,547,500
|
|
$
|
38,085,936
|
|
$
|
34,241,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
and
capital lease
obligations
|
|
|
225,909
|
|
|
|
|
|
1,145,279
|
|
|
1,240,324
|
|
|
1,264,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders’
equity
|
|
|
18,442,444
|
|
|
21,406,641
|
|
|
22,254,806
|
|
|
25,094,160
|
|
|
23,743,176
|
|
Results
of Operation:
The
following table sets forth, for the three most recent fiscal years, the
percentage relationship to net sales of principal items in the Company's
Consolidated Statements of Operations:
|
|
Fiscal
year ended
June
30,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
Cost
of goods sold
|
|
|
57.6
|
|
|
58.3
|
|
|
62.8
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
42.4
|
|
|
41.7
|
|
|
37.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
expenses
|
|
|
16.9
|
|
|
17.9
|
|
|
18.8
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative expenses
|
|
|
23.1
|
|
|
22.2
|
|
|
25.9
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development expenses
|
|
|
6.6
|
|
|
7.3
|
|
|
9.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
46.6
|
|
|
47.4
|
|
|
53.9
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(4.2
|
)
|
|
(5.7
|
)
|
|
(16.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
.2
|
|
|
.9
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before minority interest and
income
taxes
|
|
|
(4.0
|
)
|
|
(4.8
|
)
|
|
(15.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interest in net (income) loss of
consolidated
subsidiaries
|
|
|
(0.1
|
)
|
|
0.1
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes
|
|
|
(4.1
|
)
|
|
(4.7
|
)
|
|
(15.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax provision (benefit)
|
|
|
2.2
|
|
|
(1.6
|
)
|
|
(5.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(6.3
|
)%
|
|
(3.2
|
)%
|
|
(9.5
|
)%
|
The
following discussion and analysis provides information which the Company’s
management believes is relevant to an assessment and understanding of the
Company's results of operations and financial condition. This discussion should
be read in conjunction with the consolidated financial statements and notes
thereto appearing elsewhere herein.
All
of
the Company's sales to date have been derived from the sale of medical device
products, which include manufacture and distribution of ultrasonic medical
device products, and laboratory and scientific products, which include
ultrasonic equipment for scientific and laboratory purposes, and ductless fume
enclosures for filtration of gaseous emissions in laboratories and
hospitals.
Fiscal
years ended June 30, 2008 and 2007:
Net
sales:
Net
sales increased $3,207,801 to $45,639,706, in fiscal 2008 from $42,431,905
in
fiscal 2007. This difference in net sales is principally due to an increase
in
laboratory and scientific products sales of $2,474,979 to $21,366,256 in fiscal
2008 from $18,891,277 in fiscal 2007. This difference in net sales is also
due
to an increase in sales of medical device products of $732,822 to $24,273,450
in
fiscal 2008 from $23,540,628 in fiscal 2007. The increase in sales of medical
device products is principally due to an increase in sales of diagnostic medical
device products. 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 $2,157,509 increase in Labcaire
products sales, an increase in ultrasonic product sales and an increase in
ductless fume enclosure product sales, partially offset by a decrease in sales
of wet scrubber products. The Company has intentionally limited the
opportunities it pursues for wet scrubber products. The increase in Labcaire
sales of $2,157,509 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 $487,000 of the sales increase. The increase in
ultrasonic product sales and ductless fume enclosure product sales is due to
an
increase in customer demand for several products including the new S-4000
digital sonicator 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 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 2.00 and 1.93 for the years ended June
30, 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 7A.
“Quantitative and Qualitative Disclosures About Market Risk.”
The
Company’s revenues are generated from various geographic regions. The following
is an analysis of net sales by geographic region:
|
|
Year ended June 30,
|
|
|
|
2008
|
|
2007
|
|
United
States
|
|
$
|
24,600,948
|
|
$
|
24,333,035
|
|
United
Kingdom
|
|
|
14,107,027
|
|
|
11,536,440
|
|
Europe
|
|
|
2,842,250
|
|
|
3,713,012
|
|
Asia
|
|
|
1,856,016
|
|
|
1,673,480
|
|
Canada
and Mexico
|
|
|
720,783
|
|
|
452,641
|
|
Middle
East
|
|
|
342,524
|
|
|
115,020
|
|
Other
|
|
|
1,170,158
|
|
|
608,277
|
|
|
|
$
|
45,639,706
|
|
$
|
42,431,905
|
|
Summarized
financial information for each of the segments for the years ended June 30,
2008
and 2007 are as follows:
For
the
year ended June 30, 2008:
|
|
Medical
Devices
|
|
Laboratory and
Scientific Products
|
|
Corporate and
Unallocated
|
|
Total
|
|
Net sales
|
|
$
|
24,273,450
|
|
$
|
21,366,256
|
|
$
|
-
|
|
$
|
45,639,706
|
|
Cost
of goods sold
|
|
|
12,530,534
|
|
|
13,767,370
|
|
|
-
|
|
|
26,297,904
|
|
Gross
profit
|
|
|
11,742,916
|
|
|
7,598,886
|
|
|
-
|
|
|
19,341,802
|
|
Selling
expenses
|
|
|
5,031,208
|
|
|
2,695,701
|
|
|
-
|
|
|
7,726,909
|
|
Research
and development
|
|
|
1,982,341
|
|
|
1,039,728
|
|
|
-
|
|
|
3,022,069
|
|
General
and administrative
|
|
|
-
|
|
|
-
|
|
|
10,518,550
|
|
|
10,518,550
|
|
Total
operating expenses
|
|
|
7,013,549
|
|
|
3,735,429
|
|
|
10,518,550
|
|
|
21,267,528
|
|
Income
(loss) from operations
|
|
$
|
4,729,367
|
|
$
|
3,863,457
|
|
$
|
(10,518,550
|
)
|
$
|
(1,925,726
|
)
|
For
the
year ended June 30, 2007:
|
|
Medical
Devices
|
|
Laboratory and
Scientific Products
|
|
Corporate and
Unallocated
|
|
Total
|
|
Net sales
|
|
$
|
23,540,628
|
|
$
|
18,891,277
|
|
$
|
-
|
|
$
|
42,431,905
|
|
Cost
of goods sold
|
|
|
13,336,430
|
|
|
11,388,084
|
|
|
-
|
|
|
24,724,514
|
|
Gross
profit
|
|
|
10,204,198
|
|
|
7,503,193
|
|
|
-
|
|
|
17,707,391
|
|
Selling
expenses
|
|
|
5,002,878
|
|
|
2,593,276
|
|
|
-
|
|
|
7,596,154
|
|
Research
and development
|
|
|
1,953,872
|
|
|
1,159,392
|
|
|
-
|
|
|
3,113,264
|
|
General
and administrative
|
|
|
-
|
|
|
-
|
|
|
9,417,038
|
|
|
9,417,038
|
|
Total
operating expenses
|
|
|
6,956,750
|
|
|
3,752,668
|
|
|
9,417,038
|
|
|
20,126,456
|
|
Income
(loss) from operations
|
|
$
|
3,247,448
|
|
$
|
3,750,525
|
|
$
|
(9,417,038
|
)
|
$
|
(2,419,065
|
)
|
Net
sales
for the three months ended June 30, 2008 were $11,704,390 compared to
$11,566,017 for the three months ended June 30, 2007. The increase of $138,373
is due to an increase in laboratory product sales of $177,467, primarily due
to
an increase in Labcaire and ultrasonic products sales. Therapeutic medical
device products sales decreased approximately $238,000 and diagnostic medical
device products sales increased approximately $199,000. The increase in
diagnostic medical device products sales was primarily attributable to the
sale
of equipment to a probe repair lab in Europe and fees earned for training their
personnel.
Summarized
financial information for each of the segments for the three months ended June
30, 2008 and 2007 are as follows:
For
the
three months ended June 30, 2008:
|
|
Medical
Devices
|
|
Laboratory and
Scientific Products
|
|
Corporate and
Unallocated
|
|
Total
|
|
Net sales
|
|
$
|
6,418,618
|
|
$
|
5,285,772
|
|
$
|
-
|
|
$
|
11,704,390
|
|
Cost
of goods sold
|
|
|
3,477,492
|
|
|
3,597,911
|
|
|
-
|
|
|
7,075,403
|
|
Gross
profit
|
|
|
2,941,126
|
|
|
1,687,861
|
|
|
-
|
|
|
4,628,987
|
|
Selling
expenses
|
|
|
1,464,348
|
|
|
682,239
|
|
|
-
|
|
|
2,146,587
|
|
Research
and development
|
|
|
412,858
|
|
|
239,528
|
|
|
-
|
|
|
652,386
|
|
General
and administrative
|
|
|
-
|
|
|
-
|
|
|
2,922,327
|
|
|
2,922,327
|
|
Total
operating expenses
|
|
|
1,877,206
|
|
|
921,767
|
|
|
2,922,327
|
|
|
5,721,300
|
|
Income
(loss) from operations
|
|
|
1,063,920
|
|
|
766,094
|
|
|
(2,922,327
|
)
|
|
(1,092,313
|
)
|
For
the
three months ended June 30, 2007:
|
|
Medical
Devices
|
|
Laboratory and
Scientific Products
|
|
Corporate and
Unallocated
|
|
Total
|
|
Net sales
|
|
$
|
6,457,712
|
|
$
|
5,108,305
|
|
$
|
-
|
|
$
|
11,566,017
|
|
Cost
of goods sold
|
|
|
3,740,441
|
|
|
3,296,803
|
|
|
-
|
|
|
7,037,244
|
|
Gross
profit
|
|
|
2,717,271
|
|
|
1,811,502
|
|
|
-
|
|
|
4,528,773
|
|
Selling
expenses
|
|
|
1,301,426
|
|
|
769,943
|
|
|
-
|
|
|
2,071,369
|
|
Research
and development
|
|
|
450,019
|
|
|
279,342
|
|
|
-
|
|
|
729,361
|
|
General
and administrative
|
|
|
-
|
|
|
-
|
|
|
2,095,369
|
|
|
2,095,369
|
|
Total
operating expenses
|
|
|
1,751,445
|
|
|
1,049,285
|
|
|
2,095,369
|
|
|
4,896,099
|
|
Income
(loss)
from operations
|
|
$
|
965,826
|
|
$
|
762,217
|
|
$
|
(2,095,369
|
)
|
$
|
(367,326
|
)
|
Gross
profit:
Gross
profit increased to 42.4% in fiscal 2008 from 41.7% in fiscal 2007. Gross profit
for medical device products increased to 48.4% in fiscal 2008 from 43.3% in
fiscal 2007. Gross profit for therapeutic medical device products was positively
impacted by a favorable product mix due to increased sales of the Sonastar
ultrasonic surgical aspirator product in the United States and foreign markets
and increased sales of ultrasonic assisted liposuction products. Sales of the
Company’s AutoSonix products to USS which have lower gross profits, decreased in
fiscal 2008 as percentage of total sales. The fiscal 2008 period also benefited
from a favorable mix of diagnostic medical device products sales. Gross profit
for laboratory and scientific products decreased to 35.6% in fiscal 2008 from
39.7% in fiscal 2007 due to lower margins at Labcaire due to higher costs
related to the ISIS units shipped. Gross profit for the three months ended
June
30, 2008 increased to 39.5% from 39.2% in the three months ended June 30, 2007.
Gross margins for medical device products sales increased to 45.8% in the 2008
period from 42.1% in the 2007 period. The increase was due to a favorable
product mix in both therapeutic and diagnostic product sales. Gross profit
for
laboratory and scientific products decreased to 31.9% in the 2008 period from
35.5% in the 2007 period. The decrease in gross profit was primarily due to
lower margins in Labcaire due to higher costs related to the ISIS units shipped
and lower margins for fume enclosure product sales due to unfavorable product
mix.
Selling
expenses:
Selling
expenses increased $130,755 to $7,726,909 (16.9% of net sales) in fiscal 2008
from $7,596,154 (17.9% of net sales) in fiscal 2007. Laboratory and scientific
products selling expenses increased approximately $102,000, predominately due
to
increased selling and service expenses at Labcaire related to higher sales
and
the impact of the stronger English Pound of approximately $66,000. Selling
expenses for therapeutic medical device products increased approximately
$80,000, principally due to new hires in medical sales management and increased
expenses in Europe related to the Company’s HIFU products, partially offset by
reduced expenses related to trade shows and exhibitions. Selling expenses
related to diagnostic medical device products decreased approximately $51,000,
principally due to decreased costs associated with consignment equipment.
Selling expenses for the three months ended June 30, 2008 increased $75,218
to
$2,146,587 (18.3% of net sales) from $2,071,369 (17.9% of net sales) in the
three months ended June 30, 2007. Selling expenses related to therapeutic
medical device products sales increased approximately $163,000 principally
due
to increased staffing. Laboratory and scientific products selling expenses
decreased approximately $88,000, principally due to lower costs associated
with
demo equipment.
General
and administrative expenses:
Total
corporate and unallocated expenses increased $1,101,512 in fiscal 2008 to
$10,518,550 from $9,417,038 in fiscal 2007. General and administrative expenses
increased in fiscal 2008, principally due to increased employee related expense
of approximately $763,000, increased depreciation expense, increased recruiting
fees of approximately $100,000 related to adding personnel to the therapeutic
medical group, increased bank fees and higher consulting fees, which were
partially offset by decreased insurance expense and decreased bad debt expense.
The higher consulting fees include approximately $200,000 related to the
implementation of Section 404(a) of the Sarbanes-Oxley Act of 2002 (“Section
404(a)”). The Company entered into revolving credit facility with Wells Fargo
Bank on December 29, 2006 and bank fees in the 2008 period are twelve months
compared to six months in fiscal 2007. General and administrative expenses
for
the three months ended June 30, 2008 increased $826,958 to $2,922,327 from
$2,095,369 for the three months ended June 30, 2007. The increase was due to
increased employee related expense of approximately $467,000, consulting costs
of approximately $115,000 related to the implementation of Section 404(a) and
approximately $74,000 of higher costs related to the Company’s HIFU business in
Europe. The increased salary expense includes bonus expense at Sonora which
exceeded its profit objectives for fiscal 2008.
Research
and development expenses:
Research
and development expenses decreased $91,195 to $3,022,069 in fiscal 2008 from
$3,113,264 in fiscal 2007. Research and development expenses for medical device
products increased approximately $28,000. Research and development expenses
for
diagnostic medical device products increased approximately $59,000 related
to
developing new products and services which were introduced during the current
fiscal year. Research and development expenses for therapeutic medical devices
decreased approximately $31,000. The decrease is primarily due to decreased
salary and consulting fees of $241,000 which were partially offset by a
milestone charge of $210,000 from Focus related to the HIFU kidney cancer
research project. Laboratory and scientific products research and development
expenses decreased approximately $120,000 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. Research and development expense for the three
months ended June 30, 2008 decreased $76,975 to $652,386 from $729,361 in the
three months ended June 30, 2007. In the three months ended June 30, 2008,
approximately $50,000 of medical device products development expense related
to
improvements to existing therapeutic medical device products was deferred which
was partially offset by increased expenses related to diagnostic medical
products. Research and development expenses for laboratory and scientific
products decreased in the three months ended June 30, 2008 due to reduced
efforts related to the Labcaire ISIS product and the completion of the
S-4000 digital Sonicator product.
Other
Income:
Other
income decreased $258,235 in fiscal 2008 to $104,584 from $363,819 in fiscal
2007. The fiscal 2007 year included foreign currency exchange gains of
approximately $149,000 which were primarily attributable to an exchange gain
resulting from the payment of an intercompany loan denominated in British
Pounds
by Labcaire to the Company. Royalty and license fee income from USS decreased
approximately $132,000 in fiscal 2008 due to decreased sales by USS of the
Company’s Autosonix product. In addition, royalty expense in fiscal 2008
increased approximately $231,000, which increase was attributable to licensed
probe repair technology, the sale of Acoustic Power tanks and increased sales
of
Lysonix medical device products. The decrease in other income in fiscal 2008
was
partially offset by $150,000 from the realization of a previously impaired
Secured Cumulative Convertible Debenture from Focus during the second quarter
of
fiscal 2008 which was used to reduce a milestone payment to Focus and reduced
interest expense of $69,000. The fiscal 2007 period included a loss of $60,000
from the sale of equipment. Other income (expense) decreased $39,843 to
$(32,366) for the three months ended June 30, 2008 from $7,477 for the three
months ended June 30, 2007. The decrease is due to decreased foreign currency
exchange gains partially offset by decreased interest expense and decreased
royalty expense. The three months ended June 30, 2007 included an exchange
gain
of approximately $165,000 resulting from the payment of a loan denominated
in
British Pounds by Labcaire to the Company.
Income
taxes: In
fiscal
2008 the Company increased the valuation allowance related to deferred tax
assets by approximately $1,500,000 which increased income tax expense to an
effective tax rate of 54.7%. In its assessment of whether it is more likely
than
not that some portion or all the deferred tax assets will be realized,
management increased the valuation allowance for the deferred tax benefit
related to U.S. federal loss carryforwards and unused tax credit carryforwards
which are available to offset future taxable income. The effective tax rate
in
fiscal 2007 of 33.0% 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 fiscal 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 of 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.
Fiscal
years ended June 30, 2007 and 2006
Net
sales.
Net
sales of the Company's medical device products and laboratory and scientific
products increased $2,944,612 to $42,431,905 in fiscal 2007 from $39,487,293
in
fiscal 2006. This difference in net sales is due to an increase in sales of
medical device products of $2,612,576 to $23,540,628 in fiscal 2007 from
$20,928,052 in fiscal 2006. This difference in net sales is also due to an
increase in laboratory and scientific product sales of $332,036 to $18,891,277
in fiscal 2007 from $18,559,241 in fiscal 2006. The increase in sales of medical
device products is due to an increase in sales of therapeutic medical device
products of $2,114,854 plus an increase of $497,722 in sale of diagnostic
medical device products. The increase in sales of therapeutic medical device
products was primarily attributable to the increased units of the Sonablate
500.
In fiscal 2007, the Company sold 4 Sonablate 500 units compared to 1 unit in
fiscal 2006. Additionally, the Company acquired 60% of UKHIFU at the end of
the
third quarter of fiscal 2006 and the Company had the benefit of the fee per
use
revenue of $903,000 for the entire fiscal 2007 year. The increase in sales
of
diagnostic medical device products was not attributable to a single customer,
distributor or any other specific factor but an increase in customer demand
for
several products. The increase in sales of laboratory and scientific products
is
primarily due to a $1,404,151 increase in Labcaire products, partially offset
by
a $1,022,997 decrease in sales of wet scrubber products. The Company is being
very selective in the opportunities it pursues for wet scrubber products. The
increase in Labcaire sales of $1,404,151 is due to an increase in Guardian
endoscope products and services of $540,222 and the strengthening of the British
Pound versus the U.S. dollar of approximately $863,929. The increase in ductless
fume enclosure product sales is due to an increase in customer demand for
several products and 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 British pounds.
UKHIFU
sales are remitted in British Pounds and Misonix, Ltd. sales to date have been
remitted in Euros. To the extent that the Company’s revenues are generated in
British Pounds, its operating results were translated for reporting purposes
into U.S. dollars using weighted average
rates of 1.93 and 1.78 for the years ended June 30, 2007 and 2006, respectively.
To the extent that the Company’s revenues are generated in Euros, its operating
results were translated for reporting purposes into U.S dollars using a weighted
average rate of 1.30 for the year ended June 30, 2007. A strengthening of the
British 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 British
Pound
and Euro will have the opposite effect. Since the Company’s operations in
England generally set prices and bids for contracts in British Pounds, a
strengthening of the British 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.
The
Company’s revenues are generated from various geographic regions. The following
is an analysis of net sales by geographic region:
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
United
States
|
|
$
|
24,333,035
|
|
$
|
25,049,213
|
|
United
Kingdom
|
|
|
11,536,440
|
|
|
9,392,592
|
|
Europe
|
|
|
3,713,012
|
|
|
2,210,668
|
|
Asia
|
|
|
1,673,480
|
|
|
1,268,799
|
|
Canada
and Mexico
|
|
|
452,641
|
|
|
640,009
|
|
Middle
East
|
|
|
115,020
|
|
|
307,810
|
|
Other
|
|
|
608,277
|
|
|
618,202
|
|
|
|
$
|
42,431,905
|
|
$
|
39,487,293
|
|
Summarized
financial information for each of the segments for the years ended June 30,
2007
and 2006 are as follows:
For
the
year ended June 30, 2007:
|
|
Medical
Devices
|
|
Laboratory and
Scientific Products
|
|
Corporate and
Unallocated
|
|
Total
|
|
Net
sales
|
|
$
|
23,540,628
|
|
$
|
18,891,277
|
|
$
|
-
|
|
$
|
42,431,905
|
|
Cost
of goods sold
|
|
|
13,336,430
|
|
|
11,388,084
|
|
|
-
|
|
|
24,724,514
|
|
Gross
profit
|
|
|
10,204,198
|
|
|
7,503,193
|
|
|
-
|
|
|
17,707,391
|
|
Selling
expenses
|
|
|
5,002,878
|
|
|
2,593,276
|
|
|
-
|
|
|
7,596,154
|
|
Research
and development
|
|
|
1,953,872
|
|
|
1,159,392
|
|
|
-
|
|
|
3,113,264
|
|
General
and administrative
|
|
|
-
|
|
|
-
|
|
|
9,417,038
|
|
|
9,417,038
|
|
Total
operating expenses
|
|
|
6,956,750
|
|
|
3,752,668
|
|
|
9,417,038
|
|
|
20,126,456
|
|
Income
(loss) from operations
|
|
$
|
3,247,448
|
|
$
|
3,750,525
|
|
$
|
(9,417,038
|
)
|
$
|
(2,419,065
|
)
|
For
the
year ended June 30, 2006:
|
|
Medical
Devices
|
|
Laboratory and
Scientific Products
|
|
Corporate and
Unallocated
|
|
Total
|
|
Net
sales
|
|
$
|
20,928,052
|
|
$
|
18,559,241
|
|
$
|
-
|
|
$
|
39,487,293
|
|
Cost
of goods sold
|
|
|
12,456,746
|
|
|
12,337,537
|
|
|
-
|
|
|
24,794,283
|
|
Gross
profit
|
|
|
8,471,306
|
|
|
6,221,704
|
|
|
-
|
|
|
14,693,010
|
|
Selling
expenses
|
|
|
4,739,079
|
|
|
2,689,076
|
|
|
-
|
|
|
7,428,155
|
|
Research
and development
|
|
|
2,200,380
|
|
|
1,427,022
|
|
|
-
|
|
|
3,627,402
|
|
General
and administrative
|
|
|
-
|
|
|
-
|
|
|
10,211,492
|
|
|
10,211,492
|
|
Total
operating expenses
|
|
|
6,939,459
|
|
|
4,116,098
|
|
|
10,211,492
|
|
|
21,267,049
|
|
Income
from operations
|
|
$
|
1,531,847
|
|
$
|
2,105,606
|
|
$
|
(10,211,492
|
)
|
$
|
(6,574,039
|
)
|
Net
sales
for the three months ended June 30, 2007 were $11,566,017 compared to $9,618,188
for the three months ended June 30, 2006. This increase of $1,947,829 for the
three months ended June 30, 2007 is due to an increase in sales of medical
device products of $1,199,212 and an increase in laboratory and scientific
products sales of $748,617. The increase in sales of medical device products
was
due to an increase in sales of diagnostic medical devices products of $642,883
and an increase of $556,329 in sales of therapeutic medical device products.
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 therapeutic medical device products was mostly attributable to an
increase in sales of the Company’s neuroaspirator of approximately $110,000, an
increase in sales of the Company’s lithotripter product of approximately
$123,000, an increase in sales of the Company’s ultrasonic assisted liposuction
product of approximately $118,000 and an increase in sales of the Company’s
Sonablate 500 product of approximately $171,000. The increase in laboratory
and
scientific products sales is due to an increase in Labcaire products sales
of
$662,093, the strengthening of the English Pound versus the U.S. dollar of
$252,643, an increase in ultrasonic laboratory products sales of $31,195 and
an
increase in ductless fume enclosure product sales of $106,958, partially offset
by a decrease in wet scrubber sales of $257,086.
Summarized
financial information for each of the segments for the three months ended June
30, 2007 and 2006 are as follows:
For
the
three months ended June 30, 2007:
|
|
Medical
Devices
|
|
Laboratory and
Scientific Products
|
|
Corporate and
Unallocated
|
|
Total
|
|
Net
sales
|
|
$
|
6,457,712
|
|
$
|
5,108,305
|
|
$
|
-
|
|
$
|
11,566,017
|
|
Cost
of goods sold
|
|
|
3,740,441
|
|
|
3,296,803
|
|
|
-
|
|
|
7,037,244
|
|
Gross
profit
|
|
|
2,717,271
|
|
|
1,811,502
|
|
|
-
|
|
|
4,528,773
|
|
Selling
expenses
|
|
|
1,301,426
|
|
|
769,943
|
|
|
-
|
|
|
2,071,369
|
|
Research
and development
|
|
|
450,019
|
|
|
279,342
|
|
|
-
|
|
|
729,361
|
|
General
and administrative
|
|
|
-
|
|
|
-
|
|
|
2,095,369
|
|
|
2,095,369
|
|
Total
operating expenses
|
|
|
1,751,445
|
|
|
1,049,285
|
|
|
2,095,369
|
|
|
4,896,099
|
|
Income
(loss) from operations
|
|
$
|
965,826
|
|
$
|
762,217
|
|
$
|
(2,095,369
|
)
|
$
|
(367,326
|
)
|
For
the
three months ended June 30, 2006:
|
|
Medical
Devices
|
|
Laboratory and
Scientific Products
|
|
Corporate and
Unallocated
|
|
Total
|
|
Net
sales
|
|
$
|
5,251,483
|
|
$
|
4,366,705
|
|
$
|
-
|
|
$
|
9,618,188
|
|
Cost
of goods sold
|
|
|
3,489,264
|
|
|
3,008,337
|
|
|
-
|
|
|
6,497,601
|
|
Gross
profit
|
|
|
1,762,219
|
|
|
1,358,368
|
|
|
-
|
|
|
3,120,587
|
|
Selling
expenses
|
|
|
1,461,669
|
|
|
633,007
|
|
|
-
|
|
|
2,094,676
|
|
Research
and development
|
|
|
513,847
|
|
|
374,512
|
|
|
-
|
|
|
888,359
|
|
General
and administrative
|
|
|
-
|
|
|
-
|
|
|
2,683,324
|
|
|
2,683,324
|
|
Total
operating expenses
|
|
|
1,975,516
|
|
|
1,007,519
|
|
|
2,683,324
|
|
|
5,566,359
|
|
Income
from operations
|
|
$
|
(213,297
|
)
|
|
350,849
|
|
|
(2,683,324
|
)
|
|
(2,545,772
|
)
|
Gross
profit.
Gross
profit increased to 41.7% in fiscal 2007 from 37.2% in fiscal 2006. Gross profit
for medical device products increased to 43.3% in fiscal 2007 from 40.5% in
fiscal 2006. Gross profit for laboratory and scientific products increased
to
39.7% in fiscal 2007 from 33.5% in fiscal 2006. Gross profit for medical device
products was impacted by a favorable order sales mix of therapeutic medical
device products, partially offset by lower gross margins on sales to USS and
an
unfavorable mix of diagnostic medical device products sales. The increase in
gross profit for laboratory and scientific products was due to higher gross
profit for wet scrubbers, fume enclosure products and Labcaire products. Gross
profit increased to 39.2% of sales in the three months ended June 30, 2007
from
32.4% of sales in the three months ended June 30, 2006. Gross profit for
laboratory and scientific products increased to 35.5% of sales in the three
months ended June 30, 2007 from 31.1% in the three months ended June 30, 2006.
Gross profit for medical device products increased from 33.6% of sales in the
three months ended June 30, 2006 to 42.1% of sales in the three months ended
June 30, 2007. The increase in gross profit for laboratory and scientific
products was predominately due to increased service revenue at Labcaire. The
increase in gross profit for medical device products was predominately due
to a
favorable order mix for sales of therapeutic medical device products. The
Company manufactures and sells both medical device products and laboratory
and
scientific products with a wide range of product costs and gross margin dollars
as a percentage of revenues.
Selling
expenses.
Selling
expenses increased $167,999 or 2.3% to $7,596,154 (17.9% of net sales) in fiscal
2007 from $7,428,155 (18.8% of net sales) in fiscal 2006. Medical device
products selling expenses increased $263,799 due both to additional sales and
marketing efforts for therapeutic medical device products. Laboratory and
scientific products selling expenses decreased $95,800. Selling expenses
decreased $23,307 to $2,071,369 (17.9% of net sales) in the three months ended
June 30, 2007 from $2,094,676 (21.8% of net sales) in the three months ended
June 30, 2006. Medical device products selling expenses decreased $160,243
due
to reduced sales and marketing efforts for therapeutic medical device products.
Laboratory and scientific products selling expenses increased $136,936,
predominantly due to an increase in sales and marketing efforts for Labcaire’s
ISIS product.
General
and administrative expenses.
Total
corporate and unallocated expenses decreased $794,454 to $9,417,038 in fiscal
year 2007 from $10,211,492 in fiscal 2006. The decrease is predominantly due
to
reduced stock-based compensation expense of approximately $324,000 related
to
the adoption of Statement of Financial Accounting Standards (“SFAS”) No. 123R,
and a reduction in corporate general and administrative expenses relating to
corporate insurance, legal fees and other accrued corporate expenses. Total
general and administrative expenses decreased $587,955 to $2,095,369 in the
three months ended June 30, 2007 from $2,683,324 in the three months ended
June 30, 2006. The decrease is predominantly due to a decrease in
legal fees spent at Sonora and other accrued corporate expenses.
Research
and development expenses.
Research
and development expenses decreased $514,138 to $3,113,264 in fiscal 2007 from
$3,627,402 in fiscal 2006. Research and development expenses related to medical
device products decreased $246,508 and research and development expenses related
to laboratory and scientific products deceased $267,630. Research and
development expenses related to medical device products decreased predominately
due to reduced efforts relating to the digital upgrade project for therapeutic
medical device products, partially offset by efforts expended on the new
laboratory and scientific digital sonicator product. The decrease in research
and development expense relating to laboratory and scientific products is due
to
the reduced efforts on the Labcaire ISIS product which was introduced and
launched during fiscal 2007 and the reduced efforts for wet scrubber products.
The Company is not expanding efforts for research and development on wet
scrubber products. Research and development expense decreased $158,998 for
the
three months ended June 30, 2007 to $729,361 from $888,359 for the three months
ended June 30, 2006. Research and development expense related to medical device
products decreased $63,828 and research and development expense related to
laboratory scientific products decreased $95,170. Research and development
expense related to medical device products decreased predominately due to
reduced efforts relating to the digital project upgrade for therapeutic medical
device products, partially offset by efforts expanded on the new laboratory
and
scientific digital sonicator product. The decrease in laboratory and scientific
products research and development expenses is due to reduced effort on the
Labcaire ISIS product, which was introduced and launched during fiscal 2007,
and
the reduced research and development efforts for wet scrubber
products.
Other
income (expense).
Other
income was $363,819 in fiscal 2007 as compared to $552,849 in fiscal 2006.
The
decrease of $189,030 for the fiscal year was primarily due to an increase in
interest expense of $345,670, partially offset by increased foreign currency
exchange gains of $163,651 and increased royalty income of $64,730. The increase
in interest expense is principally attributable to increased borrowings in
the
United States.
Income
taxes .
The
effective tax rate is 33.0% for the fiscal year ended June 30, 2007 as compared
to an effective tax rate of 37.7% for the fiscal year ended June 30, 2006.
The
fiscal 2006 year tax rate includes the release of the valuation allowance of
$629,560 related to bad debt expenses
which was partially offset by adjustments to state tax rates and the impact
of
lower foreign tax rates.
Critical
Accounting Policies:
General:
Financial Reporting Release No. 60, which was released by the SEC in December
2001, requires all companies to include a discussion of critical accounting
policies or methods used in the preparation of the financial statements. Note
1
of the Notes to Consolidated Financial Statements included in this Annual Report
includes a summary of the Company’s significant accounting policies and methods
used in the preparation of its financial statements. The Company’s discussion
and analysis of its financial condition and results of operations are based
upon
the Company’s financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation
of these financial statements requires the Company to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues
and
expenses. On an on-going basis, management evaluates its estimates and
judgments, including those related to bad debts, inventories, goodwill,
property, plant and equipment and income taxes. Management bases its estimates
and judgments on historical experience and on various other factors that are
believed to be reasonable under the circumstances, the 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 under different assumptions or conditions. The Company considers
certain accounting policies related to accounts receivable, inventories,
property, plant and equipment, revenue recognition, goodwill, income taxes
and
stock-based compensation to be critical policies due to the estimation process
involved in each.
Accounts
Receivable
:
Accounts receivable, principally trade, are generally due within 30 to 90 days
and are stated at amounts due from customers, net of an allowance for doubtful
accounts. The Company performs ongoing credit evaluations and adjusts credit
limits based upon payment history and the customer’s current credit worthiness,
as determined by a review of their current credit information. The Company
continuously monitors aging reports, collections and payments from customers
and
maintains a provision for estimated credit losses based upon historical
experience and any specific customer collection issues that have been
identified. While such credit losses have historically been within expectations
and the provisions established, the Company cannot guarantee the same credit
loss rates will be experienced in the future. The Company writes off accounts
receivable when they become uncollectible.
Inventories
:
Inventories are stated at the lower of cost (first-in, first-out) or market
and
consist of raw materials, work-in-process and finished goods. Management
evaluates the need to record adjustments for impairments of inventory on a
quarterly basis. The Company’s policy is to assess the valuation of all
inventories, including raw materials, work-in-process and finished goods.
Inventory items used for demonstration purposes, rentals or on consignment
are
classified in property, plant and equipment.
Property,
Plant and Equipment
:
Property, plant and equipment are recorded at cost. The Company capitalizes
items in excess of $1,000. Minor replacements and maintenance and repair
expenses are charged to expense as incurred. Depreciation of property and
equipment is provided using the straight-line method over estimated useful
lives
ranging from 1 to 8 years. Depreciation of the Labcaire building was provided
using the straight-line method over the estimated useful life of 50 years.
Leasehold improvements are amortized over the life of the lease or the useful
life of the related asset, whichever is shorter. The Company’s policy is to
periodically evaluate the appropriateness of the lives assigned to property,
plant and equipment and to make adjustments if necessary. Inventory items
included in property, plant and equipment are depreciated using the straight
line method over estimated useful lives of 3 to 8 years.
Labcaire
sold its owned building in the United Kingdom in June 2007 in a sale and
leaseback agreement with Tesco. Tesco intends to utilize the property to expand
its operations which will require Labcaire to relocate to another facility
upon
Tesco’s receiving permission to expand from the local authorities. Labcaire sold
the building for $3.6 million and recorded a deferred gain of $1.6 million
which
will be amortized over the 10 year lease period. Additionally, upon Tesco’s
receiving permission to expand its facilities which is expected in the next
1 to
4 years, Tesco will cancel the lease. Upon Labcaire vacating the premises,
Tesco
will pay Labcaire an additional $1.5 million under the agreement.
Revenue
Recognition
: The
Company records revenue upon shipment for products shipped F.O.B. shipping
point. Products shipped F.O.B. destination points are recorded as revenue when
received at the point of destination. Shipments under agreements with
distributors are not subject to return, and payment for these shipments is
not
contingent on sales by the distributor. The Company recognizes revenue on
shipments to distributors in the same manner as with other customers. Fees
from
exclusive license agreements are recognized ratably over the terms of the
respective agreements. Service contract and royalty income are recognized when
earned.
Goodwill
:
Goodwill represents the excess of the purchase price over the fair value of
the
net assets acquired in connection with the Company’s acquisitions of the common
stock of Labcaire, 95% of the common stock of Sonora and the acquisitions of
assets of Fibra Sonics, Sonic Technologies and CraMar and an equity interest
in
UKHIFU.
In
July
2001, the Financial Accounting Standards Board (“FASB”) issued SFAS Nos. 141
(“SFAS 141”) and 142 (“SFAS 142”), "Business Combinations" and "Goodwill and
Other Intangible Assets," respectively. SFAS 141 replaced Accounting Principles
Board (“APB”) Opinion 16 “Business Combinations” and requires the use of the
purchase method for all business combinations initiated after June 30, 2001.
SFAS
142
requires goodwill and intangible assets with indefinite useful lives to no
longer be amortized, but instead be tested for impairment at least annually
and
whenever events or circumstances occur that indicate goodwill might be impaired.
With the adoption of SFAS 142, as of July 1, 2001, the Company reassessed the
useful lives and residual values of all acquired intangible assets to make
any
necessary amortization period adjustments. Based on that assessment, only
goodwill was determined to have an indefinite useful life and no adjustments
were made to the amortization period or residual values of other intangible
assets. The Company completed its annual goodwill impairment tests for fiscal
2008 and 2007 in the respective fourth quarter. There were no indicators that
goodwill recorded was impaired.
Income
Taxes
: Income
taxes are accounted for in accordance with SFAS No. 109, “Accounting for Income
Taxes” (“SFAS No. 109”). Under this method, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized
in
income in the period that includes the enactment date.
Stock-Based
Compensation
: Prior
to July 1, 2005, the Company accounted for stock option plans SFAS No. 123.
As
permitted under this standard, compensation cost was recognized using the
intrinsic value method described in APB No. 25 (“APB 25”). Effective July 1,
2005, the Company adopted the fair-value recognition provisions of SFAS No.
123R
(revised 2004), “Share-Based Payment” (“SFAS No. 123R”) and SEC Staff Accounting
Bulletin No. 107 using the modified-prospective transition method; therefore,
prior periods have not been restated. See Note 8 of the Company’s consolidated
financial statements for additional information regarding stock-based
compensation.
Liquidity
and Capital Resources:
Working
capital at June 30, 2008 and June 30, 2007 was $8,841,000 and $11,165,090,
respectively. For the twelve months ended June 30, 2008, cash provided by
operations totaled $614,000. 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 $410,000 and $804,000,
respectively, during the year ended June 30, 2008. The increases were
attributable to the Company’s Labcaire subsidiary. For the fiscal year 2008,
cash used in investing activities totaled $1,665,000, 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 fiscal year 2008, cash used in financing
activities was $41,000, primarily consisting of net proceeds from short-term
borrowings of $399,000, offset by principal payments of capital lease
obligations of approximately $440,000.
Revolving
Credit Facilities
On
December 29, 2006, the Company and its subsidiaries, Sonora and 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 June 30, 2008, the Borrowers were
not
in compliance with two of the covenants under the Credit Agreements. Wells
Fargo
Bank has given the Company a waiver of such non-compliance.
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 June 30, 2008, the balance outstanding under the Credit Agreement
was $2,745,000 and an additional $875,000 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 June 30, 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 June 30, 2008, the balance outstanding
under this credit facility was $1,725,000 and Labcaire was in compliance with
all financial covenants.
Commitments
The
Company has commitments under a revolving credit facility, note payable and
capital and operating leases that will be funded from operating sources. At
June
30, 2008, the Company’s contractual cash obligations and commitments relating to
the revolving credit facilities, note payable and capital and operating leases
are as follows:
Commitment
|
|
Less than
1 year
|
|
1-3 years
|
|
4-5 years
|
|
After
5 years
|
|
Total
|
|
Revolving
credit facilities
|
|
$
|
4,470,389
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
4,470,389
|
|
Note
payable
|
|
|
246,888
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
246,888
|
|
Capital
leases
|
|
|
307,325
|
|
|
225,909
|
|
|
-
|
|
|
-
|
|
|
533,234
|
|
Operating
leases
|
|
|
1,146,724
|
|
|
1,736,181
|
|
|
633,094
|
|
|
957,792
|
|
|
4,473,791
|
|
|
|
$
|
6,171,326
|
|
$
|
1,962,090
|
|
$
|
633,094
|
|
$
|
957,792
|
|
$
|
9,724,302
|
|
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
The
Company believes that its existing capital resources will enable it to maintain
its current and planned operations for at least 18 months from the date
hereof.
In
the
opinion of management, inflation has not had a material effect on the operations
of the Company.
Item
7A. 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.
Foreign
Exchange Rates:
Approximately
46% of the Company’s revenues in fiscal 2008 were received in British Pounds. To
the extent that the Company’s revenues are generated in British Pounds, its
operating results are translated for reporting purposes into U.S. Dollars using
weighted average rates of 2.00 and 1.93 for the fiscal year ended June 30,
2008
and 2007, respectively. A strengthening of the British Pound, in relation to
the
U.S. Dollar, will have the effect of increasing reported revenues and profits,
while a weakening of the British Pound will have the opposite effect. Since
the
Company’s operations in England generally sets prices and bids for contracts in
British Pounds, a strengthening of the British 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 British Pound and the Euro. The Company has not
engaged in foreign currency hedging transactions, which include forward exchange
agreements.
Item
8.
Financial
Statements and Supplemental Data.
The
report of the independent registered public accounting firm and consolidated
financial statements listed in the accompanying index is filed as part of this
Report. See “Index to Consolidated Financial Statements” on page
49.
QUARTERLY
RESULTS OF OPERATIONS
The
following table presents selected financial data for each quarter of fiscal
2008, 2007 and 2006. Although unaudited, this information has been prepared
on a
basis consistent with the Company’s audited consolidated financial statements
and, in the opinion of the Company’s management, reflects all adjustments
(consisting only of normal recurring adjustments) that the Company considers
necessary for a fair presentation of this information in accordance with
accounting principles generally accepted in the United States. Such quarterly
results are not necessarily indicative of future results of operations and
should be read in conjunction with the audited consolidated financial statements
of the Company and the notes thereto.
QUARTERLY
FINANCIAL DATA:
|
|
FISCAL 2008
|
|
|
|
Q1
|
|
Q2
|
|
Q3
|
|
Q4
|
|
YEAR
|
|
Net
sales
|
|
$
|
10,532,237
|
|
$
|
11,600,053
|
|
$
|
11,803,026
|
|
$
|
$11,704,390
|
|
$
|
45,639,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
4,665,794
|
|
|
5,164,575
|
|
|
4,882,446
|
|
|
4,628,987
|
|
|
19,341,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
4,904,507
|
|
|
5,454,306
|
|
|
5,187,415
|
|
|
5,721,300
|
|
|
21,267,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(238,713
|
)
|
|
(289,731
|
)
|
|
(304,969
|
)
|
|
(1,092,313
|
)
|
|
(1,925,726
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
(21,161
|
)
|
|
85,941
|
|
|
73,170
|
|
|
(32,366
|
)
|
|
105,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interest in net income (loss)
of consolidated subsidiaries
|
|
|
9,444
|
|
|
13,867
|
|
|
24,269
|
|
|
(1,404
|
)
|
|
46,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax (benefit) expense
|
|
|
(43,054
|
)
|
|
(100,477
|
)
|
|
(62,031
|
)
|
|
1,227,055
|
|
|
1,021,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(226,264
|
)
|
$
|
(117,180
|
)
|
$
|
(194,037
|
)
|
$
|
(2,350,330
|
)
|
$
|
(2,887,811
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share-Basic
|
|
$
|
(0.03
|
)
|
$
|
(0.02
|
)
|
$
|
(0.03
|
)
|
$
|
(0.34
|
)
|
$
|
(0.41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share – Diluted
|
|
$
|
(0.03
|
)
|
$
|
(0.02
|
)
|
$
|
(0.03
|
)
|
$
|
(0.34
|
)
|
$
|
(0.41
|
)
|
|
|
FISCAL 2007
|
|
|
|
Q1
|
|
Q2
|
|
Q3
|
|
Q4
|
|
YEAR
|
|
Net
sales
|
|
$
|
9,642,878
|
|
$
|
10,639,086
|
|
$
|
10,583,924
|
|
$
|
11,566,017
|
|
$
|
42,431,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
3,931,866
|
|
|
4,786,755
|
|
|
4,459,997
|
|
|
4,528,773
|
|
|
17,707,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
4,821,739
|
|
|
5,055,433
|
|
|
5,353,185
|
|
|
4,896,099
|
|
|
20,126,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(889,873
|
)
|
|
(268,678
|
)
|
|
(893,188
|
)
|
|
(367,326
|
)
|
|
(2,419,065
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
133,658
|
|
|
141,417
|
|
|
81,267
|
|
|
7,477
|
|
|
363,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interest in net income (loss) of consolidated subsidiaries
|
|
|
31,339
|
|
|
(5,840
|
)
|
|
(38,318
|
)
|
|
(28,115
|
)
|
|
(40,934
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax benefit
|
|
|
(245,138
|
)
|
|
(144,975
|
)
|
|
(244,567
|
)
|
|
(30,115
|
)
|
|
(664,795
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(542,416
|
)
|
|
23,554
|
|
$
|
(529,036
|
)
|
$
|
(301,619
|
)
|
$
|
(1,349,517
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share-Basic
|
|
$
|
(.08
|
)
|
$
|
-
|
|
$
|
(.08
|
)
|
$
|
(.04
|
)
|
$
|
(.19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share -Diluted
|
|
$
|
(.08
|
)
|
$
|
-
|
|
$
|
(.08
|
)
|
$
|
(.04
|
)
|
$
|
(.19
|
)
|
|
|
FISCAL 2006
|
|
|
|
Q1
|
|
Q2
|
|
Q3
|
|
Q4
|
|
YEAR
|
|
Net
sales
|
|
$
|
9,213,486
|
|
$
|
10,376,318
|
|
$
|
10,279,301
|
|
$
|
9,618,188
|
|
$
|
39,487,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
3,538,445
|
|
|
3,971,453
|
|
|
4,062,525
|
|
|
3,120,587
|
|
|
14,693,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
5,315,150
|
|
|
4,932,445
|
|
|
5,353,095
|
|
|
5,666,359
|
|
|
21,267,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
|
(1,776,705
|
)
|
|
(960,992
|
)
|
|
(1,290,570
|
)
|
|
(2,545,772
|
)
|
|
(6,574,039
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
174,859
|
|
|
139,332
|
|
|
144,143
|
|
|
94,515
|
|
|
552,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interest in net income (loss) of consolidated subsidiaries
|
|
|
16,339
|
|
|
2,785
|
|
|
(6,465
|
)
|
|
(113
|
)
|
|
12,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax provision (benefit)
|
|
|
(312,822
|
)
|
|
(317,340
|
)
|
|
(310,844
|
)
|
|
(1,333,293
|
)
|
|
(2,274,299
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
(1,305,363
|
)
|
$
|
(507,105
|
)
|
$
|
(829,118
|
)
|
$
|
(1,117,851
|
)
|
$
|
(3,759,437
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per share-Basic
|
|
$
|
(.19
|
)
|
$
|
(.07
|
)
|
$
|
(.12
|
)
|
$
|
(.16
|
)
|
$
|
(.55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per share -Diluted
|
|
$
|
(.19
|
)
|
$
|
(.07
|
)
|
$
|
(.12
|
)
|
$
|
(.16
|
)
|
$
|
(.55
|
)
|
Item
9. Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure .
Not
Applicable.
Item
9A(T). Controls
and Procedures.
Evaluation
of Disclosure Controls and Procedures
We
maintain disclosure controls and procedures (as defined in Rule 13a-15(e) of
the
Securities Exchange Act of 1934, as amended (“Exchange Act”)) that are designed
to assure that information required to be disclosed in our Exchange Act reports
is recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms, and that such information is accumulated
and communicated to management, including our principal executive officer and
principal financial officer, as appropriate, to allow timely decisions regarding
required disclosures.
As
required by Exchange Act Rule 13a-15(b), as of the end of the period covered
by
this Annual Report, under the supervision and with the participation of our
principal executive officer and principal financial officer, we evaluated the
effectiveness of our disclosure controls and procedures. Based on this
evaluation, our principal executive officer and principal financial officer
concluded that our disclosure controls and procedures were effective as of
that
date.
Management’s
Report on Internal Control over Financial Reporting
Management
is responsible for establishing and maintaining adequate internal control over
financial reporting as defined in Rule 13a-15(f) under the Exchange Act.
Internal control over financial reporting is a process designed by, or under
the
supervision of, the principal executive officer and principal financial officer,
and effected by the board of directors and management to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with US Generally
Accepted Accounting Principles (“GAAP”) including those policies and procedures
that: (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of assets,
(ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
US
GAAP and that receipts and expenditures are being made only in accordance with
authorizations of management and the directors, and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of assets that could have a material effect
on
the financial statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with policies and procedures may deteriorate.
Management
conducted an evaluation of the effectiveness of the internal control over
financial reporting based on the framework in Internal
Control – Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission. Based
on this evaluation, management concluded that internal control over financial
reporting was effective as of June 30, 2008.
This
Annual Report does not include an attestation report of the Company’s current
independent registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to attestation by the
Company’s current independent registered public accounting firm pursuant to
temporary rules of the Securities and Exchange Commission (“SEC “) that permit
the Company to provide only management’s report in this Annual
Report.
There
were no changes in our internal control over financial reporting (as such term
is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during our
fourth fiscal quarter that have materially affected, or are reasonably likely
to
materially affect, our internal control over financial reporting.
Item
9B. Other
Information.
None.
PART
III
Item
10. Directors
and Executive Officers of the Registrant.
The
Company currently has six Directors. Their term expires at the next Annual
Meeting of Shareholders. The following table contains information regarding
all
Directors and executive officers of the Company:
Name
|
|
Age
|
|
Principal
Occupation
|
|
Director
Since
|
|
|
|
|
|
|
|
John
Gildea
|
|
65
|
|
Director
|
|
2004
|
|
|
|
|
|
|
|
Howard
Alliger
|
|
81
|
|
Director
|
|
1971
|
|
|
|
|
|
|
|
Dr.
Charles Miner III
|
|
57
|
|
Director
|
|
2005
|
|
|
|
|
|
|
|
T.
Guy Minetti
|
|
57
|
|
Director
|
|
2003
|
|
|
|
|
|
|
|
Thomas
F. O’Neill
|
|
62
|
|
Director
|
|
2003
|
|
|
|
|
|
|
|
Michael
A. McManus, Jr.
|
|
65
|
|
Director,
President and
|
|
1998
|
|
|
|
|
Chief
Executive Officer
|
|
|
Richard
Zaremba
|
|
53
|
|
Senior
Vice President, Chief
|
|
|
|
|
|
|
Financial
Officer, Secretary and Treasurer
|
|
—
|
|
|
|
|
|
|
|
Michael
C. Ryan
|
|
62
|
|
Senior
Vice President, Medical Division
|
|
|
|
|
|
|
|
|
|
Dan
Voic
|
|
46
|
|
Vice
President of Research and Development and Engineering
|
|
—
|
|
|
|
|
|
|
|
Ronald
Manna
|
|
54
|
|
Vice
President of New Product Development and Regulatory
Affairs
|
|
—
|
|
|
|
|
|
|
|
Frank
Napoli
|
|
51
|
|
Vice
President of Operations
|
|
—
|
The
following is a brief account of the business experience for the past five years
of the Company’s Directors and executive officers:
John
W. Gildea
is the
founding principal of Gildea Management Co., a management company of special
situations with middle market companies in the United States and Central Europe.
From 2000 to 2003 Gildea Management Co. formed a joint venture with J.O. Hambro
Capital Management Co. to manage accounts targeting high yield debt and small
capitalization equities. From 1996 to 2000 Gildea Management Co. formed and
founded Latona Europe, a joint venture between Latona U.S., Lazard Co., and
Gildea Management Co. to restructure several Czech Republic companies. Before
forming Gildea Management Co. in 1990, Mr. Gildea managed the Corporate Series
Group at Donaldson, Lufkin and Jenrette, an investment banking firm. Mr. Gildea
is a graduate of the University of Pittsburgh.
Howard
Alliger
founded
the Company’s predecessor in 1955 and the Company was a sole proprietorship
until 1960. The Company name then was Heat Systems-Ultrasonics. Mr. Alliger
was
President of the Company until 1982 and Chairman of the Board until 1996. In
1996 Mr. Alliger stepped down as Chairman and ceased to be a corporate officer.
He has been awarded 23 patents and has published various papers on ultrasonic
technology. For three years, ending in 1991, Mr. Alliger was the President
of
the Ultrasonic Industry Association. Mr. Alliger holds a B.A. degree in
economics from Allegheny College and also attended Cornell University School
of
Engineering for four years. He has also established, and is President of, two
privately held entities which are engaged in pharmaceutical research and
development.
Dr.
Charles Miner III
currently practices internal medicine in Darien, Connecticut. Dr. Miner is
on
staff at Stamford and Newark Hospitals and since 1982 has held a teaching
position at Columbia Presbyterian Hospital from 1982. Dr. Miner received his
M.D. from the University Of Cincinnati College Of Medicine in 1979 and received
a Bachelor of Science from Lehigh University in 1974.
T.
Guy Minetti is
the
founder and Managing Director of Senior Resource Advisors LLC. a management
consulting firm. Prior to being Managing Director of Senior Resource Advisors
LLC, Mr. Minetti served as the Vice Chairman of the Board of Directors of
1-800-Flowers.Com, a publicly-held specialty gift retailer based in Westbury,
New York. Before joining 1-800-Flowers.Com in 2000, Mr. Minetti was the Managing
Director of Bayberry Advisors, an investment-banking boutique he founded in
1989
to provide corporate finance advisory services to small-to-medium-sized
businesses. From 1981 through 1989, Mr. Minetti was a Managing Director of
the
investment banking firm, Kidder, Peabody & Company. While at Kidder,
Peabody, Mr. Minetti worked in the investment banking and high yield bond
departments. Mr. Minetti is a graduate of St. Michael’s College.
Thomas
F. O’Neill,
a
founding principal of Sandler O’Neill & Partners L.P., an investment banking
firm, began his Wall Street career at L.F. Rothschild. Mr. O’Neill specialized
in working with financial institutions in Rothschild’s Bank Service Group from
1972. He was appointed Managing Director of the Bank Service Group, a group
consisting of fifty-five professionals, in 1984. In 1985, he became a Bear
Stearns Managing Director and Co-Manager of the Group. Mr. O’Neill serves on the
Board of Directors of Archer-Daniels-Midland Company and The Nasdaq Stock
Market, Inc. Mr. O’Neill is a graduate of New York University and a veteran of
the United States Air Force.
Michael
A. McManus, Jr.,
became
President and Chief Executive Officer of the Company in November 1999. From
November 1991 to March 1999, Mr. McManus was President and Chief Executive
Officer of New York Bancorp, Inc. Prior to New York Bancorp, Inc., Mr. McManus
held senior positions with Jamcor Pharmaceutical, Inc., Pfizer, Inc. and Revlon
Corp. Mr. McManus also spent several years as an Assistant to President Reagan.
Mr. McManus serves on the Board of Directors of the following publicly traded
companies: A. Schulman, Inc. and Novavax, Inc. Mr. McManus holds a B.A. degree
in Economics from the University of Notre Dame and a Juris Doctorate from
Georgetown University Law Center.
Richard
Zaremba
became
Senior Vice President in 2004. He became Vice President and Chief Financial
Officer in February 1999. From March 1995 to February 1999, he was the Vice
President and Chief Financial Officer of Converse Information Systems, Inc.,
a
manufacturer of digital voice recording systems. Previously, Mr. Zaremba was
Vice President and Chief Financial Officer of Miltope Group, Inc., a
manufacturer of electronic equipment. Mr. Zaremba is a licensed certified public
accountant in the state of New York and holds BBA and MBA degrees in Accounting
from Hofstra University.
Michael
C. Ryan became
Senior Vice President, Medical Division in October 2007. Prior thereto, he
served as Senior Vice President and General Manager for Nomos Radiation Oncology
from 2006 to October 2007. From 1992 to 2005, Mr. Ryan was Executive Vice
President, Business Development for Inter V. Mr. Ryan holds a Bachelor of Arts
in Economics from John F. Kennedy College.
Dan
Voic
became
Vice President of Research and Development and Engineering in January 2002.
Prior thereto, he served as Engineering Manager and Director of Engineering
with
the Company. Mr. Voic has approximately 15 years experience in both medical
and
laboratory and scientific products development. Mr. Voic holds an M.S. degree
in
mechanical engineering from Polytechnic University “Traian Vuia” of Timisoara,
Romania and an MS degree in applied mechanics from Polytechnic University of
New
York.
Ronald
Manna
became
Vice President of New Product Development and Regulatory Affairs of the Company
in January 2002. Prior thereto, Mr. Manna served as Vice President of Research
and Development and Engineering, Vice President of Operations and Director
of
Engineering of the Company. Mr. Manna holds a B.S. degree in mechanical
engineering from Hofstra University.
Frank
Napoli became
Vice President of Operations in September 2004. From March 2004 to September
2004, Mr. Napoli was Vice President of Manufacturing for Spellman High Voltage
Electronics Corp. Previously, Mr. Napoli was Director of Manufacturing for
Telephonics Corporation. Mr. Napoli holds a B.S. degree in Mechanical
Engineering from the New York Institute of Technology.
Executive
officers are elected annually by, and serve at the discretion of, the board
of
directors.
|
|
DIRECTOR COMPENSATION FOR THE 2008
FISCAL YEAR
|
|
Name
|
|
Fees Earned or Paid in
Cash ($)
|
|
Option
Awards ($)
|
|
Total
|
|
Michael
A. McManus, Jr.
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
John
Gildea
|
|
|
23,750
|
|
|
—
|
|
|
23,750
|
|
|
|
|
|
|
|
|
|
|
|
|
Howard
Alliger
|
|
|
18,750
|
|
|
— |
|
|
18,750
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr.
Charles Miner III
|
|
|
23,750
|
|
|
— |
|
|
23,750
|
|
|
|
|
|
|
|
|
|
|
|
|
T.
Guy Minetti
|
|
|
28,750
|
|
|
—
|
|
|
28,750
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas
F. O’Neill
|
|
|
23,750
|
|
|
— |
|
|
23,750
|
|
Outstanding
options at fiscal year end for Messrs. O’Neill and Minetti are 60,000 shares;
Mr. Alliger is 70,000 shares and Messrs. Gildea and Miner are 30,000 shares.
Each non-employee director receives an annual fee of $15,000. The Chairman
of
the Audit Committee receives an additional $10,000 per year cash compensation
and other members of the Audit Committee receive an additional $5,000 per year
cash compensation. Each non-employee director is also reimbursed for reasonable
expenses incurred while traveling to attend meetings of the Board of Directors
or while traveling in furtherance of the business of the Company.
Section
16 (a) Beneficial Ownership Reporting Compliance of the Securities Exchange
Act
Section
16(a) of the Exchange Act requires the Company's executive officers, directors
and persons who own more than 10% of a registered class of the Company's equity
securities ("Reporting Persons") to file reports of ownership and changes in
ownership on Forms 3, 4, and 5 with the SEC and the National Association of
Securities Dealers, Inc. (the "NASD"). These Reporting Persons are required
by
SEC regulation to furnish the Company with copies of all Forms 3, 4 and 5 they
file with the SEC and NASD. Based solely on the Company's review of the copies
of the forms it has received, the Company believes that all Reporting Persons
complied on a timely basis with all filing requirements applicable to them
with
respect to transactions during fiscal year 2008.
Code
of Ethics
The
Company has adopted a code of ethics that applies to all of its directors,
officers (including its Chief Executive Officer, Chief Financial Officer,
Controller and any person performing similar functions) and employees. The
Company has filed a copy of this Code of Ethics as Exhibit 14 to this Form
10-K.
The Company has also made the Code of Ethics available on its website at
www.MISONIX.COM
.
Audit
Committee
The
Company has a separately-designated standing audit committee established in
accordance with section 3(a) (58) (A) of the Exchange Act. The members of the
Audit Committee are Messrs. Gildea, Miner, Minetti and O’Neill. The Board of
Directors has determined that each member of the Audit Committee is
“independent” not only under the Qualitative Listing Requirements of Nasdaq but
also within the definition contained in a final rule of the SEC. Furthermore,
the Board of Directors has determined that Messrs. Gildea, Minetti and O’Neill
are “audit committee financial experts” within the definition contained in a
final rule adopted by the SEC.
Compensation
Committee Interlocks and Insider Participation
Messrs.
Alliger, Minetti, O’Neill and Gildea are the members of the Compensation
Committee (the “Compensation Committee”). No member of the Compensation
Committee is an officer or employee, or former officer or employee, of Misonix,
and no member of the Compensation Committee had any relationship with Misonix
requiring disclosure under Item 404 of Regulation S-K. No interlocking
relationship exists between the members of Misonix’s Compensation Committee and
the Board of Directors or compensation committee of any other
company.
Director
Independence
The
Company is required to have a Board of Directors a majority of whom are
“independent” as defined by the Nasdaq listing standards and to disclose those
directors that the Board of Directors has determined to be independent. Based
on
such definition, the Board of Directors has determined that all directors other
than Mr. McManus, who is an officer of the Company, are
independent.
The
Company is required to have an audit committee of at least three members
composed solely of independent directors. The Board of Directors is required
under the Nasdaq listing standards to affirmatively determine the independence
of each director on the Audit Committee. The Board has determined that each
member of the Audit Committee is “independent” not only under the Nasdaq listing
standards but also within the definition contained in a final rule of the SEC.
Furthermore, the Board of Directors has determined that Messrs. Minetti, O’Neill
and Gildea are “audit committee financial experts” within the definition
contained in a final rule adopted by the SEC.
Item
11. Executive
Compensation.
Compensation
Discussion and Analysis
Overview
of Compensation Program and Philosophy
Our
compensation program is intended to:
|
·
|
Attract,
motivate, retain and reward employees of outstanding
ability;
|
|
·
|
Link
changes in employee compensation to individual and corporate
performance;
|
|
·
|
Align
employees’ interests with those of the
shareholders.
|
The
ultimate objective of our compensation program is to increase shareholder value.
We seek to achieve these objectives with a total compensation approach which
takes into account a competitive base salary, bonus pay based on the annual
performance of the Company and individual goals and stock option
awards.
Base
Salaries
Base
salaries paid to executives are intended to attract and retain highly talented
individuals. In setting base salaries, individual experience, individual
performance, the Company’s performance and job responsibilities during the year
are considered. Executive salaries are reconciled by Human Resources and
evaluated against local companies of similar size and nature.
Annual
Bonus Plan Compensation
The
Compensation Committee of the Board of Directors approves annual
performance-based compensation. The purpose of the annual bonus-based
compensation is to motivate executive officers and key employees. Target
bonuses, based upon recommendations from the Chief Executive Officer are
evaluated and approved by the Compensation Committee for all employees other
than the Chief Executive Officer. The bonus recommendations are derived from
individual and Company performance but not based on a specific formula and
is
discretionary. The Chief Executive Officer’s bonus compensation is derived from
the Board of Directors’ recommendation to the Compensation Committee based upon
the Chief Executive Officer’s performance and Company performance but is not
based on a specific formula and is discretionary.
Stock
Option Awards
Stock
option awards are intended to attract and retain highly talented executives,
to
provide an opportunity for significant compensation when overall Company
performance is reflected in the stock price, and to help align executives’ and
shareholders’ interests. Stock options are typically granted at the time of hire
to key new employees and annually to a broad group of existing key employees,
including executive officers.
Annual
option grants to executive officers are made in the form of incentive stock
options (“ISO’s”) to the fullest extent permitted under tax rules, with the
balance granted in the form of nonqualified stock options. ISO’s have potential
income tax advantage for executives if the executive disposes of the acquired
shares after satisfying certain holding periods. Tax laws provide that the
aggregate grant at date of grant for market value of ISO’s that become
exercisable for any employee in any year may not exceed $100,000.
Our
current standard vesting schedule for all employees is 25% on the first
anniversary of the date of grant, 50% on the second anniversary of the date
of
grant, 75% on the third anniversary of the date of grant and 100% on the fourth
anniversary of the date of grant.
401
(k) Plan
Our
Individual Deferred Tax and Savings Plan (the “401 (k) plan”) is a tax qualified
retirement savings plan pursuant to which all of the Company’s U.S. employees
may defer compensation under Section 401 (k) of the Internal Revenue Code of
1986, as amended (the “Code”). The Company contributes an amount equal to 25% of
salary contributed under the 401 (k) plan by an eligible employee, up to the
maximum allowed under the Code. We do not provide any supplemental retirement
benefits to executive officers.
Change
in Control benefits
Change
in
control benefits are intended to diminish the distinction that executives would
face by virtue of the personal uncertainties created by a pending or threatened
change in control and to assure that the Company will continue to have the
executive’s full attention and services at all time. Our change in control
benefits are designed to be competitive with similar benefits available at
companies with which we compete for executives’ talent. These benefits, as one
element of our total compensation program, help the Company attract, retain
and
motivate highly talented executives.
Mr.
McManus’ employment agreement provides that after a change in control of the
Company, he is entitled to a one-time additional compensation payment equal
to
two times his total compensation (annual salary plus bonuses) at the highest
rate paid during his employment payable within 60 days of termination. Mr.
Zaremba has an agreement for the payment of six months of annual base salary
upon a change in control of the Company.
Tax
deductibility of Executive Compensation
Section
162 (m) of the Code limits to $1,000,000 per person the amount that we may
deduct for compensation paid to any of our most highly compensated officers
in
any year. In fiscal 2008, there was no executive officer’s compensation that
exceeded $1,000,000.
Compensation
Committee Report
The
Compensation Committee has received and discussed the Compensation Discussion
and Analysis section above with management and, based on such review and
discussion, the Committee recommended to the Board of Directors that the
Compensation Discussion and Analysis be included in this Report.
Howard
Alliger
T.
Guy
Minetti
Thomas
F.
O’Neill
John
W.
Gildea
The
following table sets forth information for the fiscal year ended June 30, 2008
concerning the compensation awarded to, earned by or paid to our named executive
officers during fiscal 2008 for services rendered to the
Company.
SUMMARY
COMPENSATION TABLE FOR
THE 2008 FISCAL YEAR
Name and Principal
Position
|
|
Fiscal Year
Ended June 30,
|
|
Salary ($)
|
|
Bonus ($)
|
|
Options
Awards ($)
|
|
Total ($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
A. McManus, Jr.
|
|
|
2008
|
|
|
275,000
|
|
|
200,000
|
|
|
-
|
|
|
475,000
|
|
President
and Chief
|
|
|
2007
|
|
|
275,000
|
|
|
−
|
|
|
-
|
|
|
275,000
|
|
Executive
Officer
|
|
|
2006
|
|
|
275,000
|
|
|
-
|
|
|
-
|
|
|
275,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard
Zaremba
|
|
|
2008
|
|
|
189,303
|
|
|
24,000
|
|
|
23,430
|
|
|
236,733
|
|
Senior
Vice President,
|
|
|
2007
|
|
|
183,790
|
|
|
23,000
|
|
|
23,640
|
|
|
230,430
|
|
Chief
Financial Officer,
|
|
|
2006
|
|
|
178,437
|
|
|
28,000
|
|
|
45,680
|
|
|
252,117
|
|
Secretary
and Treasurer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dan
Voic
|
|
|
2008
|
|
|
143,789
|
|
|
22,000
|
|
|
23,430
|
|
|
189,219
|
|
Vice
President of
|
|
|
2007
|
|
|
126,915
|
|
|
18,000
|
|
|
15,760
|
|
|
160,675
|
|
Research
and Development and
|
|
|
2006
|
|
|
123,224
|
|
|
20,000
|
|
|
28,550
|
|
|
171,774
|
|
Engineering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ronald
Manna
|
|
|
2008
|
|
|
114,683
|
|
|
7,000
|
|
|
11,715
|
|
|
133,398
|
|
Vice
President- New Product
|
|
|
2007
|
|
|
111,342
|
|
|
5,000
|
|
|
5,910
|
|
|
122,252
|
|
Development
and Regulation Affairs
|
|
|
2006
|
|
|
108,099
|
|
|
5,000
|
|
|
11,420
|
|
|
124,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frank
Napoli
|
|
|
2008
|
|
|
125,341
|
|
|
6,000
|
|
|
9,372
|
|
|
140,713
|
|
Vice
President- Operations
|
|
|
2007
|
|
|
121,690
|
|
|
7,000
|
|
|
7,880
|
|
|
136,570
|
|
|
|
|
2006
|
|
|
118,146
|
|
|
7,000
|
|
|
7,200
|
|
|
132,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
Ryan*
|
|
|
2008
|
|
|
152,677
|
|
|
-
|
|
|
43,500
|
|
|
196,177
|
|
Senior
Vice President-Medical
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Division
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
*
Michael
Ryan joined the Company during October 2007.
Employment
Agreements
In
June
2008, the Company amended and restated its employment agreement with its
President and Chief Executive Officer. The agreement expires on June 30, 2009
and is automatically renewable for one-year periods unless notice is given
by
the Company or Mr. McManus that it or he declines to renew the agreement. The
agreement provides for an annual base compensation of $275,000 and a
Company-provided automobile. The agreement also provides for a bonus based
upon
achievement of his annual goals and objectives as determined by the Compensation
Committee of the Board of Directors.
In
conformity with the Company's policy, all of its directors, officers and
employees execute confidentiality and nondisclosure agreements upon the
commencement of employment with the Company. The agreements generally provide
that all inventions or discoveries by the employee related to the Company's
business and all confidential information developed or made known to the
employee during the term of employment shall be the exclusive property of the
Company and shall not be disclosed to third parties without the prior approval
of the Company. Mr. Zaremba has an agreement for the payment of six months’
annual base salary upon a change in control of the Company. Mr. McManus is
entitled in the event of a change of control to payment of two times his total
compensation (annual base salary plus bonus) at the highest rate paid during
the
period of employment, payable in a lump sum written 60 days of termination
of
employment. The Company's employment agreement with Mr. McManus also contains
non-competition provisions that preclude him from competing with the Company
for
a period of 18 months from the date of his termination of
employment.
GRANTS OF PLAN-BASED AWARDS FOR THE 2008 FISCAL YEAR
Name
|
|
Grant Date
|
|
All Other Option
Awards: Number of
Securities Underlying
Options (#)
|
|
Exercise or
Base Price of
Option Awards
($/Sh)
|
|
Grant Date Fair
Value of Stock
and Option
Awards (a)
|
|
Michael
A. McManus, Jr.
|
|
|
−
|
|
|
−
|
|
|
−
|
|
|
−
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard
Zaremba
|
|
|
9/5/2007
|
|
|
10,000
|
|
|
4.04
|
|
|
23,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dan
Voic
|
|
|
9/5/2007
|
|
|
10,000
|
|
|
4.04
|
|
|
23,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ronald
Manna
|
|
|
9/5/2007
|
|
|
5,000
|
|
|
4.04
|
|
|
11,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frank
Napoli
|
|
|
9/5/2007
|
|
|
4,000
|
|
|
4.04
|
|
|
9,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
Ryan
|
|
|
11/7/2007
|
|
|
15,000
|
|
|
4.98
|
|
|
43,500
|
|
(a)
The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted average assumptions: risk-free
interest rate of 4.3%; no dividend yield; volatility factor of the expected
market price of the Common Stock of 54.7%, and a weighted-average expected
life
of the options of six and one half years.
OUTSTANDING EQUITY AWARDS FOR THE 2008 FISCAL YEAR
|
|
|
Name
|
|
Number of Securities
Underlying Unexercised
Options (#)
Exercisable
|
|
Number of Securities
Underlying Unexercised
Options (#)
Unexercisable
|
|
Option Exercise
Price ($)
|
|
Option Expiration
Date
|
|
|
|
|
|
|
|
|
|
|
|
Michael
A. McManus, Jr.
|
|
|
250,000
|
|
|
-
|
|
|
5.06
|
|
|
10/07/08
|
|
|
|
|
250,000
|
|
|
-
|
|
|
7.375
|
|
|
10/13/10
|
|
|
|
|
150,000
|
|
|
-
|
|
|
6.07
|
|
|
10/17/11
|
|
|
|
|
150,000
|
|
|
-
|
|
|
5.10
|
|
|
09/30/12
|
|
|
|
|
125,000
|
|
|
-
|
|
|
4.66
|
|
|
11/01/13
|
|
|
|
|
125,000
|
|
|
-
|
|
|
5.18
|
|
|
11/01/14
|
|
Richard
Zaremba
|
|
|
7,500
|
|
|
-
|
|
|
7.3125
|
|
|
08/09/10
|
|
|
|
|
7,500
|
|
|
-
|
|
|
6.12
|
|
|
05/08/11
|
|
|
|
|
16,000
|
|
|
-
|
|
|
6.07
|
|
|
10/17/11
|
|
|
|
|
20,000
|
|
|
-
|
|
|
5.10
|
|
|
09/30/12
|
|
|
|
|
15,000
|
|
|
-
|
|
|
4.70
|
|
|
09/16/13
|
|
|
|
|
12,000
|
|
|
-
|
|
|
8.00
|
|
|
09/15/14
|
|
|
|
|
5,333
|
|
|
2,667
|
(1)
|
|
7.60
|
|
|
09/27/15
|
|
|
|
|
2,000
|
|
|
2,000
|
(2)
|
|
5.82
|
|
|
02/07/16
|
|
|
|
|
3,000
|
|
|
9,000
|
(3)
|
|
3.45
|
|
|
10/20/16
|
|
|
|
|
- |
|
|
10,000
|
(4)
|
|
4.04
|
|
|
09/04/17
|
|
Dan
Voic
|
|
|
7,500
|
|
|
-
|
|
|
7.57
|
|
|
07/28/08
|
|
|
|
|
7,500
|
|
|
-
|
|
|
7.3125
|
|
|
08/09/10
|
|
|
|
|
2,210
|
|
|
-
|
|
|
6.07
|
|
|
10/17/11
|
|
|
|
|
6,700
|
|
|
-
|
|
|
5.10
|
|
|
09/30/12
|
|
|
|
|
15,000
|
|
|
-
|
|
|
4.70
|
|
|
09/16/13
|
|
|
|
|
12,000
|
|
|
-
|
|
|
8.00
|
|
|
09/15/14
|
|
|
|
|
3,333
|
|
|
1,667
|
(1)
|
|
7.60
|
|
|
09/26/15
|
|
|
|
|
1,250
|
|
|
1,250
|
(2)
|
|
5.82
|
|
|
02/07/16
|
|
|
|
|
2,000
|
|
|
6,000
|
(3)
|
|
3.45
|
|
|
10/20/16
|
|
|
|
|
- |
|
|
10,000
|
(4)
|
|
4.04
|
|
|
09/04/17
|
|
Ronald
Manna
|
|
|
5,000
|
|
|
-
|
|
|
5.50
|
|
|
01/13/09
|
|
|
|
|
15,000
|
|
|
-
|
|
|
3.09
|
|
|
03/31/09
|
|
|
|
|
15,000
|
|
|
-
|
|
|
7.3125
|
|
|
08/09/10
|
|
|
|
|
10,000
|
|
|
-
|
|
|
6.07
|
|
|
10/17/11
|
|
|
|
|
5,000
|
|
|
-
|
|
|
5.10
|
|
|
09/30/12
|
|
|
|
|
4,000
|
|
|
-
|
|
|
8.00
|
|
|
09/15/14
|
|
|
|
|
1,333
|
|
|
667
|
(1)
|
|
7.60
|
|
|
09/15/15
|
|
|
|
|
500
|
|
|
500
|
(2)
|
|
5.82
|
|
|
02/07/16
|
|
|
|
|
750
|
|
|
2,250
|
(3)
|
|
3.45
|
|
|
10/20/16
|
|
|
|
|
- |
|
|
5,000
|
(4)
|
|
4.04
|
|
|
09/04/17
|
|
Frank
Napoli
|
|
|
1,333
|
|
|
667
|
(1)
|
|
7.60
|
|
|
09/26/15
|
|
|
|
|
500
|
|
|
500
|
(2)
|
|
5.82
|
|
|
02/07/16
|
|
|
|
|
1,000
|
|
|
3,000
|
(3)
|
|
3.45
|
|
|
10/20/16
|
|
|
|
|
- |
|
|
4,000
|
(4)
|
|
4.04
|
|
|
09/04/17
|
|
Michael
Ryan
|
|
|
-
|
|
|
15,000
|
(5)
|
|
4.98
|
|
|
11/06/17
|
|
(1)
Options issued 09/26/05 and vest equally over 3 years
(2)
Options issued 02/07/06 and vest equally over 4 years
(3)
Options issued 10/20/06 and vest equally over 4 years
(4)
Options issued 09/5/07 and vest equally over 4 years
(5)
Options issued 11/7/07 and vest equally over 4 years
Stock
Options
In
September 1991, in order to attract and retain persons necessary for the success
of the Company, the Company adopted a stock option plan (the "1991 Plan") which
covers up to 375,000 shares of Common Stock. Pursuant to the 1991 Plan,
officers, directors, consultants and key employees of the Company are eligible
to receive incentive and/or non-incentive stock options. At June 30, 2008,
options to purchase 30,000 shares were outstanding under the 1991 Plan at an
exercise price of $7.38 per share with a vesting period of two years, options
to
purchase 327,750 shares had been exercised and options to purchase 47,250 shares
have been forfeited (of which options to purchase 30,000 shares have been
reissued). There are no shares available for future grants.
In
March
1996, the Board of Directors adopted and, in February 1997, the shareholders
approved the 1996 Employee Incentive Stock Option Plan covering an aggregate
of
450,000 shares (the “1996 Plan”) and the 1996 Non-Employee Director Stock Option
Plan (the “1996 Directors Plan”) covering an aggregate of 1,125,000 shares of
Common Stock. At June 30, 2008, options to purchase 266,278 shares were
outstanding at exercise prices ranging from $3.07 to $7.60 per share with a
vesting period of immediate to three years under the 1996 Plan and options
to
acquire 175,000 shares were outstanding at exercise prices ranging from $3.07
to
$7.60 per share with a vesting period of immediate to three years under the
1996
Directors Plan. At June 30, 2008, options to purchase 138,295 shares under
the
1996 Plan have been exercised and options to purchase 222,372 shares have been
forfeited (of which options to purchase 182,945 shares have been reissued).
At
June 30, 2008, options to purchase 808,500 shares under the 1996 Directors
Plan
have been exercised options to purchase 90,000 shares have been forfeited (of
which none have been reissued) and there are no shares available for future
grants.
In
October 1998, the Board of Directors adopted and, in January 1999, the
shareholders approved the 1998 Employee Stock Option Plan (the “1998 Plan”)
covering an aggregate of 500,000 shares of Common Stock. At June 30, 2008,
options to purchase 381,875 shares were outstanding under the 1998 Plan at
exercise prices ranging from $3.45 to $7.60 per share with a vesting period
of
immediate to three years. At June 30, 2008, options to purchase 72,848 shares
under the 1998 Plan have been exercised and options to purchase 110,552 shares
under the 1998 Plan have been forfeited (of which options to purchase 79,702
shares have been reissued). At June 30, 2008, there were 45, 277 shares
available for future grants.
In
October 2000, the Board of Directors adopted and, in February 2001, the
shareholders approved the 2001 Employee Stock Option Plan (the “2001 Plan”)
covering an aggregate of 1,000,000 shares of Common Stock. At June 30, 2008,
options to purchase 862,838 shares were outstanding under the 2001 Plan at
exercise prices ranging from $3.45 to $8.00 per share with a vesting period
of
one to four years. At June 30, 2008, options to purchase 128,306 shares under
the 2001 Plan have been exercised and options to purchase 176,762 shares under
the 2001 Plan have been forfeited (of which 159,577 options have been reissued).
At June 30, 2008, there were 8,756 shares available for future
grants.
In
September 2005, the Board of Directors adopted, and in December 2005, the
shareholders approved, the 2005 Employee Equity Incentive Plan covering an
aggregate of 500,000 shares of Common Stock and the 2005 Non-Employee Director
Stock Option Plan covering an aggregate of 200,000 shares of Common Stock.
At
June 30, 2008, there were 31,850 options to purchase shares outstanding under
the 2005 Employee Equity Incentive Plan at exercise prices ranging from $4.04
to
$4.98 per share with a vesting period of four years. At June 30, 2008, 468,150
shares were available for future grants. At June 30, 2008, options to purchase
75,000 shares were outstanding under the 2005 Non- Employee Director Stock
Option Plan at an exercise price of $5.42 with a vesting period over three
years
equally. At June 30, 2008, there were no options exercised and 125,000 shares
were available for future grants.
The
selection of participants, allotments of shares and determination of price
and
other conditions relating to options are determined by the Board of Directors
or
a committee thereof, depending on the Plan, and in accordance with Rule 4350(c)
of the Qualitative Listing Requirements of Nasdaq. Incentive stock options
granted under the plans are exercisable for a period of up to ten years from
the
date of grant at an exercise price which is not less than the fair market value
of the Common Stock on the date of the grant, except that the term of an
incentive stock option granted under the plans to a shareholder owning more
than
10% of the outstanding Common Stock may not exceed five years and its exercise
price may not be less than 110% of the fair market value of the Common Stock
on
the date of grant. Options shall become exercisable at such time and in such
installments as provided in the terms of each individual option
agreement.
Item
12. Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
The
following table sets forth as of September 15, 2008, certain information with
regard to the ownership of the Company's Common Stock by (i) each beneficial
owner of 5% or more of the Company's Common Stock; (ii) each director; (iii)
each executive officer named in the "Summary Compensation Table" above; and
(iv)
all executive officers and directors of the Company as a group. Unless otherwise
stated, the persons named in the table have sole voting and investment power
with respect to all Common Stock shown as beneficially owned by
them.
Name
and Address (1)
|
|
Common Stock
Beneficially Owned
|
|
Percent
of
Class
|
|
|
|
|
|
|
|
Michael
A. McManus, Jr.
|
|
|
1,233,251
|
(2)
|
|
15.3
|
|
Dimensional
Fund Advisors LP
|
|
|
587,400
|
|
|
8.4
|
|
Gary
Gelman
|
|
|
458,947
|
|
|
6.6
|
|
Howard
Alliger
|
|
|
426,508
|
(3)
|
|
6.0
|
|
Richard
Zaremba
|
|
|
102,000
|
(4)
|
|
1.4
|
|
Ronald
Manna
|
|
|
82,644
|
(5)
|
|
1.2
|
|
Dan
Voic
|
|
|
63,660
|
(6)
|
|
*
|
|
T.
Guy Minetti
|
|
|
57,000
|
(7)
|
|
*
|
|
Thomas
F. O’Neill
|
|
|
57,000
|
(8)
|
|
*
|
|
John
W. Gildea
|
|
|
20,000
|
(9)
|
|
*
|
|
Charles
Miner
|
|
|
20,000
|
(10)
|
|
*
|
|
Frank
Napoli
|
|
|
5,500
|
(11)
|
|
*
|
|
Michael
Ryan
|
|
|
3,750
|
(12)
|
|
*
|
|
|
|
|
|
|
|
|
|
All
executive officers and Directors as a group (eleven
people)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,071,313 |
(13) |
|
24.5
|
|
*Less
than 1%
|
|
|
|
|
|
|
|
|
(1)
|
Except
as otherwise noted, the business address of each of the named individuals
in this table is c/o MISONIX, INC., 1938 New Highway, Farmingdale,
New
York 11735. Mr. Gelman has an office address c/o American Claims
Evaluation, Inc., One Jericho Plaza, Jericho, New York, 11753.
Dimensional
Fund Advisors LP has a principal business office at 1299 Ocean
Avenue,
Santa Monica, CA 90401.
|
|
(2)
|
Includes
1,050,000 shares which Mr. McManus has the right to acquire upon
exercise
of stock options which are currently exercisable.
|
|
(3)
|
Includes
60,000 shares which Mr. Alliger has the right to acquire upon exercise
of
stock options which are currently exercisable.
|
|
(4)
|
Includes
88,333 shares which Mr. Zaremba has the right to acquire upon exercise
of
stock options which are currently exercisable.
|
|
(5)
|
Includes
56,583 shares which Mr. Manna has the right to acquire upon exercise
of
stock options which are currently exercisable.
|
|
(6)
|
Includes
57,493 shares which Mr. Voic has the right to acquire upon exercise
of
stock options which are currently exercisable.
|
|
(7)
|
Includes
50,000 shares which Mr. Minetti has the right to acquire upon exercise
of
stock options which are currently exercisable.
|
|
(8)
|
Includes
50,000 shares which Mr. O’Neill has the right to acquire upon exercise of
stock options which are currently exercisable.
|
|
(9)
|
Includes
20,000 shares which Mr. Gildea has the right to acquire upon exercise
of
stock options which are currently exercisable.
|
|
(10)
|
Includes
20,000 shares which Dr. Miner has the right to acquire upon exercise
of
stock options which are currently exercisable.
|
|
(11)
|
Includes
2,833 shares which Mr. Napoli has the right to acquire upon exercise
of
stock options which are currently exercisable.
|
|
(12)
|
Includes
3,750 shares which Mr. Ryan has the right to acquire upon exercise
of
stock options which are currently exercisable.
|
|
(13)
|
Includes
the shares indicated in notes (2), (3), (4), (5), (6), (7), (8),
(9),
(10), (11) and (12).
|
Item
13. Certain
Relationships and Related Transactions.
None.
Item
14. Principal
Accountant Fees and Services.
Audit
Fees:
Grant
Thornton LLP (“Grant”) billed the Company $263,294 and $336,449 in the aggregate
for services rendered for the audit of the Company’s 2008 and 2007 fiscal years,
respectively, and the review of the Company’s interim financial statements
included in the Company’s Quarterly Reports on Form 10-Q for the Company’s 2008
and 2007 fiscal years, respectively.
Audit-Related
Fees:
Grant
did
not render any audit-related services, as defined by the SEC, to the Company
for
the fiscal years ended June 30, 2008 and 2007.
Tax
Fees:
Grant
did
not render any tax related services, as defined by the SEC, to the Company
for
the Company’s fiscal years 2008 and 2007.
All
Other
Fees:
Grant
did
not render any other services to the Company for the Company’s fiscal years 2008
and 2007.
Policy
on
Pre-approval of Independent Registered Public Accounting Firm
Services:
The
charter of the Audit Committee provides for the pre-approval of all audit
services and all permitted non-audit services to be performed for Misonix by
the
independent registered public accounting firm, subject to the requirements
of
applicable law. The procedures for pre-approving all audit and non-audit
services provided by the independent registered public accounting firm include
the Audit Committee reviewing audit-related services, tax services, and other
services. The Audit Committee periodically monitors the services rendered by
and
actual fees paid to the independent registered public accounting firm to ensure
that such services are within the parameters approved by the Committee.
PART
IV
Item
15. Exhibits
and Financial Statement Schedules .
(a)
|
1.
|
The
response to this portion of Item 15 is submitted as a separate section
of
this Report.
|
|
|
|
|
2.
|
Financial
Statement Schedules
|
|
|
|
|
|
Schedule
II - Valuation and Qualifying Accounts and Reserves.
|
|
|
|
|
3.
|
Exhibits
|
|
3(a)
|
|
Restated
Certificate of Incorporation of the Company. (1)
|
|
|
|
|
|
3(b)
|
|
By-laws
of the Company. (23)
|
|
|
|
|
|
10(a)
|
|
Lease
extension and modification agreement dated October 31, 1992.
(3)
|
|
|
|
|
|
10(b)
|
|
Stock
Option Plan. (1)
|
|
|
|
|
|
10(g)
|
|
Settlement
and License Agreement dated March 12, 1984 between the Company and
Mettler
Electronics Corporation. (1)
|
|
|
|
|
|
10(j)
|
|
Assignment
Agreement between the Company and Robert Ginsburg. (2)
|
|
|
|
|
|
10(k)
|
|
Subscription
Agreement between the Company and Labcaire. (2)
|
|
|
|
|
|
10(l)
|
|
Option
Agreements between the Company and each of Graham Kear, Geoffrey
Spear,
John Haugh, Martin Keeshan and David Stanley. (2)
|
|
|
|
|
|
10(n)
|
|
Form
of Director's Indemnification Agreement. (2)
|
|
|
|
|
|
10(u)
|
|
Option
Agreement dated September 11, 1995 between the Company and Medical
Device
Alliance, Inc. (4)
|
|
|
|
|
|
10(w)
|
|
Amendment
to agreement with principal shareholders of Labcaire Systems Ltd.
(5)
|
|
|
|
|
|
10(y)
|
|
Development
and Option Agreement dated August 27, 1996 between the Company and
United
States Surgical Corporation. (6)
|
|
|
|
|
|
10(z)
|
|
License
Agreement dated October 16, 1996 between the Company and United States
Surgical Corporation. (6)
|
|
|
|
|
|
10(aa)
|
|
Amendment
No. 1 dated January 23, 1997 to Underwriters’ Warrant Agreement.
(6)
|
|
|
|
|
|
10(bb)
|
|
1996
Non-Employee Director Stock Option Plan. (7)
|
|
|
|
|
|
10(cc)
|
|
1996
Employee Incentive Stock Option Plan. (7)
|
|
|
|
|
|
10(ee)
|
|
1998
Employee Stock Option Plan. (8)
|
|
|
|
|
|
10(ff)
|
|
Investment
Agreement, dated as of May 3, 1999, by and between the Company and
Focus
Surgery, Inc. (10)
|
|
|
|
|
|
10(gg)
|
|
Investment
Agreement dated October 14, 1999 by and between the Company and Hearing
Innovations, Inc. (10)
|
|
10(ii)
|
|
Exclusive
License Agreement dated as of February, 2001 between the Company
and
Medical Device Alliance, Inc. (10)
|
|
|
|
|
|
10(jj)
|
|
Stock
Purchase Agreement dated as of November 4, 1999 between the Company
and
Acoustic Marketing Research, Inc. d/b/a Sonora Medical Systems.
(10)
|
|
|
|
|
|
10(kk)
|
|
6%
Secured Convertible Debenture, dated April 12, 2001, by Focus Surgery,
Inc. payable to the Company. (9)
|
|
|
|
|
|
10(ll)
|
|
Asset
Purchase Agreement dated January 16, 2001, by and among the Company,
Fibra-Sonics, Inc., Mary Anne Kirchschlager, James Kirchschlager
and James
Conrad Kirchschlager. (9)
|
|
|
|
|
|
10(mm)
|
|
Purchase
and Sale Agreement, dated July 28, 2000, by and between CraMar
Technologies, Inc., Acoustic Marketing Research, Inc. and Randy Muelot.
(9)
|
|
|
|
|
|
10(oo)
|
|
5.1%
Secured Convertible Debenture, dated November 7, 2000, by Focus Surgery,
Inc. payable to the Company. (9)
|
|
|
|
|
|
10(pp)
|
|
Asset
Purchase Agreement by and between Perceptron, Inc. and Acoustic Market
Research, Inc. d/b/a Sonora Medical Systems. (9)
|
|
|
|
|
|
10(qq)
|
|
First
Amendment to Employment Agreement, dated October 13, 2000, by and
between
the Company and Michael A. McManus, Jr. (9)
|
|
|
|
|
|
10(ss)
|
|
6
%
Secured Convertible Debenture, dated July 31, 2001, by Focus Surgery,
Inc.
payable to the Company. (11)
|
|
|
|
|
|
10(tt)
|
|
Second
Amendment to Employment Agreement dated October 31, 2002 by and between
the Company and Michael A. McManus, Jr. (12)
|
|
|
|
|
|
10(uu)
|
|
Amendment
No. 4 to the Loan and Security Agreement. (14)
|
|
|
|
|
|
10(vv)
|
|
Letter
Agreement dated as of February 13, 2006. (15)
|
|
|
|
|
|
10(ww)
|
|
Amendment
No. 5 to the Loan and Security Agreement. (15)
|
|
|
|
|
|
10(xx)
|
|
Letter
Agreement dated as of May 12, 2006. (16)
|
|
|
|
|
|
10(yy)
|
|
Amendment
No. 6 to the Loan and Security Agreement. (16)
|
|
|
|
|
|
10(zz)
|
|
2005
Employee Equity Incentive Plan. (17)
|
|
|
|
|
|
10(aaa)
|
|
2005
Non-Employee Director Stock Option Plan. (17)
|
|
|
|
|
|
10(bbb)
|
|
Letter
Agreement dated as of September 12, 2006. (18)
|
|
|
|
|
|
10(ccc)
|
|
Amendment
No. 7 to the Loan and Security Agreement. (18)
|
|
|
|
|
|
10(ddd)
|
|
Letter
Agreement dated November 14, 2006. (19)
|
|
|
|
|
|
10(eee)
|
|
Credit
and Security Agreement, dated December 29, 2006, By and Between MISONIX,
INC., Acoustic Marketing Research, Inc. d/b/a Sonora Medical Systems
and
Hearing Innovations Incorporated and Wells Fargo Bank, National
Association Acting through its Wells Fargo Business Credit operating
division. (20)
|
|
|
|
|
|
10(fff)
|
|
Credit
and Security Agreement (Ex-Im Subfacility), dated December 29, 2006,
By
and Between MISONIX, INC., Acoustic Marketing Research, Inc. d/b/a
Sonora
Medical Systems and Hearing Innovations Incorporated and Wells Fargo
Bank,
National Association Acting through its Wells Fargo Business Credit
operating division. (20)
|
|
10(ggg)
|
|
Export-Import
Bank of the United States Working Capital Guarantee Program, Borrower
Agreement, dated December 29, 2006, made by MISONIX, INC., Acoustic
Marketing Research, Inc. d/b/a Sonora Medical Systems and Hearing
Innovations Incorporated. (20)
|
|
|
|
|
|
10(hhh)
|
|
Security
Agreement, dated as of December 29, 2006, by and between MISONIX,
INC. and
Wells Fargo Bank, National Association acting through its Wells Fargo
Business Credit operating division. (20)
|
|
|
|
|
|
10(iii)
|
|
Patent
and Security Agreement, dated as of December 29, 2006, by and between
MISONIX, INC. and Wells Fargo Bank, National Association Acting through
its Wells Fargo Business Credit operating division. (20)
|
|
|
|
|
|
10(jjj)
|
|
Letter
Agreement, dated December 29, 2006, by and between MISONIX, INC.
and Bank
of America, N.A. (20)
|
|
|
|
|
|
10(kkk)
|
|
Amendment
to Credit and Security Agreement dated May 10, 2007, by and among
MISONIX,
INC., Acoustic Marketing Research, Inc. d/b/a Sonora Medical Systems
and
Hearing Innovations Incorporated and Wells Fargo Bank, National
Association acting through its Wells Fargo Business Credit operating
division. (21)
|
|
|
|
|
|
10(lll)
|
|
Settlement
Agreement dated as of August 30, 2007, by and between MISONIX, INC.
and
William H. Phillips. (22)
|
|
|
|
|
|
10(mmm)
|
|
Stock
Purchase Agreement dated as of March 3, 2008, by and among USHIFU,
LLC, FS
Acquisition Company, and Certain Stockholders of Focus Surgery, Inc.
(24)
|
|
|
|
|
|
10(nnn)
|
|
Amendment
to Credit and Security Agreement, dated February 5, 2008, by and
among
MISONIX, INC., Acoustic Marketing Research, Inc. d/b/a/ Sonora Medical
Systems and Hearing Innovations Incorporated and Wells Fargo Bank,
National Association, acting through its Wells Fargo Business Credit
operating division. (25)
|
|
|
|
|
|
10(ooo)
|
|
Employment
Agreement dated as of June 27, 2008, by and between MISONIX, INC.
and
Michael A. McManus, Jr. (26)
|
|
|
|
|
|
14
|
|
Code
of Ethics. (13)
|
|
|
|
|
|
21
|
|
Subsidiaries
of the Company.
|
|
|
|
|
|
23.1
|
|
Consent
of Grant Thornton LLP.
|
|
|
|
|
|
31.1
|
|
Rule
13a-14(a)/15d-14(a) Certification.
|
|
31.2
|
|
Rule
13a-14(a)/15d-14(a) Certification.
|
|
|
|
|
|
32.1
|
|
Section
1350 Certification.
|
|
|
|
|
|
32.2
|
|
Section
1350 Certification.
|
|
(1)
|
Incorporated
by reference from the Company’s Registration Statement on Form S-1 (Reg.
No. 33-43585).
|
|
(2)
|
Incorporated
by reference from the Company’s Annual Report on Form 10-K for the fiscal
year 1992.
|
|
(3)
|
Incorporated
by reference from the Company’s Annual Report on Form 10-KSB for the
fiscal year 1993.
|
|
(4)
|
Incorporated
by reference from the Company’s Annual Report on Form 10-KSB for the
fiscal year 1995.
|
|
(5)
|
Incorporated
by reference from the Company’s Annual Report on Form 10-KSB for the
fiscal year 1996.
|
|
(6)
|
Incorporated
by reference from the Company’s Annual Report on Form 10-KSB for the
fiscal year 1997.
|
|
(7)
|
Incorporated
by reference from the Company’s definitive proxy statement for the Annual
Meeting of Shareholders held on February 19, 1997.
|
|
(8)
|
Incorporated
by reference from the Company’s Registration Statement on Form S-8 (Reg.
No. 333-78795).
|
|
(9)
|
Incorporated
by reference from the Company’s Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2001.
|
|
(10)
|
Incorporated
by reference from the Company’s Annual Report on Form 10-K/A for the
fiscal year 2001.
|
|
(11)
|
Incorporated
by reference from the Company’s Annual Report on Form 10-K/A for the
fiscal year 2002.
|
|
(12)
|
Incorporated
by reference from the Company’s Annual Report on Form 10-K for the fiscal
year 2003.
|
|
(13)
|
Incorporated
by reference from the Company’s Annual Report on Form 10-K for the fiscal
year 2004.
|
|
(14)
|
Incorporated
by reference from the Company’s Current Report on Form 8-K filed on
September 30, 2005.
|
|
(15)
|
Incorporated
by reference from the Company’s Current Report on Form 8-K filed on
February 17, 2006.
|
|
(16)
|
Incorporated
by reference from the Company’s Current Report on Form 8-K filed on May
18, 2006.
|
|
(17)
|
Incorporated
by reference from the Company’s definitive proxy statement for the Annual
Meeting of
Stockholders
held on December 14, 2005.
|
|
(18)
|
Incorporated
by reference from the Company’s Current Report on Form 8-K filed on
September 29, 2006.
|
|
(19)
|
Incorporated
by reference from the Company’s Current Report on Form 8-K filed on
November 20, 2006.
|
|
(20)
|
Incorporated
by reference from the Company’s Current Report on Form 8-K filed on
January 04, 2007.
|
|
(21)
|
Incorporated
by reference from the Company’s Current Report on Form 8-K filed on May
16, 2007.
|
|
(22)
|
Incorporated
by reference from the Company’s Current Report on Form 8-K filed on
September 7, 2007.
|
|
(23)
|
Incorporated
by reference from the Company’s Current Report on Form 8-K filed on April
9, 2008.
|
|
(24)
|
Incorporated
by reference from the Company’s Current Report on Form 8-K filed on March
5, 2008.
|
|
(25)
|
Incorporated
by reference from the Company’s Current Report on Form 8-K filed on May
20, 2008.
|
|
(26)
|
Incorporated
by reference from the Company’s Current Report on Form 8-K filed on June
27, 2008.
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) 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.
|
MISONIX,
INC.
|
|
|
|
|
By:
|
/s/
Michael A. McManus, Jr.
|
|
Michael
A. McManus, Jr.
|
|
President
and Chief
Executive
Officer
|
Date:
September 25, 2008
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
Michael A. McManus, Jr.
|
|
President,
Chief Executive
|
|
September
25, 2008
|
Michael
A. McManus, Jr.
|
|
Officer,
and Director
|
|
|
|
|
(principal
executive officer)
|
|
|
|
|
|
|
|
/s/
Richard Zaremba
|
|
Senior
Vice President,
Chief
Financial Officer, Treasurer and Secretary
(principal
financial and accounting officer)
|
|
September
25, 2008
|
Richard
Zaremba
|
|
|
|
|
|
|
|
|
|
/s/
Howard Alliger
|
|
Director
|
|
September
25, 2008
|
Howard
Alliger
|
|
|
|
|
|
|
|
|
|
/s/
T.
Guy Minetti
|
|
Director
|
|
September
25, 2008
|
T.
Guy Minetti
|
|
|
|
|
|
|
|
|
|
/s/
Thomas F. O’Neill
|
|
Director
|
|
September
25, 2008
|
Thomas
F. O’Neill
|
|
|
|
|
|
|
|
|
|
/s/
John Gildea
|
|
Director
|
|
September
25, 2008
|
John
Gildea
|
|
|
|
|
|
|
|
|
|
/s/
Charles Miner III
|
|
Director
|
|
September
25, 2008
|
Charles
Miner III
|
|
|
|
|
Item
15(a)
INDEX
TO
CONSOLIDATED FINANCIAL STATEMENTS
MISONIX,
INC. and Subsidiaries
For
the
Three Years Ended June 30, 2008
|
|
Page
|
Report
of Independent Registered Public Accounting Firm
|
|
F-1
|
|
|
|
Consolidated
Balance Sheets—June 30, 2008 and 2007
|
|
F-2
|
|
|
|
Consolidated
Statements of Operations—Years Ended June 30, 2008, 2007 and
2006
|
|
F-3
|
|
|
|
Consolidated
Statements of Stockholders’ Equity—Years Ended June 30, 2008, 2007 and
2006
|
|
F-4
|
|
|
|
Consolidated
Statements of Cash Flows—Years Ended June 30, 2008, 2007 and
2006
|
|
F-5
|
|
|
|
Notes
to Consolidated Financial Statements
|
|
F-7
|
The
following consolidated financial statement schedule is included in
Item
15(a)
|
|
|
|
|
|
Schedule
II-Valuation and Qualifying Accounts
|
|
F-28
|
All
other
schedules for which provision is made in the applicable accounting regulations
of the Securities and Exchange Commission are not required under the related
instructions or are inapplicable and therefore have been
omitted.
The
Board
of Directors and Stockholders
MISONIX,
INC. and Subsidiaries
We
have
audited the accompanying consolidated balance sheets of MISONIX, INC. and
Subsidiaries (the “Company”) as of June 30, 2008 and 2007, and the related
consolidated statements of operations, stockholders’ equity and cash flows for
each of the three years in the period ended June 30, 2008. Our audits of the
basic consolidated financial statements included the financial statement
schedule II - Valuation and Qualifying Accounts. These financial statements
and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures
in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of MISONIX, INC. and
Subsidiaries as of June 30, 2008 and 2007 and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
2008 in conformity with accounting principles generally accepted in the United
States of America. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken
as
a whole, presents fairly, in all material respects, the information set forth
therein.
/s/
GRANT
THORNTON LLP
Melville,
New York
September
22, 2008
MISONIX
INC.
and
Subsidiaries
Consolidated
Balance Sheets
|
|
June
30,
|
|
|
|
2008
|
|
2007
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,873,863
|
|
$
|
2,900,358
|
|
Accounts
receivable, less allowance for doubtful accounts of $376,998 and
$313,981,
respectively
|
|
|
7,986,802
|
|
|
7,679,466
|
|
Inventories,
net
|
|
|
12,651,564
|
|
|
11,903,294
|
|
Deferred
income taxes
|
|
|
1,562,279
|
|
|
1,028,988
|
|
Prepaid
expenses and other current assets
|
|
|
904,737
|
|
|
1,936,243
|
|
Total
current assets
|
|
|
24,979,245
|
|
|
25,448,349
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
4,398,867
|
|
|
4,728,367
|
|
Deferred
income taxes
|
|
|
1,280,217
|
|
|
2,827,009
|
|
Goodwill
|
|
|
5,784,542
|
|
|
5,008,549
|
|
Other
assets
|
|
|
807,203
|
|
|
733,470
|
|
Total
assets
|
|
$
|
37,250,074
|
|
$
|
38,745,744
|
|
|
|
|
|
|
|
|
|
Liabilities
and stockholders' equity
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Revolving
credit facilities
|
|
$
|
4,470,389
|
|
$
|
4,030,780
|
|
Notes
payable
|
|
|
246,888
|
|
|
295,308
|
|
Accounts
payable
|
|
|
5,497,541
|
|
|
4,872,941
|
|
Accrued
expenses and other current liabilities
|
|
|
4,760,115
|
|
|
3,957,643
|
|
Foreign
income taxes payable
|
|
|
696,791
|
|
|
672,330
|
|
Current
portion of deferred gain from sale and leaseback of
building
|
|
|
159,195
|
|
|
160,000
|
|
Current
maturities of capital lease obligations
|
|
|
307,325
|
|
|
294,257
|
|
Total
current liabilities
|
|
|
16,138,244
|
|
|
14,283,259
|
|
|
|
|
|
|
|
|
|
Capital
lease obligations
|
|
|
225,909
|
|
|
177,059
|
|
Deferred
lease liability
|
|
|
348,502
|
|
|
380,068
|
|
Deferred
income taxes
|
|
|
250,514
|
|
|
300,206
|
|
Deferred
gain from sale and leaseback of building
|
|
|
1,273,772
|
|
|
1,438,966
|
|
Deferred
income
|
|
|
371,452
|
|
|
494,261
|
|
Total
liabilities
|
|
|
18,608,393
|
|
|
17,073,819
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interest
|
|
|
199,237
|
|
|
265,284
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
Common
stock, $.01 par value-shares authorized 10,000,000; 7,079,169 issued
and
7,001,369 outstanding, respectively
|
|
|
70,792
|
|
|
70,792
|
|
Additional
paid-in capital
|
|
|
25,052,539
|
|
|
24,871,444
|
|
Accumulated
deficit
|
|
|
(6,630,170
|
)
|
|
(3,507,788
|
)
|
Accumulated
other comprehensive income
|
|
|
361,707
|
|
|
384,617
|
|
Treasury
stock, 77,800 shares
|
|
|
(412,424
|
)
|
|
(412,424
|
)
|
Total
stockholders' equity
|
|
|
18,442,444
|
|
|
21,406,641
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
37,250,074
|
|
$
|
38,745,744
|
|
See
Accompanying Notes to Consolidated Financial Statements.
MISONIX
INC. and Subsidiaries
Consolidated
Statements of Operations
|
|
Year
ended June 30,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
45,639,706
|
|
$
|
42,431,905
|
|
$
|
39,487,293
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
26,297,904
|
|
|
24,724,514
|
|
|
24,794,283
|
|
Gross
profit
|
|
|
19,341,802
|
|
|
17,707,391
|
|
|
14,693,010
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
Selling
expenses
|
|
|
7,726,909
|
|
|
7,596,154
|
|
|
7,428,155
|
|
General
and administrative expenses
|
|
|
10,518,550
|
|
|
9,417,038
|
|
|
10,211,492
|
|
Research
and development expenses
|
|
|
3,022,069
|
|
|
3,113,264
|
|
|
3,627,402
|
|
Total
operating expenses
|
|
|
21,267,528
|
|
|
20,126,456
|
|
|
21,267,049
|
|
Loss
from operations
|
|
|
(1,925,726
|
)
|
|
(2,419,065
|
)
|
|
(6,574,039
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
40,427
|
|
|
63,819
|
|
|
77,257
|
|
Interest
expense
|
|
|
(510,814
|
)
|
|
(579,522
|
)
|
|
(233,852
|
)
|
Royalty
income and license fees
|
|
|
727,157
|
|
|
858,736
|
|
|
833,809
|
|
Royalty
Expense
|
|
|
(300,504
|
)
|
|
(69,923
|
)
|
|
(109,727
|
)
|
Foreign
currency exchange gains (losses)
|
|
|
2,874
|
|
|
148,838
|
|
|
(14,813
|
)
|
Other
|
|
|
146,444
|
|
|
(58,129
|
)
|
|
175
|
|
Total
other income
|
|
|
105,584
|
|
|
363,819
|
|
|
552,849
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before minority interest and income taxes
|
|
|
(1,820,142
|
)
|
|
(2,055,246
|
)
|
|
(6,021,190
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interest in net income (loss) of consolidated subsidiaries
|
|
|
46,176
|
|
|
(40,934
|
)
|
|
12,546
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes
|
|
|
(1,866,318
|
)
|
|
(2,014,312
|
)
|
|
(6,033,736
|
)
|
Income
tax provision (benefit)
|
|
|
1,021,493
|
|
|
(664,795
|
)
|
|
(2,274,299
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(2,887,811
|
)
|
$
|
(1,349,517
|
)
|
$
|
(3,759,437
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share- Basic
|
|
$
|
(.41
|
)
|
$
|
(.19
|
)
|
$
|
(.55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share - Diluted
|
|
$
|
(.41
|
)
|
$
|
(.19
|
)
|
$
|
(.55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding -Basic
|
|
|
7,001,369
|
|
|
6,942,633
|
|
|
6,868,535
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding - Diluted
|
|
|
7,001,369
|
|
|
6,942,633
|
|
|
6,868,535
|
|
See
Accompanying Notes to Consolidated Financial Statements.
MISONIX
INC. and Subsidiaries
Consolidated
Statements of Stockholders’ Equity
For
the
three years ended June 30, 2008
|
|
Common
Stock
$.01
Par Value
|
|
Treasury
Stock
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
Shares
|
|
Amount
|
|
Number
of
shares
|
|
Amount
|
|
Additional
paid-in
capital
|
|
Retained
earnings
(accumulated
Deficit)
|
|
Accumulated
other
comprehensive
income
|
|
Total
stockholders’
equity
|
|
Balance,
June 30, 2005
|
|
|
6,902,752
|
|
$
|
69,028
|
|
|
(77,800
|
)
|
$
|
(412,424
|
)
|
$
|
23,619,281
|
|
$
|
1,601,166
|
|
$
|
217,109
|
|
$
|
25,094,160
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(3,759,437
|
)
|
|
-
|
|
|
(3,759,437
|
)
|
Foreign
currency translation adjustment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(9,926
|
)
|
|
(9,926
|
)
|
Comprehensive
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(3,769,363
|
)
|
Exercise
of employee options
|
|
|
75,417
|
|
|
754
|
|
|
-
|
|
|
-
|
|
|
380,759
|
|
|
-
|
|
|
-
|
|
|
381,513
|
|
Income
tax benefit from exercise of employee stock options
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
39,839
|
|
|
-
|
|
|
-
|
|
|
39,839
|
|
Stock-based
compensation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
508,657
|
|
|
-
|
|
|
-
|
|
|
508,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2006
|
|
|
6,978,169
|
|
$
|
69,782
|
|
|
(77,800
|
)
|
$
|
(412,424
|
)
|
$
|
24,548,536
|
|
$
|
(2,158,271
|
)
|
$
|
207,183
|
|
$
|
22,254,806
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
- |
|
|
- |
|
|
- |
|
|
(1,349,517
|
)
|
|
- |
|
|
(1,349,517
|
)
|
Foreign
currency translation adjustment
|
|
|
-
|
|
|
-
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
177,434
|
|
|
177,434
|
|
Comprehensive
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
- |
|
|
- |
|
|
- |
|
|
-
|
|
|
(1,172,083
|
)
|
Exercise
of employee options
|
|
|
101,000
|
|
|
1,010
|
|
|
- |
|
|
- |
|
|
133,560
|
|
|
- |
|
|
- |
|
|
134,570
|
|
Income
tax benefit from exercise of employee stock options
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,978
|
|
|
-
|
|
|
-
|
|
|
4,978
|
|
Stock-based
compensation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
184,370
|
|
|
-
|
|
|
-
|
|
|
184,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
-
|
|
|
-
|
|
|
- |
|
|
- |
|
|
-
|
|
|
(2,887,811
|
)
|
|
- |
|
|
(2,887,811
|
)
|
Foreign
currency translation adjustment
|
|
|
-
|
|
|
-
|
|
|
- |
|
|
- |
|
|
-
|
|
|
- |
|
|
(22,910
|
)
|
|
(22,910
|
)
|
Comprehensive
loss
|
|
|
-
|
|
|
-
|
|
|
- |
|
|
- |
|
|
-
|
|
|
- |
|
|
-
|
|
|
(2,910,721
|
)
|
Cumulative
transition adjustment for FIN 48
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
- |
|
|
(234,571
|
)
|
|
-
|
|
|
(234,571
|
)
|
Stock-based
compensation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
181,095
|
|
|
-
|
|
|
-
|
|
|
181,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2008
|
|
|
7,079,169
|
|
$
|
70,792
|
|
|
(77,800
|
)
|
$
|
(412,424
|
)
|
$
|
25,052,539
|
|
$
|
(6,630,170
|
)
|
$
|
361,707
|
|
$
|
18,442,444
|
|
See
Accompanying Notes to Consolidated Financial Statements.
MISONIX
INC. and Subsidiaries
Consolidated
Statements of Cash Flows
|
|
Year
ended June 30,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
Operating
activities
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(2,887,811
|
)
|
$
|
(1,349,517
|
)
|
$
|
(3,759,437
|
)
|
Adjustments
to reconcile net loss to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
-
|
|
Bad
debt expense
|
|
|
79,995
|
|
|
135,986
|
|
|
112,633
|
|
Deferred
income tax expense (benefit)
|
|
|
974,555
|
|
|
(1,302,167
|
)
|
|
(1,207,113
|
)
|
Depreciation
and amortization and other non-cash items
|
|
|
1,591,241
|
|
|
1,753,805
|
|
|
1,323,936
|
|
Loss
on disposal of property, plant and equipment
|
|
|
45,798
|
|
|
59,672
|
|
|
254,796
|
|
Deferred
income (loss)
|
|
|
(122,809
|
)
|
|
71,627
|
|
|
(85,948
|
)
|
Deferred
leasehold costs
|
|
|
(191,497
|
)
|
|
2,037
|
|
|
174,233
|
|
Minority
interest in net (loss) income of subsidiaries
|
|
|
46,176
|
|
|
(40,934
|
)
|
|
12,546
|
|
Stock-based
compensation
|
|
|
181,095
|
|
|
184,370
|
|
|
508,657
|
|
Foreign
currency gain
|
|
|
-
|
|
|
(227,060
|
)
|
|
-
|
|
Other
|
|
|
-
|
|
|
-
|
|
|
6,131
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(410,282
|
)
|
|
(1,056,630
|
)
|
|
4,974,705
|
|
Inventories
|
|
|
(803,756
|
)
|
|
(308,155
|
)
|
|
(1,624,197
|
)
|
Income
taxes
|
|
|
27,331
|
|
|
785,097
|
|
|
(561,920
|
)
|
Prepaid
expenses and other current assets
|
|
|
1,030,045
|
|
|
(796,475
|
)
|
|
265,100
|
|
Other
assets
|
|
|
(149,334
|
)
|
|
(318,539
|
)
|
|
(143,472
|
)
|
Accounts
payable and accrued expenses
|
|
|
1,203,611
|
|
|
708,005
|
|
|
(594,654
|
)
|
Foreign
income taxes payable
|
|
|
-
|
|
|
615,347
|
|
|
-
|
|
Net
cash provided by (used in) operating activities
|
|
|
614,358
|
|
|
(1,083,531
|
)
|
|
(344,004
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of property, plant and equipment
|
|
|
(774,976
|
)
|
|
(1,295,860
|
)
|
|
(890,598
|
)
|
Investment
in UKHIFU Limited
|
|
|
(50,109
|
)
|
|
(60,233
|
)
|
|
(200,000
|
)
|
Proceeds
from sale and leaseback of building
|
|
|
-
|
|
|
3,464,480
|
|
|
-
|
|
Proceeds
from sale of equipment
|
|
|
65,498
|
|
|
103,084
|
|
|
-
|
|
Acquisition
of minority interest
|
|
|
(839,654
|
)
|
|
(279,884
|
)
|
|
-
|
|
Net
cash (used in) provided by investing activities
|
|
|
(1,599,241
|
)
|
|
1,931,587
|
|
|
(1,090,598
|
)
|
(continued
on next page)
MISONIX
INC. and Subsidiaries
Consolidated
Statements of Cash Flows (Continued)
|
|
Year
ended June 30,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
Financing
activities
|
|
|
|
|
|
|
|
Proceeds
from short-term borrowings
|
|
$
|
25,830,933
|
|
$
|
6,242,647
|
|
$
|
1,059,956
|
|
Payments
of short-term borrowings
|
|
|
(25,432,205
|
)
|
|
(3,605,821
|
)
|
|
(1,371,441
|
)
|
Principal
payments on capital lease obligations
|
|
|
(439,810
|
)
|
|
(378,095
|
)
|
|
(424,545
|
)
|
Payments
of long-term debt
|
|
|
-
|
|
|
(1,059,549
|
)
|
|
(59,607
|
)
|
Proceeds
from exercise of stock options
|
|
|
-
|
|
|
134,570
|
|
|
381,513
|
|
Income
tax benefit - stock options
|
|
|
-
|
|
|
4,978
|
|
|
39,839
|
|
Net
cash (used in) provided by financing activities
|
|
|
(41,082
|
)
|
|
1,338,730
|
|
|
(374,285
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
(530
|
)
|
|
38,172
|
|
|
(247
|
)
|
Net
(decrease) increase in cash
|
|
|
(1,026,495
|
)
|
|
2,224,958
|
|
|
(1,809,134
|
)
|
Cash
at beginning of year
|
|
|
2,900,358
|
|
|
675,400
|
|
|
2,484,534
|
|
Cash
at end of year
|
|
$
|
1,873,863
|
|
$
|
2,900,358
|
|
$
|
675,400
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for (received from):
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
521,128
|
|
$
|
558,122
|
|
$
|
237,103
|
|
Income
taxes paid (refunded)
|
|
$
|
19,607
|
|
$
|
(762,309
|
)
|
$
|
(585,407
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of non-cash investing and financing
activities:
|
|
|
|
|
|
|
|
|
|
|
Capital
lease additions
|
|
$
|
447,868
|
|
$
|
282,364
|
|
$
|
372,424
|
|
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
For
the
three years ended June 30, 2008
1.
Basis of Presentation, Organization and Business and Summary of Significant
Accounting Policies
Basis
of Presentation
The
consolidated financial statements of MISONIX,
INC. (“Misonix”
or the “Company”) include the accounts of Misonix, its 100% owned subsidiary,
Labcaire Systems, Ltd. (“Labcaire”), its 95% owned subsidiary, Acoustic
Marketing Research, Inc. (“Acoustic”) doing business as Sonora Medical Systems
(“Sonora”), its 100% owned subsidiary, Misonix, Ltd., its 100% owned subsidiary,
Hearing Innovations, Inc. (“Hearing Innovations”) and its 60% owned subsidiary
UKHIFU Limited (“UKHIFU”). The Company’s investment in Focus Surgery, Inc.
(“Focus”) (See Note 2) is reported using the equity method of accounting. All
significant intercompany balances and transactions have been
eliminated.
Organization
and Business
Misonix
was incorporated under the laws of the State of New York on July 31, 1967 and
its principal revenue producing activities, from 1967 to date, have been the
manufacture and distribution of proprietary ultrasound equipment for scientific
and industrial purposes and environmental control equipment for the abatement
of
air pollution. Misonix’s products are sold worldwide. In October 1996, the
Company entered into licensing agreements to further develop one of its medical
devices (see Note 12).
Sonora,
which was acquired in November 1999, is located in Longmont, Colorado, and
is an
ISO 9001 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.
On
September 6, 2007, but effective 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 Acoustic owned by Phillips, which represented 5% of
the
total shares outstanding. The Company owned ninety (90%) percent of the
outstanding shares of Acoustic 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”) for 5% of Acoustic. The Company paid Phillips $296,118 on June
7, 2007, $311,272 on August 30, 2007, $306,220 on November 28, 2007 and the
final installment of $301,169 on February 28, 2008. As of June 30, 2008 the
Company owns 95% of the outstanding common shares of Acoustic.
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.
Hearing
Innovations is located in Farmingdale, New York, and is a development company
with patented HiSonic ultrasonic technology for the treatment of profound
deafness and tinnitus.
In
fiscal
2008, approximately 46% of the Company's net sales were to foreign markets.
Labcaire manufactures and sells the Company’s fume enclosure line, as well as
its own range of laboratory and medical environmental control products, and
represented approximately 64% of the Company’s net sales to foreign markets.
Labcaire also distributes the Company’s ultrasonic equipment for use in
scientific and industrial markets, predominately in the United Kingdom. Sales
by
the Company in other major industrial countries are made primarily through
distributors.
Labcaire,
which began operations in February 1992, is located in North Somerset, England
and its core business is the innovation, design, manufacture, and marketing
of
air handling systems for the protection of personnel, products and the
environment from airborne hazards. Labcaire has developed and manufactures
an
automatic endoscope disinfection system which is used predominately in
hospitals.
MISONIX
INC. and Subsidiaries
Notes
to
Consolidated Financial Statements
For
the
three years ended June 30, 2008
Labcaire
sold its building in the United Kingdom in June 2007 in a sale and leaseback
transaction with TESCO Ltd. (“Tesco”). Tesco is utilizing the property to expand
its operations which will require Labcaire to relocate to another facility
upon
Tesco’s receiving permission to expand from the local authorities. Labcaire sold
the building for $3.6 million and recorded a deferred gain of $1.6 million
which
will be amortized over the 10 year lease period. Additionally, upon Tesco’s
receiving permission to expand its facilities which is expected in the next
1 to
4 years, Tesco will cancel the lease. Upon Labcaire’s vacating the premises,
Tesco will pay Labcaire an additional $1.5 million.
UKHIFU
was incorporated in the United Kingdom in March 2006 and its operations prior
to
fiscal 2007 were insignificant to the Company.
Cash
and Cash Equivalents
The
Company considers all highly liquid debt instruments purchased with a maturity
of three months or less to be cash equivalents. There were no cash equivalents
at June 30, 2008 and 2007. Cash balances outside the United States totaled
$167,128 and $976,915 at June 30, 2008 and 2007, respectively.
Major
Customers and Concentration of Credit Risk
Included
in sales of the medical devices segment are sales to United States Surgical
Corporation (“USS”) in 2008, 2007 and 2006 of approximately $3,629,000,
$4,464,000 and $4,461,000, respectively. Total royalties from USS, related
to
their sales of the Company’s ultrasonic cutting product which uses high
frequency sound waves to coagulate and divide tissue for both open and
laproscopic surgery, were approximately $691,000, $827,000 and $810,000 during
the fiscal years ended June 30, 2008, 2007 and 2006, respectively. Accounts
receivable from this customer were approximately $885,000 and $886,000 at June
30, 2008 and 2007, respectively. At June 30, 2008 and 2007, the Company’s
accounts receivable with customers outside the United States were approximately
$4,162,000 and $3,640,000, respectively, of which $2,608,000 and $2,128,000,
respectively, related to its Labcaire operations. The Company utilizes letters
of credit on foreign or export sales where appropriate.
Accounts
Receivable
Accounts
receivable, principally trade, are generally due within 30 to 90 days and are
stated at amounts due from customers, net of an allowance for doubtful accounts.
The Company performs ongoing credit evaluations and adjusts credit limits based
upon payment history and the customer’s current credit worthiness, as determined
by a review of their current credit information. The Company continuously
monitors aging reports, collections and payments from customers and maintains
a
provision for estimated credit losses based upon historical experience and
any
specific customer collection issues that have been identified. While such credit
losses have historically been within expectations and the provisions
established, the Company cannot guarantee the same credit loss rates will be
experienced in the future. The Company writes off accounts receivable when
they
become uncollectible.
Inventories
Inventories
are stated at the lower of cost (first-in, first-out) or market and consist
of
raw materials, work-in-process and finished goods. Management evaluates the
need
to record adjustments for impairments of inventory on a quarterly basis. The
Company’s policy is to assess the valuation of all inventories, including raw
materials, work-in-process and finished goods. Inventory items used for
demonstration purposes, rentals or on consignment are classified in property,
plant and equipment.
Property,
Plant and Equipment
Property,
plant and equipment are recorded at cost. The Company capitalizes items in
excess of $1,000. Minor replacements and maintenance and repair expenses are
charged to expense as incurred. Depreciation of property and equipment is
provided using the straight-line method over estimated useful lives ranging
from
1 to 8 years. Prior to its sale, depreciation of the Labcaire building was
provided using the straight-line method over the estimated useful life of 50
years. Leasehold improvements are amortized over the life of the lease or the
useful life of the related asset, whichever is shorter. The Company’s policy is
to periodically evaluate the appropriateness of the lives assigned to property,
plant and equipment and to adjust if necessary. Inventory items included in
property, plant and equipment are depreciated using the straight line method
over estimated useful lives of 3 to 8 years.
MISONIX
INC. and Subsidiaries
Notes
to
Consolidated Financial Statements
For
the
three years ended June 30, 2008
Fair
Value of Financial Instruments
The
book
values of cash, accounts receivable, accounts payable, and accrued liabilities
approximate their fair values principally because of the short-term nature
of
these instruments.
The
carrying value of the Company’s debt approximates its fair value due to variable
interest rates based on prime or other similar benchmark rates.
Revenue
Recognition
The
Company records revenue upon shipment for products shipped F.O.B. shipping
point. Products shipped F.O.B. destination point are recorded as revenue when
received at the point of destination. Shipments under agreements with
distributors are not subject to return, and payment for these shipments is
not
contingent on sales by the distributor. The Company recognizes revenue on
shipments to distributors in the same manner as with other customers. Fees
from
exclusive license agreements are recognized ratably over the terms of the
respective agreements. Service contracts and royalty income is recognized when
earned. Fee for use revenue is recognized when the procedure is
performed.
Long-Lived
Assets
The
carrying values of intangible and other long-lived assets, excluding goodwill,
are periodically reviewed to determine if any impairment indicators are present.
If it is determined that such indicators are present and the review indicates
that the assets will not be fully recoverable, based on undiscounted estimated
cash flows over the remaining amortization and depreciation period, their
carrying values are reduced to estimated fair value. Impairment indicators
include, among other conditions, cash flow deficits, an historic or anticipated
decline in revenue or operating profit, adverse legal or regulatory
developments, accumulation of costs significantly in excess of amounts
originally expected to acquire the asset and a material decrease in the fair
value of some or all of the assets. Assets are grouped at the lowest level
for
which there are identifiable cash flows that are largely independent of the
cash
flows generated by other asset groups. No such impairment existed at June 30,
2008 and 2007.
Goodwill
Goodwill
represents the excess of the purchase price over the fair value of the net
assets acquired in connection with the Company’s acquisitions of the common
stock of Labcaire, 95% of the common stock of Acoustic and the acquisitions
of
assets of Fibra Sonics, Inc., Sonic Technologies Laboratory Services, CraMar
Technologies, Inc. and a 60% equity interest in UKHIFU.
In
July
2001, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standards (“SFAS”) Nos. 141 (“SFAS 141”) and 142 (“SFAS
142”), "Business Combinations" and "Goodwill and Other Intangible Assets,"
respectively. SFAS 141 replaced Accounting Principles Board (“APB”) Opinion 16
“Business Combinations” and requires the use of the purchase method for all
business combinations initiated after June 30, 2001. SFAS 142 requires goodwill
and intangible assets with indefinite useful lives to no longer be amortized,
but instead be tested for impairment at least annually and whenever events
or
circumstances occur that indicate goodwill might be impaired. With the adoption
of SFAS 142, as of July 1, 2001, the Company reassessed the useful lives and
residual values of all acquired intangible assets to make any necessary
amortization period adjustments. Based on that assessment, only goodwill was
determined to have an indefinite useful life and no adjustments were made to
the
amortization period or residual values of other intangible assets. The Company
completed its annual goodwill impairment tests for fiscal 2008 and 2007 in
the
respective fourth quarter. There were no indicators that goodwill recorded
was
impaired.
Other
Assets and Intangibles
The
cost
of acquiring or processing patents, trademarks, and other intellectual
properties is capitalized at cost. This amount is being amortized using the
straight-line method over the estimated useful lives of the underlying assets,
which is approximately 17 years. Net patents reported in other assets totaled
$487,000 and $421,000 at June 30, 2008 and 2007, respectively. Accumulated
amortization totaled $299,000 and $224,000 at June 30, 2008 and 2007,
respectively. Amortization expense for the years ended June 30, 2008, 2007
and
2006 was approximately $75,000, $58,000 and $41,000,
respectively.
MISONIX
INC. and Subsidiaries
Notes
to
Consolidated Financial Statements
For
the
three years ended June 30, 2008
The
following is a schedule of estimated future amortization expense as of June
30,
2008:
2009
|
|
|
63,000
|
|
2010
|
|
|
46,000
|
|
2011
|
|
|
45,000
|
|
2012
|
|
|
42,000
|
|
2013
|
|
|
38,000
|
|
Thereafter
|
|
|
253,000
|
|
|
|
$
|
487,000
|
|
Income
Taxes
Income
taxes are accounted for in accordance with SFAS No. 109, “Accounting for Income
Taxes” (“SFAS 109”). Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities
and
their respective tax bases and operating loss and tax credit carry forwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
tax
assets and liabilities of a change in tax rates is recognized in income in
the
period that includes the enactment date.
The
FASB
issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No.109, Accounting for Income Taxes” (“FIN 48”)
which was effective for the Company on July 1, 2007. FIN 48 addresses the
determination of whether tax benefits claimed or expected to be claimed on
a tax
return should be recorded in the financial statements. Under FIN 48, the Company
may recognize the tax benefit from an uncertain tax position only if it is
more
likely than not that the tax position will be sustained on examination by the
taxing authorities based on the technical merits of the position. The tax
benefits recognized in the financial statements from such position should be
measured based on the largest benefit that has a greater than fifty percent
likelihood of being realized upon ultimate settlement. FIN 48 also provides
guidance on derecognition, classification, interest and penalties, accounting
in
interim periods and disclosure requirements. The Company classifies income
tax
related interest and penalties as a component of income tax
expense.
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.
Valuation
of Deferred Income Taxes
The
Company accounts for income taxes in accordance with SFAS 109. The Company
would
record a valuation allowance when based on the weight of available evidence,
it
is more likely than not that the amount of future tax benefit would not be
realized. While the Company believes that it is positioned for long-term growth,
the volatility in our industry and markets has made it increasingly difficult
to
predict sales and operating results on a short-term basis, and when coupled
with
the cumulative losses reported over the last three fiscal years, the Company
was
no longer able to conclude that, based upon the weight of available evidence,
it
was “more likely than not” that its previously recorded deferred tax asset of
$7.4 million would be realized, and therefore in the fiscal year ended June
30,
2008, the Company recorded an additional $1.5 million increase to the valuation
allowance to reduce the carrying value of its deferred tax asset to its
estimated realizable value.
Net
Loss Per Share
In
accordance with SFAS 128, “Earnings Per Share” (“SFAS 128”), 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 the dilutive common share equivalents and convertible
securities then outstanding. Diluted EPS for all years presented is the same
as
Basic EPS, as the inclusion of the effect of common share equivalents then
outstanding would be anti-dilutive. For this reason, excluded from the
calculation of Diluted EPS for the three years ended June 30, 2008 were options
to purchase 1,822,841 shares, 1,802,566 shares and 1,837,973 shares,
respectively.
MISONIX
INC. and Subsidiaries
Notes
to
Consolidated Financial Statements
For
the
three years ended June 30, 2008
Comprehensive
Loss
The
components of the Company’s comprehensive loss are net loss and foreign currency
translation adjustments. The foreign currency translation adjustments included
in comprehensive loss have not been tax effected as investments in foreign
affiliates are deemed to be permanent.
Foreign
Currency Translation
The
Company follows the policies prescribed by SFAS No. 52, “Foreign Currency
Translation,” for translation of the financial results of its foreign
subsidiaries. Accordingly, assets and liabilities are translated at the foreign
currency exchange rate in effect at the balance sheet date. Resulting
translation adjustments due to fluctuations in the exchange rates are recorded
as other comprehensive income. Results of operations are translated using the
weighted average of the prevailing foreign currency rates during the fiscal
year. Stockholders’ equity accounts are translated at historical exchange rates.
Gains and losses on foreign currency transactions are recorded in other income
and expense.
Research
and Development
All
research and development expenses are expensed as incurred and are included
in
operating expenses.
Advertising
Expense
The
cost
of advertising is expensed as of the first showing. The Company incurred
approximately $464,000, $360,000 and $424,000 in advertising costs during the
years ended June 30, 2008, 2007 and 2006, respectively.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and judgments that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Shipping
and Handling
Shipping
and handling fees for the years ended June 30, 2008, 2007 and 2006 were
approximately $478,000, $445,000 and $420,000, respectively, and are reported
as
a component of net sales. Shipping and handling costs for the years ended June
30, 2008, 2007 and 2006 were approximately $454,000, $427,000 and $575,000,
respectively, and are reported as a component of selling expenses.
Stock-Based
Compensation
Prior
to
July 1, 2005, the Company accounted for stock option plans under SFAS No. 123
(“SFAS 123”). As permitted under this standard, compensation cost was recognized
using the intrinsic value method described in APB Opinion No. 25 (“APB 25”).
Effective July 1, 2005, the Company adopted the fair-value recognition
provisions of SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”)
and Securities and Exchange Commission (the “SEC”) Staff Accounting Bulletin No.
107 using the modified-prospective transition method; therefore, prior periods
have not been restated. See Note 8 for additional information regarding
stock-based compensation.
Recent
Accounting Pronouncements
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.
MISONIX
INC. and Subsidiaries
Notes
to
Consolidated Financial Statements
For
the
three years ended June 30, 2008
In
December 2007, the FASB issued SFAS No. 141(R), “Business
Combination” (“SFAS
141R”). This statement significantly changes the financial accounting and
reporting of business combination transactions in the Company’s consolidated
financial statements. SFAS 141R is effective for fiscal years beginning after
December 15, 2008 and prohibits early adoption. The Company is currently
evaluating the impact of adopting SFAS 141R on our consolidated results of
operations, financial position and cash flows.
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 significantly changes the accounting for and reporting of
noncontrolling (minority) interests in the Company’s consolidated financial
statements. SFAS 160 is effective for fiscal years beginning after December
15,
2008 and prohibits early adoption. The Company is currently evaluating the
impact of adopting SFAS 160 on our consolidated results of operations, financial
position and cash flows.
In
April
2008, the FASB issued Staff Position No. FAS 142-3, “Determination of the Useful
Life of Intangible Assets” (“FSP FAS 142-3”). FSP FAS 142-3 amends the factors
that should be considered in developing renewal or extension assumptions used
to
determine the useful life of a recognized intangible asset under SFAS 142.
FSP
FAS 142-3 is intended to improve the consistency between the useful life of
a
recognized intangible asset under SFAS 142 and the period of expected cash
flows
used to measure the fair value of the asset under SFAS 141R, and other U.S.
generally accepted accounting principles (“GAAP”). FSP FAS 142-3 applies to all
intangible assets and is effective for financial statements issued for fiscal
years beginning after December 15, 2008 and interim periods within those fiscal
years. The Company is currently evaluating the impact of adopting FSP FAS 142-3
on our consolidated results of operations, financial position and cash
flows.
2.
Acquisitions
Focus
Surgery, Inc.
On
May 3,
1999, the Company invested $3,050,000 to obtain an approximately 20% equity
interest in Focus, a privately-held technology Company and representation on
its
Board of Directors. Additionally, the Company had options and warrants to
purchase an additional 5% of the equity of Focus. The agreement provides for
a
series of development and manufacturing agreements whereby the Company would
upgrade existing Focus products and create new products based on high intensity
focused ultrasound (“HIFU”) technology for the non-invasive treatment of tissue
for certain medical applications. The Company has the optional rights to market
and sell several other high potential HIFU applications for treatment of both
benign and cancerous tumors of the breast, liver and kidney and had the right
of
first refusal to purchase 51% of the equity of Focus. The Company’s portions of
the net losses of Focus were recorded since the date of acquisition. During
fiscal 2001, the Company evaluated the investment with respect to the financial
performance and the achievement of specific targets and goals and determined
that the equity investment was impaired and therefore the Company recorded
an
impairment loss in the amount of $1,916,398. The net carrying value of the
investment at June 30, 2008, 2007 and 2006 is $0. Under the equity method of
accounting, if the equity investment was ever deemed not impaired, the Company
would have to record its share of Focus’ losses since 2001 before the Company
can record income from Focus. Focus’ unaudited net loss in fiscal year 2008 was
$513,000.
On
November 7, 2000, the Company purchased a $300,000, 5.1% Secured Cumulative
Convertible Debenture from Focus, due December 22, 2002 (the “5.1% Focus
Debenture”). The 5.1% Focus Debenture was convertible into 250 shares of Focus
preferred stock at the option of the Company at any time after December 22,
2000
for two years at a conversion price of $1,200 per share, if the 5.1% Focus
Debenture was not retired by Focus. Interest accrues and was payable at maturity
or was convertible on the same terms as the 5.1% Focus Debenture’s principal
amount. The 5.1% Focus Debenture was secured by a lien on all of Focus’ right,
title and interest in accounts receivable, inventory, property, plant and
equipment and processes of specified products whether now existing or hereafter
arising after the date of the 5.1% Focus Debenture. The Company recorded an
allowance against the entire balance of principal and accrued interest due
in
fiscal 2001. The 5.1% Focus Debenture was in default and the Company was
negotiating an extended due date and conversion right. The Company believed
the
loan was impaired since the Company did not anticipate that the 5.1% Focus
Debenture would be satisfied in accordance with the contractual terms of the
loan agreement.
On
April
12, 2001, the Company purchased a $300,000, 6% Secured Cumulative Convertible
Debenture from Focus, due May 25, 2003 (the “6% Focus Debenture”). The 6% Focus
Debenture was convertible into 250 shares of Focus preferred stock at the option
of the Company at any time after May 25, 2003 for two years at a conversion
price of $1,200 per share, if the 6% Focus Debenture was not retired by Focus.
Interest accrues and was payable at maturity, or was convertible on the same
terms as the 6% Focus Debenture’s principal amount. The 6% Focus Debenture was
secured by a lien on all of Focus’ right, title and interest in accounts
receivable, inventory, property, plant and equipment and processes of specified
products whether now existing or hereafter arising after the date of the 6%
Focus Debenture. The Company recorded an allowance against the entire balance
of
principal and accrued interest due in fiscal 2001. The 6% Focus Debenture was
in
default and the Company was negotiating an extended due date and conversion
right. The Company believed the loan was impaired since the Company did not
anticipate that the 6% Focus Debenture would be satisfied in accordance with
the
contractual terms of the loan agreement.
MISONIX
INC. and Subsidiaries
Notes
to
Consolidated Financial Statements
For
the
three years ended June 30, 2008
On
July
31, 2001, the Company purchased a second $300,000, 6% Secured Cumulative
Convertible Debenture from Focus, due May 25, 2003 (the “Focus Debenture”). The
Focus Debenture was convertible into 250 shares of Focus preferred stock at
the
option of the Company at any time after the due date for two years at a
conversion price of $1,200 per share. The Focus Debenture also contained
warrants, deemed nominal in value, to purchase an additional 125 shares to
be
exercised at the option of the Company. Interest accrues and was payable at
maturity or was convertible on the same terms as the Focus Debenture’s principal
amount. The Focus Debenture was secured by a lien on all of Focus’ right, title
and interest in accounts receivable, inventory, property, plant and equipment
and processes of specified products whether now existing or arising after the
date of the Focus Debenture. The Company recorded an allowance against the
entire balance of principal and accrued interest due in fiscal 2002. The Focus
Debenture was in default and the Company was negotiating an extended due date
and conversion right. The Company believed the loan was impaired since the
Company did not anticipate that the Focus Debenture would be satisfied in
accordance with the contractual terms of the loan agreement.
During
fiscal 2002, the Company entered into a loan agreement whereby Focus borrowed
$60,000 from the Company. This loan matured on May 30, 2002 and was extended
to
December 31, 2002. The loan bears interest at 6% per annum and contained
warrants, which were deemed nominal in value, to acquire additional shares.
The
loan was secured by a lien on all of Focus’ right, title and interest in
accounts receivable, inventory, property, plant and equipment and processes
of
specified products whether now existing or arising after the date of the loan.
The Company recorded an allowance against the entire balance at June 30, 2004
and 2003. The loan was in default and the Company was negotiating an extended
due date. The Company believed that this loan was impaired since the Company
did
not anticipate that this loan would be paid in accordance with the contractual
terms of the loan agreement.
In
May
2004, the Company’s ownership was reduced to 13% due to additional preferred
stock issued by Focus.
Had
the
Company converted the 5.1% Focus Debenture, 6% Focus Debenture and Focus
Debenture, and exercised all warrants, the Company would have held an interest
in Focus of approximately 18%.
The
Company has subcontracted Focus to perform research and development activities
for which the Company paid $229,000, $44,000 and $165,000 to Focus in fiscal
2008, 2007 and 2006, respectively, which is recorded as research and development
expenses and selling 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. The Company has
purchased approximately $510,000, $663,000 and $830,000 of product from Focus
during fiscal 2008, 2007 and 2006, respectively. Total sales to Focus were
approximately $492,000, $801,000 and $459,000 for the fiscal years ended June
30, 2008, 2007 and 2006, respectively. Trade accounts receivable due from Focus
at June 30, 2008 and 2007 were approximately $86,000 and $4,000, respectively.
Accounts payable to Focus totaled approximately $498,000 at June 30, 2008 and
$508,000 at June 30, 2007.
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 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.; (iii) dismissal of the pending
arbitration between USHIFU and Focus; (iv) the execution of amendments to
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 of non-recurring pretax income or approximately net income of $.13
per share in the first quarter of fiscal 2009.
MISONIX
INC. and Subsidiaries
Notes
to
Consolidated Financial Statements
For
the
three years ended June 30, 2008
Summarized
unaudited financial information of Focus is as follows:
Condensed
Statement of Operations Information
|
|
Year
ended June 30,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
2,401,000
|
|
$
|
4,020,000
|
|
$
|
3,509,000
|
|
Gross
profit
|
|
|
1,609,000
|
|
|
2,386,000
|
|
|
2,080,000
|
|
Net
loss
|
|
$
|
(513,000
|
)
|
$
|
(685,000
|
)
|
$
|
(44,000
|
)
|
Condensed
Balance Sheet Information
|
|
June
30,
|
|
|
|
2008
|
|
2007
|
|
Current
assets
|
|
$
|
1,556,000
|
|
$
|
1,960,000
|
|
Non-current
assets
|
|
|
484,000
|
|
|
603,000
|
|
Current
liabilities
|
|
|
398,000
|
|
|
666,000
|
|
Non-current
liabilities
|
|
|
4,496,000
|
|
|
4,224,000
|
|
Preferred
stock
|
|
|
6,275,000
|
|
|
6,275,000
|
|
Common
stockholders’ deficit
|
|
$
|
(9,115,000
|
)
|
|
(8,602,000
|
)
|
UKHIFU
Limited
On
March
27, 2006 the Company, through its wholly owned subsidiary Misonix Ltd., acquired
a 60% equity position in UKHIFU from Imaging Equipment which owns the remaining
40%. UKHIFU is in the business of distributing and servicing equipment for
the
ablation of cancerous tissue in the prostate.
In
addition to the original investment, the Company made payments of approximately
$50,000 and $60,000 to Imaging Equipment during the years ended June 30, 2008
and 2007, respectively. The additional payments were recorded as
goodwill.
3.
Inventories
Inventories
are summarized as follows:
|
|
June
30,
|
|
|
|
2008
|
|
2007
|
|
Raw
materials
|
|
$
|
6,234,467
|
|
$
|
6,593,458
|
|
Work-in-process
|
|
|
3,375,878
|
|
|
2,624,212
|
|
Finished
goods
|
|
|
4,983,593
|
|
|
4,599,040
|
|
|
|
$
|
14,593,938
|
|
$
|
13,816,710
|
|
Less:
valuation reserve
|
|
|
1,942,374
|
|
|
1,913,416
|
|
|
|
$
|
12,651,564
|
|
$
|
11,903,294
|
|
MISONIX
INC. and Subsidiaries
Notes
to
Consolidated Financial Statements
For
the
three years ended June 30, 2008
4.
Property, Plant and Equipment
Property,
plant and equipment consist of the following:
|
|
June
30,
|
|
|
|
2008
|
|
2007
|
|
Machinery
and equipment
|
|
|
6,216,305
|
|
|
6,248,247
|
|
Furniture
and fixtures
|
|
|
1,737,265
|
|
|
1,721,481
|
|
Automobiles
|
|
|
1,448,598
|
|
|
1,152,926
|
|
Leasehold
improvements
|
|
|
802,500
|
|
|
789,390
|
|
Demonstration
and consignment inventory
|
|
|
2,063,898
|
|
|
1,479,378
|
|
|
|
|
12,268,566
|
|
|
11,391,422
|
|
Less:
accumulated depreciation and amortization
|
|
|
7,869,699
|
|
|
6,663,055
|
|
|
|
$
|
4,398,867
|
|
$
|
4,728,367
|
|
Included
in machinery and equipment and furniture and fixtures at June 30, 2008 and
2007
are approximately $39,000 and $117,000, respectively, of data processing
equipment and telephone equipment under capital leases with related accumulated
amortization of approximately $36,000 and $107,000, respectively. Also, included
in automobiles are approximately $749,000 and $781,000, respectively, of
automobiles under capital leases with accumulated amortization of approximately
$175,000 and $228,000, respectively. The Company leased approximately $448,000,
$282,000 and $372,000 of automobiles and equipment under capital lease
arrangements during the years ended June 30, 2008, 2007 and 2006,
respectively.
Labcaire
sold its building in the United Kingdom in June 2007 in a sale and leaseback
agreement with Tesco. Tesco plans to utilize the property to expand its
operations which will require Labcaire to relocate to another facility upon
Tesco’s receiving permission to expand from the local authorities. Labcaire sold
the building for $3.6 million and recorded a deferred gain of $1.6 million
which
will be amortized over the 10 year lease period. Additionally, upon Tesco’s
receiving permission to expand its facilities which is expected in the next
1 to
4 years, Tesco will cancel the lease. Upon Labcaire’s vacating the premises,
Tesco will pay Labcaire an additional $1.5 million.
Depreciation
and amortization of property, plant and equipment totaled approximately
$1,486,000, $1,407,000 and $1,284,000 for the years ended June 30, 2008, 2007
and 2006, respectively.
5.
Revolving Credit Facilities
On
December 29, 2006 the Company and its subsidiaries, Sonora and Hearing
Innovations (collectively referred to as the “Borrowers”) and Wells Fargo Bank
entered into a (i) Credit and Security Agreement and (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 Agreements 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, deposit accounts,
property, plant and equipment, general intangibles, intellectual property,
inventory, 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 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 $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 that $1,000,000 in the aggregate in any fiscal year
or more than $1,000,000 in any one transaction. At June 30, 2008, the Borrowers
were not in compliance with two of the covenants. Wells Fargo Bank has given
the
Company a waiver of such non-compliance.
MISONIX
INC. and Subsidiaries
Notes
to
Consolidated Financial Statements
For
the
three years ended June 30, 2008
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 Agreement).
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 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 June 30, 2008, the balance
outstanding under the Credit Agreements was $2,745,000. Amounts available to
be
borrowed are determined based on specified percentages of the Borrowers’
eligible trade receivables and inventories. An additional $875,000 was available
to be borrowed at June 30, 2008.
Labcaire
has a debt purchase agreement with Lloyds TSB Commercial Finance (“Lloyds”). The
amount of this facility bears interest at the bank’s base rate (5.5% at June 30,
2008 and 2007 respectively) plus 2%. The agreement expires on September 28,
2008
and covers all United Kingdom and European sales. At June 30, 2008, the balance
outstanding under this credit facility was $1,725,000 and Labcaire was not
in
violation of financial covenants.
Labcaire
had an overdraft facility with Lloyds which was secured by the Labcaire
building. All amounts borrowed under this facility were paid when the Labcaire
building was sold and the overdraft facility was cancelled.
6.
Accrued Expenses and Other Current Liabilities
The
following summarizes accrued expenses and other current
liabilities:
|
|
June
30,
|
|
|
|
2008
|
|
2007
|
|
Accrued
payroll and vacation
|
|
$
|
945,933
|
|
$
|
567,296
|
|
Accrued
VAT and sales tax
|
|
|
359,172
|
|
|
118,176
|
|
Accrued
VAT on sale of Labcaire building
|
|
|
-
|
|
|
631,229
|
|
Accrued
commissions and bonuses
|
|
|
675,069
|
|
|
484,022
|
|
Customer
deposits and current deferred contracts
|
|
|
1,765,827
|
|
|
1,084,412
|
|
Accrued
professional and legal fees
|
|
|
43,352
|
|
|
47,413
|
|
Litigation
expense
|
|
|
324,000
|
|
|
419,000
|
|
Other
|
|
|
646,762
|
|
|
606,095
|
|
|
|
$
|
4,760,115
|
|
$
|
3,957,643
|
|
7.
Leases
Misonix
has entered into several noncancellable operating leases for the rental of
certain manufacturing and office space, equipment and automobiles expiring
in
various years through 2017. The principal building leases provide for a monthly
rental amount of approximately $84,000. The Company also leases certain office
equipment and automobiles under capital leases expiring through fiscal
2012.
MISONIX
INC. and Subsidiaries
Notes
to
Consolidated Financial Statements
For
the
three years ended June 30, 2008
The
following is a schedule of future minimum lease payments, by year and in the
aggregate, under capital and operating leases with initial or remaining terms
of
one year or more at June 30, 2008:
|
|
Capital
|
|
Operating
|
|
|
|
Leases
|
|
Leases
|
|
2009
|
|
$
|
352,000
|
|
$
|
1,147,000
|
|
2010
|
|
|
204,000
|
|
|
1,139,000
|
|
2011
|
|
|
37,000
|
|
|
597,000
|
|
2012
|
|
|
16,000
|
|
|
394,000
|
|
2013
|
|
|
-
|
|
|
239,000
|
|
2014
and thereafter
|
|
|
-
|
|
|
958,000
|
|
Total
minimum lease payments
|
|
$
|
609,000
|
|
$
|
4,474,000
|
|
|
|
|
|
|
|
|
|
Amounts
representing interest
|
|
|
(76,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Present
value of net minimum lease payments
|
|
|
533,000
|
|
|
|
|
Less
current maturities
|
|
|
(307,000
|
)
|
|
|
|
|
|
$
|
226,000
|
|
|
|
|
Certain
of the leases provide for escalation clauses, renewal options and the payment
of
real estate taxes and other occupancy costs. Rent expense for all operating
leases was approximately $1,059,000, $1,050,000 and $1,148,000 for the years
ended June 30, 2008, 2007 and 2006, respectively.
8.
Stock-Based Compensation Plans
Prior
to
July 1, 2005, the Company accounted for stock option plans under SFAS No. 123.
As permitted under this standard, compensation cost was recognized using the
intrinsic value method described in APB 25. Effective July 1, 2005, the Company
adopted the fair-value recognition provisions of SFAS No. 123R and SEC Staff
Accounting Bulletin No. 107 using the modified-prospective transition method;
therefore, prior periods have not been restated. Compensation cost recognized
in
the years ended June 30, 2007 and 2006 includes 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 provisions
of SFAS No. 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 change
of control. During the years ended June 30, 2008 and 2007, the Company granted
options to purchase 61,850 and 127,400 shares of the Company’s common stock,
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. There are no capitalized stock-based compensation costs at June 30,
2008 and 2007. As of June 30, 2008, there was approximately $338,000 of total
unrecognized compensation cost related to non-vested share-based compensation
arrangements to be recognized over a weighted-average period of 2
years.
The
total
cash received from the exercise of stock options was $0, $134,570 and $381,513
for the years ended June 30, 2008, 2007 and 2006, respectively, and are
classified as financing cash flows. SFAS No. 123R requires that 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.
The
weighted average fair value at date of grant for options granted during the
years ended June 30, 2008, 2007 and 2006 was $2.51, $2.57 and $3.82 per option,
respectively. The fair value of options at date of grant was estimated using
the
Black-Scholes option-pricing model utilizing the following
assumptions:
MISONIX
INC. and Subsidiaries
Notes
to
Consolidated Financial Statements
For
the
three years ended June 30, 2008
|
|
2008
|
|
2007
|
|
2006
|
|
Risk-free
interest rates
|
|
|
4.3
|
%
|
|
4.7
|
%
|
|
4.43
|
%
|
Expected
option life in years
|
|
|
6.5
|
|
|
6
|
|
|
5-7
|
|
Expected
stock price volatility
|
|
|
54.7
|
%
|
|
53.8
|
%
|
|
54.7
|
%
|
Expected
dividend yield
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
In
September 1991, in order to attract and retain persons necessary for the success
of the Company, the Company adopted a stock option plan (the "1991 Plan") which
covers up to 375,000 shares of the Company’s Common Stock (“Common Stock”).
Pursuant to the 1991 Plan, officers, directors, consultants and key employees
of
the Company are eligible to receive incentive and/or non-incentive stock
options. At June 30, 2008, options to purchase 30,000 shares were outstanding
under the 1991 Plan at an exercise price of $7.38 per share with a vesting
period of two years, options to purchase 327,750 shares have been exercised
and
options to purchase 47,250 shares have been forfeited (of which options to
purchase 30,000 shares were reissued) prior to July 1, 2005 and no shares remain
available for future grants.
In
March
1996, the Board of Directors adopted and, in February 1997, the shareholders
approved the 1996 Employee Incentive Stock Option Plan covering an aggregate
of
450,000 shares (the “1996 Plan”) and the 1996 Non-Employee Director Stock Option
Plan (the “1996 Directors Plan”) covering an aggregate of 1,125,000 shares of
Common Stock. At June 30, 2008, options to purchase 266,278 shares were
outstanding at exercise prices ranging from $3.07 to $7.60 per share with a
vesting period of immediate to two years under the 1996 Plan and options to
acquire 175,000 shares were outstanding at exercise prices ranging from $3.07
to
$7.60 per share with a vesting period of immediate to three years under the
1996
Directors Plan. At June 30, 2008, options to purchase 144,295 shares under the
1996 Plan have been exercised and 222,372 shares have been forfeited (of which
options to purchase 182,945 shares have been reissued). At June 30, 2008,
options to purchase 808,500 shares under the 1996 Directors Plan have been
exercised, options to purchase 90,000 shares have been forfeited (of which
none
have been reissued) and no shares remain available for future
grants.
In
October 1998, the Board of Directors adopted and, in January 1999, the
shareholders approved the 1998 Employee Stock Option Plan (the “1998 Plan”)
covering an aggregate of 500,000 shares of Common Stock. At June 30, 2008,
options to purchase 381,875 shares were outstanding under the 1998 Plan at
exercise prices ranging from $3.45 to $7.60 per share with a vesting period
of
immediate to three years. At June 30, 2008, options to purchase 72,848 shares
under the 1998 Plan have been exercised and options to purchase 79,702 shares
under the 1998 Plan have been forfeited (of which options to purchase 79,702
shares have been reissued). At June 30, 2008 there were 45,277 shares available
for future grants.
In
October 2000, the Board of Directors adopted and, in February 2001, the
shareholders approved the 2001 Employee Stock Option Plan (the “2001 Plan”)
covering an aggregate of 1,000,000 shares of Common Stock. At June 30, 2008,
options to purchase 862,838 shares were outstanding under the 2001 Plan at
exercise prices ranging from $3.45 to $8.00 per share with a vesting period
of
one to four years. At June 30, 2008, options to purchase 128,306 shares under
the 2001 Plan have been exercised and options to purchase 159,577 shares under
the 2001 Plan have been forfeited (of which 159,577 options have been reissued).
At June 30, 2008 there were 8,756 shares available for future
grants.
In
September 2005, the Board of Directors adopted and, in December, 2005, the
shareholders approved the 2005 Employee Equity Incentive Plan covering an
aggregate of 500,000 shares of Common Stock and the 2005 Non-Employee Director
Option Plan covering an aggregate of 200,000 shares of Common Stock. At June
30,
2008, there were options to purchase 31,850 shares outstanding under the 2005
Employee Equity Incentive Plan. At June 30, 2008, 468,150 shares were available
for future grants. There were options to purchase 75,000 shares outstanding
under the 2005 Non-employee Director Plan and 125,000 shares were available
for
future grants.
The
selection of participants, allotments of shares and determination of price
and
other conditions relating to options are determined by the Board of Directors
or
a committee thereof, depending on the Plan, and in accordance with Rule 4350(c)
of the Qualitative Listing Requirements of the NASDAQ Global Market. Incentive
stock options granted under the plans are exercisable for a period of up to
ten
years from the date of grant at an exercise price which is not less than the
fair market value of the Common Stock on the date of the grant, except that
the
term of an incentive stock option granted under the plans to a shareholder
owning more than 10% of the outstanding Common Stock may not exceed five years
and its exercise price may not be less than 110% of the fair market value of
the
Common Stock on the date of grant. Options shall become exercisable at such
time
and in such installments as provided in the terms of each individual option
agreement. At June 30, 2008 there were 468,150 shares available for future
granting under the 2005 Employee Equity Incentive Plan and 125,000 shares
available for future granting under the 2005 Non-Employee Director Option
Plan.
MISONIX
INC. and Subsidiaries
Notes
to
Consolidated Financial Statements
For
the
three years ended June 30, 2008
The
following table summarizes information about stock option activity during 2008,
2007 and 2006:
|
|
Options
|
|
|
|
Number of
Shares
|
|
Weighted Average
Exercise Price
|
|
Weighted Average
Remaining
Contractual Life
Years
|
|
Aggregate Intrinsic
Value
|
|
Outstanding
as of June 30, 2005
|
|
|
1,908,075
|
|
$
|
5.66
|
|
|
|
|
|
|
|
Granted
|
|
|
89,560
|
|
|
7.19
|
|
|
|
|
|
|
|
Exercised
|
|
|
(75,417
|
)
|
|
5.06
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(84,245
|
)
|
|
6.62
|
|
|
|
|
|
|
|
Outstanding
as of June 30, 2006
|
|
|
1,837,973
|
|
|
5.72
|
|
|
5.7
|
|
$
|
1,111,000
|
|
Exercisable
at June 30, 2006
|
|
|
1,694,869
|
|
|
5.63
|
|
|
4.9
|
|
$
|
1,081,000
|
|
Vested
at June 30, 2006
|
|
|
1,694,869
|
|
$
|
5.63
|
|
|
4.9
|
|
$
|
1,081,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
as of June 30, 2006
|
|
|
1,837,973
|
|
$
|
5.72
|
|
|
|
|
|
|
|
Granted
|
|
|
127,400
|
|
|
4.61
|
|
|
|
|
|
|
|
Exercised
|
|
|
(101,000
|
)
|
|
1.33
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(61,807
|
)
|
|
6.01
|
|
|
|
|
|
|
|
Outstanding
as of June 30, 2007
|
|
|
1,802,566
|
|
$
|
5.88
|
|
|
5.4
|
|
$
|
1,239,000
|
|
Exercisable
at June 30, 2007
|
|
|
1,629,133
|
|
$
|
5.91
|
|
|
4.9
|
|
$
|
1,075,000
|
|
Vested
at June 30, 2007
|
|
|
1,629,133
|
|
$
|
5.91
|
|
|
4.9
|
|
$
|
1,075,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
as of June 30, 2007
|
|
|
1,802,566
|
|
$
|
5.88
|
|
|
|
|
|
|
|
Granted
|
|
|
61,850
|
|
|
4.33
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(16,575
|
)
|
|
5.66
|
|
|
|
|
|
|
|
Expired
|
|
|
(25,000
|
)
|
|
14.80
|
|
|
|
|
|
|
|
Outstanding
as of June 30, 2008
|
|
|
1,822,841
|
|
$
|
5.71
|
|
|
4.9
|
|
$
|
43,325
|
|
Exercisable
at June 30, 2008
|
|
|
1,663,717
|
|
$
|
5.79
|
|
|
4.4
|
|
$
|
36,031
|
|
Vested
at June 30, 2008
|
|
|
1,663,717
|
|
|
5.79
|
|
|
4.4
|
|
$
|
36,031
|
|
MISONIX
INC. and Subsidiaries
Notes
to
Consolidated Financial Statements
For
the
three years ended June 30, 2008
The
following table summarizes information about stock options outstanding at
June
30, 2008:
|
|
Options Outstanding
|
|
Options Exercisable
|
|
Range
of
Exercise
Price
|
|
Number
|
|
Weighted Average
Contractual Life
(Yrs)
|
|
Weighted
Average
Exercise
Price
|
|
Number
|
|
Weighted
Average
Exercise
Price
|
|
$ 3.07 - 4.99
|
|
|
375,750
|
|
|
7.6
|
|
$
|
4.27
|
|
|
289,725
|
|
$
|
4.35
|
|
$ 5.06 - 8.00
|
|
|
1,447,091
|
|
|
4.0
|
|
$
|
6.08
|
|
|
1,373,992
|
|
$
|
6.10
|
|
|
|
|
1,822,841
|
|
|
4.9
|
|
$
|
5.71
|
|
|
1,663,717
|
|
$
|
5.79
|
|
As
of
June 30, 2008 and 2007, 1,822,841 and 1,802,566 shares are reserved for
issuance under outstanding options and 647,283 and 666,477 shares are reserved
for the granting of additional options, respectively. All outstanding options
expire between July 2008 and November 2017 and vest immediately or over periods
of up to four years.
9.
Commitments and
Contingencies
Legal
Proceedings
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. In fiscal 2008, the judgment was decreased
to
$324,000 and the $95,000 reduction is included in other income. 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.
Employment
Agreement
Purchase
Commitments
As
of
June 30, 2008 and 2007 the Company had inventory related purchase commitments
totaling approximately $3,586,000 and $3,404,000, respectively.
MISONIX
INC. and Subsidiaries
Notes
to
Consolidated Financial Statements
For
the
three years ended June 30, 2008
10.
Business Segments
The
Company operates in two business segments which are organized by product
types:
laboratory and scientific products and medical devices. Laboratory and
scientific products include the Sonicator ultrasonic liquid processor, Aura
ductless fume enclosure, the Labcaire Autoscope and Guardian endoscope
disinfectant systems. Medical devices include the Auto Sonix ultrasonic cutting
and coagulatory system, refurbishing revenues of high-performance ultrasound
systems and replacement transducers for the medical diagnostic ultrasound
industry, ultrasonic lithotriptor, ultrasonic neuroaspirator (used for
neurosurgery) and soft tissue aspirator (used primarily for the cosmetic
surgery
market). The Company evaluates the performance of the segments based upon
income from operations less general and administrative expenses and litigation
(recovery) settlement expenses, which are maintained at the corporate
headquarters (corporate). The Company does not allocate assets by segment
as
such information is not provided to the chief decision maker. Summarized
financial information for each of the segments for the years ended June 30,
2008, 2007 and 2006 are as follows:
For
the
year ended June 30, 2008:
|
|
Medical
Devices
|
|
Laboratory and
Scientific Products
|
|
Corporate and
Unallocated
|
|
Total
|
|
Net
sales
|
|
$
|
24,273,450
|
|
$
|
21,366,256
|
|
$
|
-
|
|
$
|
45,639,706
|
|
Cost
of goods sold
|
|
|
12,530,534
|
|
|
13,767,370
|
|
|
-
|
|
|
26,297,904
|
|
Gross
profit
|
|
|
11,742,916
|
|
|
7,598,886
|
|
|
-
|
|
|
19,341,802
|
|
Selling
expenses
|
|
|
5,031,208
|
|
|
2,695,701
|
|
|
-
|
|
|
7,726,909
|
|
Research
and development
|
|
|
1,982,341
|
|
|
1,039,728
|
|
|
-
|
|
|
3,022,069
|
|
General
and administrative
|
|
|
-
|
|
|
-
|
|
|
10,518,550
|
|
|
10,518,550
|
|
Total
operating expenses
|
|
|
7,013,549
|
|
|
3,735,429
|
|
|
10,518,550
|
|
|
21,267,528
|
|
Income
(loss) from operations
|
|
|
4,729,367
|
|
$
|
3,863,457
|
|
$
|
(10,518,550
|
)
|
$
|
(1,925,726
|
)
|
For
the
year ended June 30, 2007:
|
|
Medical
Devices
|
|
Laboratory and
Scientific Products
|
|
Corporate and
Unallocated
|
|
Total
|
|
Net
sales
|
|
$
|
23,540,628
|
|
$
|
18,891,277
|
|
$
|
-
|
|
$
|
42,431,905
|
|
Cost
of goods sold
|
|
|
13,336,430
|
|
|
11,388,084
|
|
|
-
|
|
|
24,724,514
|
|
Gross
profit
|
|
|
10,204,198
|
|
|
7,503,193
|
|
|
-
|
|
|
17,707,391
|
|
Selling
expenses
|
|
|
5,002,878
|
|
|
2,593,276
|
|
|
-
|
|
|
7,596,154
|
|
Research
and development
|
|
|
1,953,872
|
|
|
1,159,392
|
|
|
-
|
|
|
3,113,264
|
|
General
and administrative
|
|
|
-
|
|
|
-
|
|
|
9,417,038
|
|
|
9,417,038
|
|
Total
operating expenses
|
|
|
6,956,750
|
|
|
3,752,668
|
|
|
9,417,038
|
|
|
20,126,456
|
|
Income
(loss) from operations
|
|
$
|
3,247,448
|
|
$
|
3,750,525
|
|
$
|
(9,417,038
|
)
|
$
|
(2,419,065
|
)
|
MISONIX
INC. and Subsidiaries
Notes
to
Consolidated Financial Statements
For
the
three years ended June 30, 2008
For
the
year ended June 30, 2006:
|
|
Medical
Devices
|
|
Laboratory and
Scientific Products
|
|
Corporate and
Unallocated
|
|
Total
|
|
Net
sales
|
|
$
|
20,928,052
|
|
$
|
18,559,241
|
|
$
|
-
|
|
$
|
39,487,293
|
|
Cost
of goods sold
|
|
|
12,456,746
|
|
|
12,337,537
|
|
|
-
|
|
|
24,794,283
|
|
Gross
profit
|
|
|
8,471,306
|
|
|
6,221,704
|
|
|
-
|
|
|
14,693,010
|
|
Selling
expenses
|
|
|
4,739,079
|
|
|
2,689,076
|
|
|
-
|
|
|
7,428,155
|
|
Research
and development
|
|
|
2,200,380
|
|
|
1,427,022
|
|
|
-
|
|
|
3,627,402
|
|
General
and administrative
|
|
|
-
|
|
|
-
|
|
|
10,211,492
|
|
|
10,211,492
|
|
Total
operating expenses
|
|
|
6,939,459
|
|
|
4,116,098
|
|
|
10,211,492
|
|
|
21,267,049
|
|
Income
from operations
|
|
$
|
1,531,847
|
|
$
|
2,105,606
|
|
$
|
(10,211,492
|
)
|
$
|
(6,574,039
|
)
|
There
are
two major customers for medical devices. Sales to USS were approximately
$3,629,000, $4,464,000 and $4,461,000 for the years ended June 30, 2008,
2007
and 2006, respectively. Sales to Aesculap Inc., USA were approximately
$2,256,000, $1,605,000 and $1,410,000 during the fiscal years ended June
30,
2008, 2007 and 2006, respectively. There were no significant concentrations
of
sales or accounts receivable for laboratory and scientific products for the
years ended June 30, 2008, 2007 and 2006, respectively.
The
Company’s revenues are generated from various geographic regions. The following
is an analysis of net sales by geographic region:
|
|
Year
ended June 30,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
United
States
|
|
$
|
24,600,948
|
|
$
|
24,333,035
|
|
$
|
25,049,213
|
|
United
Kingdom
|
|
|
14,107,027
|
|
|
11,536,440
|
|
|
9,392,592
|
|
Europe
|
|
|
2,842,250
|
|
|
3,713,012
|
|
|
2,210,668
|
|
Asia
|
|
|
1,856,016
|
|
|
1,673,480
|
|
|
1,268,799
|
|
Canada
and Mexico
|
|
|
720,783
|
|
|
452,641
|
|
|
640,009
|
|
Middle
East
|
|
|
342,524
|
|
|
115,020
|
|
|
307,810
|
|
Other
|
|
|
1,170,158
|
|
|
608,277
|
|
|
618,202
|
|
|
|
$
|
45,639,706
|
|
$
|
42,431,905
|
|
$
|
39,487,293
|
|
Total
assets, by geographic area, are as follows:
|
|
June
30,
|
|
|
|
2008
|
|
2007
|
|
United
States
|
|
|
|
|
|
|
|
Long-lived
assets
|
|
$
|
9,987,290
|
|
$
|
7,896,908
|
|
Other
assets
|
|
|
13,295,967
|
|
|
18,447,310
|
|
|
|
|
23,283,257
|
|
|
26,344,218
|
|
United
Kingdom
|
|
|
|
|
|
|
|
Long-lived
assets
|
|
$
|
4,351,333
|
|
$
|
2,573,478
|
|
Other
assets
|
|
|
9,615,484
|
|
|
9,828,048
|
|
|
|
|
13,966,817
|
|
|
12,401,526
|
|
Total
Assets
|
|
$
|
37,250,074
|
|
$
|
38,745,744
|
|
MISONIX
INC. and Subsidiaries
Notes
to
Consolidated Financial Statements
For
the
three years ended June 30, 2008
11.
Income Taxes
The
Company adopted the provisions of 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 accrued expenses
and
other current liabilities. There have not been any new uncertain income tax
positions identified in the year ended June 30, 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 $16,000 was accrued during the year ended June 30, 2008 and at
June
30, 2008, the total liability was approximately $251,000. The statute of
limitations for the tax return that contains the uncertain tax position expires
in fiscal 2009.
There
are
no federal, state or foreign income tax audits in process as of June 30,
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, Misonix, Ltd. and UKHIFU file tax
returns in England. The England Inland Revenue Service has not examined these
tax returns.
Deferred
income taxes reflect the net tax effects of temporary differences between
the
carrying amounts of assets and liabilities for financial reporting purposes
and
the amounts used for income tax purposes.
The
tax
effects of temporary differences that give rise to significant portions of
the
deferred tax assets and liabilities are presented below:
MISONIX
INC. and Subsidiaries
Notes
to
Consolidated Financial Statements
For
the
three years ended June 30, 2008
|
|
June 30,
|
|
|
|
2008
|
|
2007
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
$
|
(250,514
|
)
|
$
|
(300,206
|
)
|
Total
deferred tax liabilities
|
|
|
(250,514
|
)
|
|
(300,206
|
)
|
|
|
|
|
|
|
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
Bad
debt reserves
|
|
|
78,732
|
|
|
84,522
|
|
Accruals
and allowances
|
|
|
255,625
|
|
|
199,984
|
|
Inventory
valuation
|
|
|
581,100
|
|
|
585,634
|
|
License
fee income
|
|
|
115,719
|
|
|
77,357
|
|
Investments
|
|
|
1,646,256
|
|
|
1,697,856
|
|
Stock-based
compensation
|
|
|
154,306
|
|
|
128,592
|
|
Litigation
|
|
|
115,344
|
|
|
149,164
|
|
Tax
credits and net operating loss
carry
forwards
|
|
|
3,815,225
|
|
|
3,314,864
|
|
Deferred
lease liability
|
|
|
82,865
|
|
|
83,747
|
|
Deferred
gain from sale and leaseback of Labcaire building
|
|
|
554,190
|
|
|
596,525
|
|
Other
|
|
|
9,466
|
|
|
9,684
|
|
Total
deferred tax assets
|
|
|
7,408,828
|
|
|
6,927,929
|
|
Valuation
allowance
|
|
|
(4,566,332
|
)
|
|
(3,071,932
|
)
|
Net
deferred tax asset
|
|
$
|
2,591,982
|
|
$
|
3,555,791
|
|
|
|
|
|
|
|
|
|
Recorded
as:
|
|
|
|
|
|
|
|
Current
deferred tax asset
|
|
$
|
1,562,279
|
|
$
|
1,028,988
|
|
Non-current
deferred tax asset
|
|
|
1,280,217
|
|
|
2,827,009
|
|
Non-current
deferred tax liability
|
|
|
(250,514
|
)
|
|
(300,206
|
)
|
|
|
$
|
2,591,982
|
|
$
|
3,555,791
|
|
As
of
June 30, 2008, the valuation allowance was determined by estimating the
recoverability of the deferred tax assets. In assessing the realizability
of
deferred tax assets, management considers whether it is more likely than
not
that some portion or all of the deferred tax assets will not be realized.
In
making this assessment, the ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income and tax planning
strategies in making this assessment. Based on the level of historical income
and projections for future taxable income over the periods in which the deferred
tax assets are deductible, management believes it is more likely than not
that
the Company will realize the benefits of these deductible differences, net
of
the existing valuation allowances at June 30, 2008. The amount of the deferred
tax asset considered realizable, however, could be reduced in the near term
if
estimates of future taxable income during the carryforward periods are not
realized.
At
June
30, 2008, the Company had a net operating loss carryforward (“NOL”) of
approximately $11,000,000 available to reduce future New York state taxable
income. This NOL begins to expire in fiscal year 2022. The Company has provided
a full valuation allowance on the deferred tax asset related to this
loss.
In
prior
years, the Company recorded a deferred tax asset in connection with the loss
on
impairment of equity investments which included the carrying value of the
investments and related notes and debentures. During the second quarter of
fiscal 2008 the Company realized $150,000 of the debt due from Focus. On
July 1,
2008, the Company closed the transaction for the sale of its Focus equity
to
USHIFU and received payment of one half of the outstanding debt due from
Focus
for $1,516,866 pursuant to the terms of the Focus Agreement. The balance
of the
debt is to be repaid in December 2009. As a result of these transactions,
the
Company reversed $755,836 of the valuation allowance related to the impairment
of equity investments. The valuation allowance related to this impairment
of
equity investments totaled $942,020 and $1,697,856 at June 30, 2008 and 2007,
respectively.
MISONIX
INC. and Subsidiaries
Notes
to
Consolidated Financial Statements
For
the
three years ended June 30, 2008
During
fiscal 2006, the Company recorded a deferred tax asset related to operating
loss
carryovers incurred by its wholly-owned subsidiary, Hearing Innovations,
in the
amount of $1,337,743. The Company recorded a full valuation allowance against
these assets in accordance with the provisions of SFAS No. 109. Based upon
the
capital nature of the deferred tax asset and the Company’s projections for
future capital gains in which the deferred tax asset would be deductible,
management did not deem it more likely than not that the asset would be
recoverable at June 30, 2008 and 2007, respectively.
As
of
June 30, 2008, the Company had approximately $1,694,000 of U.S. federal net
operating loss carryforwards and unused tax credit carryforwards which are
available to offset future taxable income. These carryforwards expire in
the tax
years between 2023 and 2028, if not utilized. In addition, the Company recorded
deferred tax assets related to losses at its Labcaire subsidiary and the
deferred gain from the sale of the Labcaire building in fiscal
2007.
In
its
assessment of whether it is more likely than not that some portion or all
of the
deferred tax assets will be realized, management increased the deferred tax
asset valuation allowance by $2,250,236 in fiscal 2008 to recognize the
uncertainty related to the utilization of net loss carryforwards and unused
tax
credits carryforwards and other deferred taxes.
Significant
components of the income tax expense (benefit) attributable to operations
are as
follows:
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
$
|
-
|
|
$
|
(1,112,327
|
)
|
State
|
|
|
46,938
|
|
|
17,048
|
|
|
10,000
|
|
Foreign
|
|
|
-
|
|
|
615,347
|
|
|
35,131
|
|
Total
current
|
|
|
46,938
|
|
|
632,395
|
|
|
(1,067,196
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
1,188,405
|
|
|
(628,658
|
)
|
|
(816,918
|
)
|
State
|
|
|
(602
|
)
|
|
(8,208
|
)
|
|
(7,472
|
)
|
Foreign
|
|
|
(213,248
|
)
|
|
(660,324
|
)
|
|
(382,713
|
)
|
Total
deferred
|
|
|
974,555
|
|
|
(1,297,190
|
)
|
|
(1,207,103
|
)
|
|
|
$
|
1,021,493
|
|
$
|
(664,795
|
)
|
$
|
(2,274,299
|
)
|
The
reconciliation of income tax expense (benefit) computed at the Federal statutory
tax rates to income tax expense (benefit) is as follows:
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
Tax
at federal statutory rates
|
|
$
|
(618,848
|
)
|
$
|
(698,784
|
)
|
$
|
(2,047,205
|
)
|
State
income taxes, net of
|
|
|
|
|
|
|
|
|
|
|
federal
benefit
|
|
|
30,979
|
|
|
11,252
|
|
|
(872
|
)
|
Research
credit
|
|
|
(31,762
|
)
|
|
(145,090
|
)
|
|
(5,877
|
)
|
Extraterritorial
income exclusion
|
|
|
-
|
|
|
(4,180
|
)
|
|
25,149
|
|
Foreign
taxes
|
|
|
71,831
|
|
|
35,304
|
|
|
125,130
|
|
Stock-based
compensation
|
|
|
36,157
|
|
|
59,573
|
|
|
74,270
|
|
FIN
48 interest
|
|
|
16,177
|
|
|
-
|
|
|
-
|
|
State
rate adjustment
|
|
|
-
|
|
|
-
|
|
|
53,918
|
|
Valuation
allowance
|
|
|
1,494,400
|
|
|
-
|
|
|
(629,560
|
)
|
Travel
and entertainment
|
|
|
21,966
|
|
|
31,094
|
|
|
18,199
|
|
Other
|
|
|
593
|
|
|
46,036
|
|
|
112,549
|
|
|
|
$
|
1,021,493
|
|
$
|
(664,795
|
)
|
$
|
(2,274,299
|
)
|
MISONIX
INC. and Subsidiaries
Notes
to
Consolidated Financial Statements
For
the
three years ended June 30, 2008
12.
Licensing Agreements for Medical Technology
In
October 1996, the Company entered into a License Agreement (the “USS License”)
with USS for a twenty-year period, covering the further development and
commercial exploitation of the Company’s medical technology relating to
ultrasonic cutting, which uses high frequency sound waves to coagulate and
divide tissue for both open and laproscopic surgery.
The
USS
License gives USS exclusive worldwide marketing and sales rights for this
technology. The Company received $100,000 under the option agreement preceding
the USS License. This amount was recorded into income in fiscal 1997. Under
the
USS License, the Company has received $475,000 in licensing fees (which are
being recorded as income over the term of the USS License), plus royalties
based
upon net sales of such products. Total royalties from sales of this device
were
approximately $691,000, $827,000 and $810,000 for the fiscal years ended
June
30, 2008, 2007 and 2006, respectively.
13.
Employee Profit Sharing Plan
The
Company sponsors a retirement plan pursuant to Section 401(k) of the Internal
Revenue Code of 1986, as amended (the “Code”), for all full time employees.
Participants may contribute a percentage of compensation not to exceed the
maximum allowed under the Code, which was $15,500 or $20,500 if the employee
was
over 50 years of age for the year ended June 30, 2008. The plan provides
for a
matching contribution by the Company of 10%-25% of annual eligible compensation
contributed by the participants based on years of service, which amounted
to
$143,127, $124,746 and $109,757 for the years ended June 30, 2008, 2007 and
2006, respectively.
14.
Subsequent Event
On
July
1, 2008, the Company received $1,516,866 from USHIFU pursuant to the Focus
Agreement between the Company and USHIFU. This payment consists of $837,500
for
the 2,500 shares of Series M Preferred Stock of Focus owned by the Company
and
fifty percent (50%) of the outstanding principal and accrued interest of
loans
previously made by the Company to Focus. The balance of such loans is now
represented by a promissory note payable by USHIFU and Focus and is secured
by
certain of USHIFU’s and Focus’ assets. The Company will realize approximately
$1.5 million of non-recurring pretax income or approximately net income of
$.13
per share in the first quarter of fiscal 2009.
|
|
FISCAL 2008
|
|
|
|
Q1
|
|
Q2
|
|
Q3
|
|
Q4
|
|
YEAR
|
|
Net
sales
|
|
$
|
10,532,237
|
|
$
|
11,600,053
|
|
$
|
11,803,026
|
|
$
|
11,704,390
|
|
$
|
45,639,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
4,665,794
|
|
|
5,164,575
|
|
|
4,882,446
|
|
|
4,628,987
|
|
|
19,341,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
4,904,507
|
|
|
5,454,306
|
|
|
5,187,415
|
|
|
5,721,300
|
|
|
21,267,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(238,713
|
)
|
|
(289,731
|
)
|
|
(304,969
|
)
|
|
(1,092,313
|
)
|
|
(1,925,726
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (loss)
|
|
|
(21,161
|
)
|
|
85,941
|
|
|
73,170
|
|
|
(32,366
|
)
|
|
105,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interest in net income of consolidated subsidiaries
|
|
|
9,444
|
|
|
13,867
|
|
|
24,269
|
|
|
(1,404
|
)
|
|
46,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax (benefit ) expense
|
|
|
(43,054
|
)
|
|
(100,477
|
)
|
|
(69,031
|
)
|
|
1,227,055
|
|
|
1,021,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(226,264
|
)
|
$
|
(117,180
|
)
|
$
|
(194,037
|
)
|
$
|
(2,350,330
|
)
|
$
|
(2,887,811
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share-Basic
|
|
$
|
(.03
|
)
|
$
|
(.02
|
)
|
$
|
(.03
|
)
|
$
|
(.34
|
)
|
$
|
(0.41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share -Diluted
|
|
$
|
(.03
|
)
|
$
|
(.02
|
)
|
$
|
(.03
|
)
|
$
|
(.34
|
)
|
$
|
(0.41
|
)
|
MISONIX
INC. and Subsidiaries
Notes
to
Consolidated Financial Statements
For
the
three years ended June 30, 2008
|
|
FISCAL 2007
|
|
|
|
Q1
|
|
Q2
|
|
Q3
|
|
Q4
|
|
YEAR
|
|
Net
sales
|
|
$
|
9,642,878
|
|
$
|
10,639,086
|
|
$
|
10,583,924
|
|
$
|
11,566,017
|
|
$
|
42,431,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
3,931,866
|
|
|
4,786,755
|
|
|
4,459,997
|
|
|
4,528,773
|
|
|
17,707,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
4,821,739
|
|
|
5,055,433
|
|
|
5,353,185
|
|
|
4,896,099
|
|
|
20,126,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(889,873
|
)
|
|
(268,678
|
)
|
|
(893,188
|
)
|
|
(367,326
|
)
|
|
(2,419,065
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
133,658
|
|
|
141,417
|
|
|
81,267
|
|
|
7,477
|
|
|
363,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interest in net income (loss) of consolidated subsidiaries
|
|
|
31,339
|
|
|
(5,840
|
)
|
|
(38,318
|
)
|
|
(28,115
|
)
|
|
(40,934
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax benefit
|
|
|
(245,138
|
)
|
|
(144,975
|
)
|
|
(244,567
|
)
|
|
(30,115
|
)
|
|
(664,795
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(542,416
|
)
|
$
|
23,554
|
|
$
|
(529,036
|
)
|
$
|
(301,619
|
)
|
$
|
(1,349,517
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share-Basic
|
|
$
|
(.08
|
)
|
$
|
-
|
|
$
|
(.08
|
)
|
$
|
(.04
|
)
|
$
|
(.19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share -Diluted
|
|
$
|
(.08
|
)
|
$
|
-
|
|
$
|
(.08
|
)
|
$
|
(.04
|
)
|
$
|
(.19
|
)
|
|
|
FISCAL 2006
|
|
|
|
Q1
|
|
Q2
|
|
Q3
|
|
Q4
|
|
YEAR
|
|
Net
sales
|
|
$
|
9,213,486
|
|
$
|
10,376,318
|
|
$
|
10,279,301
|
|
$
|
9,618,188
|
|
$
|
39,487,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
3,538,445
|
|
|
3,971,453
|
|
|
4,062,525
|
|
|
3,120,587
|
|
|
14,693,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
5,315,150
|
|
|
4,932,445
|
|
|
5,353,095
|
|
|
5,666,359
|
|
|
21,267,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
|
(1,776,705
|
)
|
|
(960,992
|
)
|
|
(1,290,570
|
)
|
|
(2,545,772
|
)
|
|
(6,574,039
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
174,859
|
|
|
139,332
|
|
|
144,143
|
|
|
94,515
|
|
|
552,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interest in net income (loss) of consolidated subsidiaries
|
|
|
16,339
|
|
|
2,785
|
|
|
(6,465
|
)
|
|
(113
|
)
|
|
12,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax benefit
|
|
|
(312,822
|
)
|
|
(317,340
|
)
|
|
(310,844
|
)
|
|
(1,333,293
|
)
|
|
(2,274,299
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,305,363
|
)
|
$
|
(507,105
|
)
|
$
|
(829,118
|
)
|
$
|
(1,117,851
|
)
|
$
|
(3,759,437
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share-Basic
|
|
$
|
(.19
|
)
|
$
|
(.07
|
)
|
$
|
(.12
|
)
|
$
|
(.16
|
)
|
$
|
(.55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share -Diluted
|
|
$
|
(.19
|
)
|
$
|
(.07
|
)
|
$
|
(.12
|
)
|
$
|
(.16
|
)
|
$
|
(
.55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MISONIX
INC. and Subsidiaries
Notes
to
Consolidated Financial Statements
For
the
three years ended June 30, 2008
Schedule
II
Description
|
|
Column B
Balance at
Beginning
of period
|
|
Column C
Additions
(Recoveries)
Charged (Credited)
to cost and
expenses
|
|
Column D
Additions
(deductions)-
describe
|
|
Column E
Balance at
end of
period
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for
doubtful
accounts:
Year
ended June 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
$
|
313,981
|
|
$
|
79,995
|
|
$
|
(16,978)
(A
|
)
|
$
|
376,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
$
|
256,309
|
|
$
|
135,986
|
|
$
|
(78,314)
(A
|
)
|
$
|
313,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
$
|
405,998
|
|
$
|
112,633
|
|
$
|
(262,322)
(A
|
)
|
$
|
256,309
|
|
(A)
|
Reduction
in allowance for doubtful accounts due to write-off of accounts
receivable
balance.
|