FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period of __________ to ____________
Commission file number: 1-10986
MISONIX, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 11-2148932
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
1938 New Highway, Farmingdale, N.Y. 11375
- --------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (631) 694-9555
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
- --
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date:
Outstanding at
Class of Common Stock January 31, 2000
- --------------------- ----------------
$.01 par value 5,914,570
MISONIX, INC.
Index
Part I. FINANCIAL INFORMATION Page
----
Item I. Consolidated Financial Statements
Consolidated Balance Sheets as of
December 31, 1999 (Unaudited) and June 30, 1999 3
Consolidated Statements of Operations
Six Months Ended December 31, 1999
and 1998 (Unaudited) 4
Consolidated Statements of Operations
Three Months Ended December 31, 1999
and 1998 (Unaudited) 5
Consolidated Statements of Cash Flows
Six months ended December 31, 1999
and 1998 (Unaudited) 6
Notes to Consolidated Financial Statements 7-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-13
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
2
Part I: Financial Information
MISONIX, INC.
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
1999 1999
Assets (UNAUDITED) (See Note 1)
- ------ ----------- ------------
Current assets:
Cash and cash equivalents $ 9,239,161 $ 8,361,231
Investments held to maturity 3,082,570 3,987,309
Accounts receivable, net of allowance for
doubtful accounts of $109,602 and $88,757 5,227,667 6,073,919
Inventories 3,728,390 2,936,960
Deferred income taxes 167,145 131,788
Prepaid expenses and other current assets 398,214 611,818
------------ ------------
Total current assets 21,843,147 22,103,025
Property, plant and equipment, net 3,234,700 2,964,778
Deferred income taxes 144,771 181,484
Goodwill, less accumulated amortization
of $112,957 and $89,463 1,282,641 502,295
Investments in Focus Surgery, Inc.
and Hearing Innovations, Inc.,
less accumulated amortization
of $92,583 and $25,417 and cumulative
equity in losses of $218,702 and $68,880, respectively 3,428,419 2,955,703
Other assets 79,709 71,805
------------ ------------
Total assets $ 30,013,387 $ 28,779,090
============ ============
Liabilities and stockholders' equity
Current liabilities:
Notes payable $ 557,632 $ 499,398
Revolving line of credit 222,388 -
Accounts payable 1,884,331 2,356,877
Accrued expenses and other current liabilities 638,231 2,089,231
Income taxes payable 1,074,652 272,814
Current maturities of long term debt
and capital lease obligations 198,735 162,699
------------ ------------
Total current liabilities 4,575,969 5,381,019
Long-term debt and capital lease obligations 1,305,802 1,271,814
Deferred income 433,464 445,620
Minority interest 960,362 138,252
Stockholders' equity:
Common stock, $.01 par value-shares authorized
10,000,000; 5,957,470 and 5,927,470 issued 59,575 59,275
Additional paid-in capital 21,758,821 21,719,553
Retained earnings (deficit) 1,089,576 (226,326)
Treasury stock, 27,700 shares in 1999 (138,997) -
Accumulated other comprehensive income (31,185) (10,117)
------------ ------------
Total stockholders' equity 22,737,790 21,542,385
------------ ------------
Total liabilities and stockholders' equity $ 30,013,387 $ 28,779,090
============ ============
See accompanying Notes to Consolidated Financial Statements.
3
MISONIX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the six months ended
December 31,
------------------------
1999 1998
---- ----
Net sales $ 13,767,105 $ 11,423,780
Cost of goods sold 7,448,995 5,807,852
------------ ------------
Gross profit 6,318,110 5,615,928
Operating expenses:
Selling, general and administrative expenses 3,762,339 3,548,903
Research and development 592,504 442,509
Bad debt expense 40,095 2,099,903
------------ ------------
Total operating expenses 4,394,938 6,091,315
------------ ------------
Income (loss) from operations 1,923,172 (475,387)
Other income (expense):
Interest income 328,538 327,273
Interest expense (77,713) (26,784)
Option/license fees 12,156 37,929
Royalty income 310,297 409,786
Amortization of investments (92,583) -
Foreign exchange loss (1,678) (5,632)
Miscellaneous income (expense) 6,033 (2,489)
------------ ------------
Income before equity in loss of Focus Surgery, Inc.,
equity in loss of Hearing Innovations, Inc.,
minority interest and income taxes 2,408,222 264,696
Equity in loss of Focus Surgery, Inc. (201,928) -
Equity in loss of Hearing Innovations, Inc. (16,774) -
Minority interest in net income of consolidated subsidiaries (41,266) (19,738)
------------ ------------
Income before income taxes 2,148,254 244,958
Income tax provision (832,352) (59,935)
------------ ------------
Net income $ 1,315,902 $ 185,023
============ ============
Net income per share - Basic $ .22 $ 0.03
============ ============
Net income per share - Diluted $ .20 $ 0 .03
============ ============
Weighted average common shares 5,954,671 5,807,351
============ ============
Diluted weighted average common shares outstanding 6,461,533 6,604,308
============ ============
See accompanying Notes to Consolidated Financial Statements
4
MISONIX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the three months ended
December 31,
------------------------
1999 1998
---- ----
Net sales $ 7,284,134 $ 5,860,564
Cost of goods sold 3,783,311 3,049,386
----------- -----------
Gross profit 3,500,823 2,811,178
Operating expenses:
Selling, general and administrative expenses 2,076,178 1,883,926
Research and development 329,860 188,611
Bad debt expense 19,800 384,903
----------- -----------
Total operating expenses 2,425,838 2,457,440
----------- -----------
Income from operations 1,074,985 353,738
Other income (expense):
Interest income 174,243 148,403
Interest expense (34,174) (10,239)
Option/license fees 6,078 18,965
Royalty income 209,985 220,795
Amortization of investments (54,458) -
Foreign exchange (loss) gain (6,474) 9,960
Miscellaneous income (expense) 1,408 (1,213)
----------- -----------
Income before equity in loss of Focus urgery, Inc.,
equity in loss of Hearing Innovations, Inc.,
minority interest and income taxes 1,371,593 740,409
Equity in loss of Focus Surgery, Inc. (118,748) -
Equity in loss of Hearing Innovations, Inc. (16,774)
Minority interest in net income of consolidated subsidiaries (38,289) (7,647)
----------- -----------
Income before income taxes 1,197,782 732,762
Income tax provision (487,208) (268,092)
----------- -----------
Net income $ 710,574 $ 464,670
=========== ===========
Net income per share - Basic $ .12 $ .08
=========== ===========
Net income per share - Diluted $ .11 $ .07
=========== ===========
Weighted average common shares 5,951,872 5,837,095
=========== ===========
Diluted weighted average common shares outstanding 6,451,480 6,581,843
=========== ===========
See accompanying Notes to Consolidated Financial Statements
5
MISONIX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the six months ended
December 31,
------------------------
1999 1998
---- ----
Operating activities:
Net income $ 1,315,902 $ 185,023
Adjustments to reconcile net income to net cash
provided by operating activities:
Bad debt expense 40,095 2,099,903
Deferred income tax expense 1,356 -
Depreciation and amortization 323,484 187,968
Loss on disposal of equipment 71,758 -
Non-cash compensation charge 10,768 -
Deferred income (12,156) (37,929)
Foreign currency loss 1,678 5,632
Minority interest in net income of subsidiaries 41,266 19,738
Equity in loss of Focus Surgery, Inc. 201,928 -
Equity in loss of Hearing Innovations, Inc. 16,774 -
Change in operating assets and liabilities:
Accounts receivable 1,063,366 1,889,313
Inventories (179,677) 473,164
Prepaid expenses and other current assets (41,691) (67,298)
Other assets (7,564) (36,213)
Accounts payable and accrued expenses (2,523,916) (706,513)
Income taxes payable 801,839 (1,420,438)
------------ ------------
Net cash provided by operating activities 1,125,210 2,592,350
------------ ------------
Investing activities
Acquisition of property, plant and equipment (219,573) (165,267)
Purchase of investments held to maturity - (12,025,837)
Redemption of investments held to maturity 904,739 6,575,000
Purchase of Labcaire Stock (173,777) (129,172)
Cash paid for acquisition of Hearing Innovations, Inc. (534,000) -
Cash paid for acquisition of Sonora Medical Systems, Inc.,
net of cash acquired (19,232) -
------------ ------------
Net cash used in investing activities (41,843) (5,745,276)
------------ ------------
Financing activities
Proceeds from short-term borrowings, net 58,234 (465,612)
Principal payments on capital lease obligations (104,393) (48,333)
Payment of long-term debt (26,334) -
Proceeds from exercise of stock options 28,800 83,075
Purchase of treasury stock (138,997)
------------ ------------
Net cash used in financing activities (182,690) (430,870)
Effect of exchange rates on assets and liabilities (22,747) (2,691)
------------ ------------
Net increase (decrease) in cash and cash equivalents 877,930 (3,586,487)
Cash and cash equivalents at beginning of period 8,361,231 4,592,911
------------ ------------
Cash and cash equivalents at end of period $ 9,239,161 $ 1,006,424
============ ============
Supplemental disclosure of cash flow information
Interest paid 77,713 26,784
Income taxes paid 186,350 1,962,005
See accompanying Notes to Consolidated Financial Statements
6
MISONIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals considered
necessary for a fair presentation) have been included. Operating results for
the three- and six-month periods ended December 31, 1999 are not necessarily
indicative of the results that may be expected for the year ending June 30,
2000.
The balance sheet at June 30, 1999 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-KSB for
the year ended June 30, 1999.
2. Inventories
Inventories are summarized as follows:
December 31, 1999 June 30, 1999
----------------- -------------
Raw materials $ 2,232,550 $ 2,111,270
Work-in-process 385,417 331,744
Finished goods 1,110,423* 493,946
------------- ------------
$ 3,728,390 $ 2,936,960
============= ============
* Increase due to inclusion of Sonora Inventory. (See Note 5 for Sonora
acquisition)
3. Revolving Line of Credit
On April 24, 1999, Acoustic Marketing Research Inc, doing business as Sonora
Medical Systems, Inc. ("Sonora") (See Note 5 for Sonora acquisition),
entered into a credit facility with Norwest Bank Colorado, National
Association (the "Bank") that provides Sonora with a $250,000 revolving line
of credit for working capital requirements. The term of this agreement is
for approximately one year, maturing May 15, 2000. This credit facility
allows for interest to be calculated utilizing the Bank's Prime Rate plus 1%
due monthly (9.5% at December 31, 1999). This credit facility contains
standard covenants. The terms provide for the repayment of the debt in full
on its maturity date. As of December 31, 1999, $222,388 was outstanding
leaving $27,612 available on its revolving line of credit.
7
MISONIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (CONTINUED)
4. Accrued Expenses and Other Current Liabilities
The following summarizes accrued expenses and other current liabilities:
December 31, 1999 June 30, 1999
----------------- -------------
Accrued payroll and vacation $ 99,157 $ 169,367
Accrued sales tax 4,644 113,696
Accrued commissions and bonuses 88,921 419,833
Customer deposits 58,407 942,119
Professional fees 63,072 169,963
Other 324,030 274,253
--------- -----------
$ 638,231 $ 2,089,231
========= ===========
5. Acquisitions
Hearing Innovations, Inc.
On October 18, 1999, the Company and Hearing Innovations, Inc. ("Hearing
Innovations") completed the agreement whereby the Company invested an
additional $350,000 and cancelled the notes receivable aggregating $400,000
in exchange for a 7% equity investment in Hearing Innovations. Warrants to
purchase additional shares that would bring the Company's interest in
Hearing Innovations to over 15% were also part of this agreement. Upon
exercise of the warrants, the Company has the right to manufacture Hearing
Innovations ultrasonic products and also has the right to create a joint
venture with Hearing Innovations for the marketing and sale of its
ultrasonic tinnitus masker device. As of the date of the acquisition, the
cost of the investment ($750,000 plus acquisition costs of $34,000) is being
amortized on a straight-line basis over its estimated life of 10 years. The
Company's portion of the net losses of Hearing Innovations were recorded
since the date of acquisition in accordance with the equity method of
accounting.
Labcaire Systems Ltd.
In October 1999, under the terms of the revised purchase agreement (the
"Agreement") with Labcaire (as discussed in the Company's annual report on
Form 10-KSB for the year ended June 30, 1999), the Company paid
approximately $174,000 for 9,286 shares (2.65%) of the outstanding common
stock of Labcaire bringing the acquired interest to 92%. This represents the
fiscal 2000 buy-back portion, as defined in the Agreement.
8
MISONIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (CONTINUED)
Sonora Medical Systems, Inc.
On November 16, 1999, the Company acquired a 51% stake in Acoustic Marketing
Research Inc., doing business as Sonora Medical Systems, Inc. ("Sonora"),
for $1.4 million which was paid to Sonora. The sum is being utilized by
Sonora to increase inventory and expand marketing, sales and research and
development efforts. Sonora, located in Longmont, Colorado, is an ISO 9002
certified refurbisher of high-performance ultrasound systems and replacement
transducers for the medical diagnostic ultrasound industry. Sonora also
offers a full range of aftermarket products and services such as its own
ultrasound probes and transducers, and other services that can extend the
useful life of their customers' ultrasound imaging systems beyond the usual
five to seven years. The agreement includes an option for the Company to
increase its investment by 39% under certain circumstances. The acquisition
was accounted for as a purchase. Accordingly, results of Sonora are included
in the consolidated statement of operations from the date of acquisition and
acquired assets and liabilities have been recorded at their estimated fair
value at the date of acquisition. The excess of the cost of the acquisition
($1,350,000 plus acquisition costs of $93,000, which includes a broker fee
of $64,000) over the fair value of net assets acquired is being amoritized
on a straight-line basis over a period of 5 years.
6. Licensing Agreement for Medical Technology
The Company, on January 11, 1999, terminated its license agreement with
Medical Device Alliance, Inc. ("MDA") and LySonix, Inc. ("LySonix") due to
default by MDA for non-payment for product shipments and royalties owed. In
May 1999, the Company began an action against such licensees seeking
collection of indebtedness and enforcement of security interests held on the
inventory in their possession.
On October 22, 1999, the Company executed a letter of intent with the
judicially appointed receiver for the former licensees of its soft tissue
aspirator, MDA and LySonix, laying the groundwork for a resolution of the
parties' dispute. This letter of intent is subject to court approval. The
letter of intent provides, among other things, that the Company is to be
paid in full for amounts due and owing by the return of inventory by MDA and
LySonix and that the parties will attempt to negotiate a new license
agreement covering these products. The letter of intent expired on December
15, 1999.
As of January 31, 2000, the parties are continuing to negotiate a new
license agreement, which will be judicially reviewed and approved.
9
MISONIX, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Six months and three months ended December 31, 1999 and 1998
Net Sales: Net sales of the Company's medical, scientific and industrial
products increased $2,343,325 (21%) from $11,423,780 in the six months ended
December 31, 1998 to $13,767,105 in the six months ended December 31, 1999. Net
sales for the Company's medical, scientific and industrial products increased
$1,423,570 (24%) from $5,860,564 in the three months ended December 31, 1998 to
$7,284,134 in the three months ended December 31, 1999. The increase for the
period is due to an increase in: sales of the soft tissue aspirator, the
inclusion of medical sales from Sonora Medical Systems, Inc. ("Sonora"), wet
scrubber (Mystaire) sales, and Labcaire sales, partially offset by lower US
Surgical, ultrasonic industrial and domestic fume enclosure sales. Orders from
US Surgical remain intact but the timing for future deliveries of products have
been changed at US Surgical's request. This increase for the quarter ended
December 31, 1999, is due to an increase in soft tissue aspirator sales, the
inclusion of medical sales from Sonora, wet scrubber (Mystaire), ultrasonic
industrial, and Labcaire sales. The Company's backlog of unfilled orders are
$8,211,945 at December 31, 1999.
Gross Profit: Gross profit decreased from 49.1% of sales in the six months ended
December 31, 1998 to 45.9% of sales in the six months ended December 31, 1999.
Gross profit increased from 47.9% of sales in the three months ended December
31, 1998 to 48.1% of sales in the three months ended December 31, 1999. The
decrease for the six months and the increase for the three months ended December
31, 1999, as compared to the same periods in the prior year, is due to an
unfavorable/ favorable mix of high and low margin product deliveries.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses increased 6.1% or $213,436 from $3,548,903 (31.1% of
sales) for the six months ended December 31, 1998 to $3,762,339(27.3% of sales)
for the six months ended December 31, 1999. Selling, general and administrative
expenses increased 10.2% or $192,252 from $1,883,926 (32.1% of sales) for the
three months ended December 31, 1998 to $2,076,178 (28.5% of sales) for the
three months ended December 31, 1999. The increase for the period and quarter
are due to increased sales and marketing efforts in industrial and scientific
products and the consolidated results from Sonora.
Research and Development Expenses: Research and development expenses increased
from $442,509 in the six months ended December 31, 1998 to $592,504 in the six
months ended December 31, 1999. Research and development expenses increased from
$188,611 in the three months ended December 31, 1998 to $329,860 in the three
months ended December 31, 1999. The increased development costs are associated
with an increase in additional products under development and outside clinical
costs.
Bad Debt Expense: Bad debt expense decreased from $2,099,903 for the six months
ended December 31, 1998 to $40,095 for the six months ended December 31, 1999.
On October 22, 1998, the Company announced that it had reserved $1,700,000
against accounts receivable due and owing by Medical Device Alliance, Inc.
("MDA") and its wholly owned subsidiary, LySonix, Inc. ("LySonix") as licensees
for the Misonix ultrasonic soft tissue aspirator. In December of 1998, an
additional reserve was taken against all remaining receivables from MDA and
LySonix totaling $369,903 (See additional discussion in "Liquidity and Capital
Resources").
10
MISONIX, INC.
Other Income (Expense): Other income during the six months ended December 31,
1998 was $740,083. During the six months ended December 31, 1999, other income
was $485,051. Other income during the three months ended December 31, 1998 was
$386,671. During the three months ended December 31, 1999, other income was
$296,609. This decrease was principally due to decreased royalty income received
from the Company's licensees on the sales of medical devices, an increase in
interest expense due to additional borrowings related to the purchase of the new
Labcaire facility and amortization of the investments in capital stock of Focus
Surgery, Inc. and Hearing Innovations, Inc. ("Hearing Innovations").
Income Taxes: The tax provision for the six months ended December 31, 1999 was
$832,352 (38.7% of income before taxes) as compared to a tax provision of
$59,935 (24.5% of income before taxes) for December 31, 1998. The tax provision
for the three months ended December 31, 1999 was $487,208 (40.7% of income
before taxes) as compared to a tax provision of $268,092 (36.7% of income before
taxes) for the three months ended December 31, 1998. This increase is the result
of an increase in income before income taxes from that of the prior year.
Liquidity and Capital Resources:
Working capital at December 31, 1999 and June 30, 1999 was $17,267,178 and
$16,722,006, respectively. The increase is due to cash flow from operations and
investing activities, partially offset by the acquisition of treasury stock and
fixed assets.
On March 10, 1999, the Company entered into a bridge loan agreement with Hearing
Innovations, whereby Hearing Innovations was required to pay to the Company, on
or before March 10, 2000, the principal amount of $250,000. The loan was entered
into in anticipation of the upcoming agreement for a 7% equity investment in
Hearing Innovations by the Company. During the first quarter of fiscal year
2000, the Company entered into four additional secured loan agreements whereby
Hearing Innovations was required to pay the Company the total principal amounts
of $30,000 due October 10, 1999, $50,000 due June 29, 2000, $50,000 due July 29,
2000, and $20,000 due August 30, 2000. These notes bore interest at 8% per
annum.
On October 18, 1999, the Company and Hearing Innovations completed the agreement
whereby the Company invested an additional $350,000 and cancelled the notes
receivable (discussed above) aggregating $400,000 in exchange for a 7% equity
investment in Hearing Innovations. Warrants to purchase additional shares that
would bring the Company's interest in Hearing Innovations to over 15% were also
part of this agreement. Upon exercise of the warrants, the Company has the right
to manufacture Hearing Innovations' ultrasonic products and also has the right
to create a joint venture with Hearing Innovations for the marketing and sale of
its ultrasonic tinnitus masker device.
11
MISONIX, INC.
At the date of the acquisition, the cost of the investment ($750,000 plus
acquisition costs of $34,000) is being amoritized on a straight-line basis over
its estimated life of 10 years. The Company's portion of the net losses of
Hearing Innovations were recorded since the date of acquisition in accordance
with the equity method of accounting.
In October 1999, under the terms of the revised purchase agreement (the
"Agreement") with Labcaire (as discussed in the Company's annual report on Form
10-KSB for the year ended June 30, 1999), the Company paid approximately
$174,000 for 9,286 shares (2.65%) of the outstanding common stock of Labcaire
bringing the acquired interest to 92%. This represents the fiscal 2000 buy-back
portion, as defined in the Agreement.
On November 16, 1999, the Company acquired a 51% stake in Acoustic Marketing
Research Inc. doing business as Sonora Medical Systems, Inc. ("Sonora"), for
$1.4 million which was paid to Sonora. The sum is being utilized by Sonora to
increase inventory and expand marketing, sales and research and development
efforts. Sonora, located in Longmont, Colorado, is an ISO 9002 certified
refurbisher of high-performance ultrasound systems and replacement transducers
for the medical diagnostic ultrasound industry. Sonora also offers a full range
of aftermarket products and services such as its own ultrasound probes and
transducers, and other services that can extend the useful life of their
customers' ultrasound imaging systems beyond the usual five to seven years. The
agreement includes an option for the Company to increase its investment by 39%
under certain circumstances. The acquisition was accounted for as a purchase.
Accordingly, results of Sonora are included in the consolidated statement of
operations from the date of acquisition and acquired assets and liabilities have
been recorded at their estimated fair value at the date of acquisition. The
excess of the cost of the acquisition ($1,350,000 plus acquisition costs of
$93,000, which includes a broker fee of $64,000) over the fair value of net
assets acquired is being amoritized on a straight-line basis over a period of 5
years.
The Company, MDA, and MDA's wholly owned subsidiary, LySonix, were defendants in
an action alleging patent infringement filed by Mentor Corporation. On June 10,
1999, the United States District Court, Central District of California, found
for the defendants that there was no infringement upon Mentor's patent. Mentor
has subsequently filed an appeal. Management believes the outcome of this appeal
will not have a material adverse effect on the Company's consolidated financial
position and results of operations.
The Company, on January 11, 1999, terminated its license agreement with MDA and
LySonix due to default by MDA for non-payment for product shipment and royalties
owed. In May 1999, the Company began an action against such licensees seeking
collection of indebtedness and enforcement of security interests held on the
inventory in their possession.
On October 22, 1999, the Company executed a letter of intent with the judicially
appointed receiver for the former licensees of its soft tissue aspirator, MDA
and LySonix, laying the groundwork for a resolution of the parties' dispute.
This letter of intent is subject to court approval. The letter of intent
provides, among other things, that the Company is to be paid in full for amounts
due and owing by the return of inventory by MDA and LySonix and that the parties
will attempt to negotiate a new license agreement covering these products. The
letter of intent expired on December 15, 1999.
12
MISONIX, INC.
As of January 31, 2000, the parties are continuing to negotiate a new license
agreement, which will be judicially reviewed and approved.
The Company believes that its existing capital resources will enable it to
maintain its current and planned operations for at least 12 months from the date
hereof.
Year 2000 Compliance:
The Company has not had any operational problems for its internal information
systems and products or external service supplies with respect to year 2000.
Forward Looking Statements: This report contains certain forward looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
which are intended to be covered by the safe harbors created thereby. Although
the Company believes that the assumptions underlying the forward looking
statements contained herein are reasonable, any of the assumptions could be
inaccurate, and therefore, there can be no assurance that the forward looking
statements contained in this report will prove to be accurate. Factors that
could cause actual results to differ from the results specifically discussed in
the forward looking statements include, but are not limited to, the absence of
anticipated contracts, higher than historical costs incurred in performance of
contracts or in conducting other activities, product mix in sales, results of
joint venture and investment in related entities, future economic, competitive
and market conditions, the outcome of legal proceedings, particularly those
including patent litigation with Mentor Corp. and the efforts at resolving the
existing disputes with MDA and LySonix as well as management business decisions.
13
MISONIX, INC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In May 1999, the Company began an action against MDA and LySonix
seeking collection of indebtedness and enforcement of security
interests held on the inventory in their possession.
On October 22, 1999, the Company executed a letter of intent with the
judicially appointed receiver for the former licensees of its soft
tissue aspirator, MDA and LySonix, laying the groundwork for a
resolution of the parties' dispute. This letter of intent is subject
to court approval. This letter of intent provides, among other
things, that the Company is to be paid in full for amounts due and
owing by the return of inventory by MDA and LySonix and that the
parties will attempt to negotiate a new license agreement covering
these products. The letter of intent expired on December 31, 1999.
As of January 31, 2000, the parties are continuing to negotiate a new
license agreement, which will be judicially reviewed and approved.
The Company, MDA, and MDA's wholly owned subsidiary, LySonix were
defendants in an action alleging patent infringement filed by Mentor
Corporation. On June 10, 1999, the United States District Court,
Central District of California, found for the defendants that there
was no infringement upon Mentor's patent. Mentor has subsequently
filed an appeal. Based upon the current status of the matters,
management believes the outcome of this appeal will not have a
material adverse effect on the Company's consolidated financial
position and results of operations.
Item 6. Exhibits and Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended
December 31, 1999.
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 14, 2000
MISONIX, INC.
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(Registrant)
By:
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Michael A. McManus, Jr.
President, Chief Executive Officer
By:
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Richard Zaremba
Vice President
Chief Financial Officer,
Treasurer and Secretary