FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
From the transition period from _______ to ________.
Commission file number: 1-10986
MISONIX, INC.
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(Exact name of registrant as specified in its charter)
NEW YORK 11-2148932
- --------------------------------- --------------------
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
1938 NEW HIGHWAY, FARMINGDALE, N.Y. 11375
- --------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(631) 694-9555
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Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
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 NOVEMBER 1, 2000
--------------------- ----------------
$.01 par value 5,926,417
MISONIX, INC.
Index
Part I - FINANCIAL INFORMATION Page
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of
September 30, 2000 (Unaudited) and June 30, 2000 3
Consolidated Statements of Operations
Three Months Ended September 30, 2000
and 1999 (Unaudited) 4
Consolidated Statements of Cash Flows
Three months ended September 30, 2000
and 1999 (Unaudited) 5
Notes to Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial Condition 9-10
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
Part II - OTHER INFORMATION 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
2
Part 1 - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
MISONIX, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30,
2000 June 30,
(UNAUDITED) 2000
ASSETS ---------- ----------
Current assets:
Cash and cash equivalents $ 6,741,142 $ 7,069,502
Investments held to maturity 3,005,742 3,021,268
Accounts receivable, net of allowance for
doubtful accounts of $210,211 and $200,429,
respectively 6,883,751 7,277,242
Inventories 6,038,547 4,273,223
Deferred income taxes 289,694 167,238
Prepaid expenses and other current assets 707,020 794,473
---------- ----------
Total current assets 23,665,896 22,602,946
Property, plant and equipment, net 2,923,843 3,111,112
Deferred income taxes 2,067,504 286,297
Goodwill, less accumulated amortization
of $291,828 and $211,516, respectively 1,926,839 2,007,151
Investment in Focus Surgery, Inc. and
Hearing Innovations, Inc. less accumulated
amortization of $291,176 and $233,450 and
cumulative equity in losses of $630,364 and
$531,014, respectively 2,912,460 3,069,536
Note receivable - Hearing Innovations, Inc. 300,875 --
Other assets 115,895 86,580
--------- ---------
Total assets $ 33,913,312 $ 31,163,622
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 582,759 $ 473,050
Accounts payable 2,643,009 2,053,192
Accrued expenses and other current liabilities 1,767,655 1,323,114
Income taxes payable 714,190 1,283,554
Current maturities of long-term debt
and capital lease obligations 218,753 189,632
--------- ---------
Total current liabilities 5,926,366 5,322,542
Long-term debt and capital lease obligations 1,161,446 1,274,738
Deferred income 506,228 395,060
Minority interest 293,417 289,094
Stockholders' equity:
Common stock, $.01 par value-shares authorized
10,000,000; 5,969,317 and 5,967,817 issued,
respectively 59,693 59,678
Additional paid-in capital 21,808,797 21,801,969
Retained earnings 4,628,730 2,294,570
Treasury stock, 42,900 shares (219,006) (219,006)
Accumulated other comprehensive loss (252,359) (55,023)
---------- ----------
Total stockholders' equity 26,025,855 23,882,188
---------- ----------
Total liabilities and stockholders' equity $ 33,913,312 $ 31,163,622
============ ============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
MISONIX, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
2000 1999
---- ----
Net sales $ 6,791,318 $ 6,482,971
Cost of goods sold 3,209,920 3,665,684
--------- ---------
Gross profit 3,581,398 2,817,287
Operating expenses:
Selling expenses 821,462 554,410
General and administrative expenses 1,539,825 1,152,046
Research and development expenses 346,858 262,644
--------- ---------
Total operating expenses 2,708,145 1,969,100
--------- ---------
Income from operations 873,253 848,187
Other income (expense):
Interest income 172,260 154,295
Interest expense (34,873) (43,539)
Option/license fees 6,078 6,078
Royalty income 169,698 100,312
Amortization of investment (57,725) (38,125)
Foreign exchange gain 4,896 4,796
Miscellaneous income - 4,625
--------- ---------
Income before equity in loss of Focus Surgery,
Inc., equity in loss of Hearing Innovations, Inc.,
minority interest and income taxes 1,133,587 1,036,629
Equity in loss of Focus Surgery, Inc. (83,349) (83,180)
Equity in loss of Hearing Innovations, Inc. (16,001) --
Minority interest in net income of consolidated subsidiaries (4,323) (2,977)
--------- ---------
Income before income taxes 1,029,914 950,472
Income tax benefit (provision) 1,304,246 (345,144)
--------- ---------
Net income $ 2,334,160 $ 605,328
========= =========
Net income per share - Basic $ .39 .10
========= =========
Net income per share - Diluted $ .36 .09
========= =========
Weighted average common shares outstanding - Basic 5,925,045 5,957,470
========= =========
Weighted average common shares outstanding - Diluted 6,558,451 6,734,140
========= =========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
MISONIX, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
------------------------------------
2000 1999
---- ----
OPERATING ACTIVITIES:
Net income $ 2,334,160 $ 605,328
Adjustments to reconcile net income to net cash
provided by operating
activities:
Bad debt expense 19,333 20,295
Deferred income tax (benefit) expense (1,903,663) 5,562
Depreciation and amortization 260,518 143,476
Loss on disposal of equipment - 71,185
Non-cash compensation charge - 8,076
Deferred income 111,168 (6,078)
Foreign currency gain (4,896) (4,796)
Minority interest in net income of subsidiaries 4,323 2,977
Equity in loss of Focus Surgery, Inc. 83,349 83,180
Equity in loss of Hearing Innovations, Inc. 16,001 -
Change in operating assets and liabilities:
Accounts receivable 336,425 1,029,786
Inventories (1,791,716) (258,149)
Prepaid expenses and other current assets (39,185) (31,803)
Other assets (30,143) (3,515)
Accounts payable and accrued expenses 1,066,492 (2,045,069)
Income taxes payable (594,129) 475,141
--------- ----------
Net cash (used in) provided by operating activities (131,963) 95,596
--------- ----------
INVESTING ACTIVITIES
Acquisition of property, plant and equipment (103,079) (64,846)
Redemption of investments held to maturity 15,526 947,909
Loans to Hearing Innovations, Inc., net (189,008) (151,885)
--------- ----------
Net cash (used in) provided by investing activities (276,561) 731,178
--------- ----------
FINANCING ACTIVITIES
Proceeds from short-term borrowings, net 118,920 21,328
Principal payments on capital lease obligations (36,668) (58,074)
Proceeds from exercise of stock options 6,843 28,800
Payment of long-term debt (10,556) (12,076)
--------- ----------
Net cash provided by (used in) financing activities 78,539 (20,022)
--------- ----------
Effect of exchange rates on cash and cash equivalents 1,625 (4,298)
--------- ---------
Net (decrease) increase in cash and cash equivalents (328,360) 802,454
Cash and cash equivalents at beginning of period 7,069,502 8,361,231
----------- -----------
Cash and cash equivalents at end of period $ 6,741,142 $ 9,163,685
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 34,873 $ 43,539
=========== ===========
Income taxes paid $ 1,149,085 $ -
=========== ===========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
MISONIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO INTERIM PERIODS IS UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of the
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three month period ended September 30, 2000 are not
necessarily indicative of the results that may be expected for the year
ending June 30, 2001.
The balance sheet at June 30, 2000 has been derived from the audited
financial statements at that date, but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for
the year ended June 30, 2000.
2. ACQUISITIONS
During the fourth quarter of fiscal 2000, the Company entered into four loan
agreements whereby Hearing Innovations, Inc. ("Hearing Innovations") was
required to pay the Company amounts of $24,000 due July 1, 2000, $45,000 due
July 15, 2000, $29,000 due July 15, 2000 and $13,000 due July 15, 2000.
During the first quarter of fiscal 2001, the Company entered into an
additional four loan agreements whereby Hearing Innovations was required to
pay the Company the total principal amounts of $39,000, $13,000, $13,000 and
$13,000 due September 15, 2000. All notes bore interest at 8% per annum. The
notes were secured by a lien on all of Hearing Innovations' 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 these agreements. On September 11, 2000, the Company loaned
an additional $108,000 to Hearing Innovations, which together with the then
outstanding loans aggregating $192,000 (with accrued interest) described
above were exchanged for a $300,000 7% Secured Convertible Debenture due
August 27, 2002, (the "Debenture") and warrants to acquire 66,667 shares of
common stock at $2.25 per share. The Debenture is convertible at the option
of the Company at any time into shares of common stock of Hearing Innovations
at a conversion rate of $2.25 per share. Interest accrues and is payable at
maturity, or is convertible on the same terms as the Debenture's principal
amount. The warrants expire August 27, 2002. If the Company were to convert
the Debenture and exercise all warrants, including those previously
outstanding, the Company would hold a 20% interest in Hearing Innovations.
The principal and accrued interest of the Debenture is $300,875 at September
30, 2000.
6
MISONIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO INTERIM PERIODS IS UNAUDITED) (CONTINUED)
3. INVENTORIES
Inventories are summarized as follows:
SEPTEMBER 30, 2000 JUNE 30, 2000
------------------ -------------
Raw materials $3,130,912 $2,321,828
Work-in-process 616,363 362,664
Finished goods 2,291,272 1,588,731
---------- ----------
$6,038,547 $4,273,223
========== ==========
4. INCOME TAXES
The Company recorded a reduction of the valuation allowance applied against
deferred tax assets in accordance with the provisions of FASB statement
No.109 "Accounting for Income Taxes" which provided a one-time income tax
benefit of $1,681,502. The valuation allowance was established in fiscal year
1997 because the future tax benefit of certain stock option grants issued at
that time could not be reasonably assured. The Company continually reviews
the adequacy of the valuation allowance and recognized the income tax benefit
during the quarter due to the reasonable expectation that such tax benefit
will be realized due to the fiscal strength of the Company. Management
believes that it is more likely than not that it will generate taxable income
sufficient to realize the tax benefit associated with future deductible
temporary differences and therefore, the Company reduced the valuation
allowance to zero at September 30, 2000.
5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
The following summarizes accrued expenses and other current liabilities:
SEPTEMBER 30, 2000 JUNE 30, 2000
------------------ -------------
Accrued payroll and vacation $ 116,817 $ 111,764
Accrued sales tax 14,467 29,638
Accrued commissions and bonuses 336,193 413,292
Customer deposits 646,131 278,635
Professional fees 222,892 117,640
Warranty 318,035 309,766
Other 113,120 62,379
---------- ----------
$1,767,655 $1,323,114
========== ==========
7
MISONIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO INTERIM PERIODS IS UNAUDITED) (CONTINUED)
6. SUBSEQUENT EVENT
ACQUISITIONS
LABCAIRE SYSTEMS LTD.
In October 2000, under the terms of the revised purchase agreement (the
"Labcaire Agreement") with Labcaire (as discussed in the Form 10-K at
June 30, 2000), the Company paid approximately $118,000 for 9,286
shares (2.65%) of the outstanding common stock of Labcaire. This
represents the fiscal 2001 buy-back portion, as defined in the Labcaire
Agreement.
8
MISONIX, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999.
NET SALES: Net sales of the company's medical, scientific and industrial
products, increased $308,347 (4.8%) from $6,482,971 for the three months ended
September 30, 1999 to $6,791,318 for the three months ended September 30, 2000.
This increase is due to the inclusion of the revenues of Sonora and an increase
in ultrasonic industrial sales and wet scrubber (Mystaire) sales offset by lower
medical instrument and fume enclosure sales. Lower medical sales were a result
of reduced shipments of certain medical devices in order to allow for
engineering design and manufacturing process changes and the introduction of the
LySonix 3000. The Company's backlog of unfilled orders increased from $6,151,533
at September 30, 1999 to $10,216,846 at September 30, 2000. This increase is
primarily due to an increase in medical orders.
GROSS PROFIT: Gross profit increased to 52.7% of sales in the three months ended
September 30, 2000 from 43.5% of sales in the three months ended September 30,
1999 due to a favorable mix of high and low margin product deliveries.
SELLING EXPENSE: Selling expense increased 48.2% from $554,410 (8.6% of sales)
in the three months ended September 30, 1999 to $821,462 (12.1% of sales) in the
three months ended September 30, 2000, due to the inclusion of Sonora and
increased sales and marketing efforts in all products.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses
increased 33.7% from $1,152,046 in the three months ended September 30, 1999 to
$1,539,825 in the three months ended September 30, 2000 due to the inclusion of
the consolidated results of Sonora, increased expenditures for investor
relations activities and amortization of Sonora and Labcaire goodwill.
RESEARCH AND DEVELOPMENT EXPENSES: Research and development expenses increased
from $262,644 in the three months ended September 30, 1999 to $346,858 in the
three months ended September 30, 2000. The increase is predominantly due to the
inclusion of Sonora and increased development costs associated with an increase
of medical and industrial products.
INCOME TAXES: For the three months ended September 30, 2000 there was a tax
provision of $377,256 offset by a reduction in the deferred tax valuation
allowance of $1,681,502 resulting in a benefit of $1,304,246 as compared to a
tax provision of $345,144 at September 30, 1999.
The Company recorded a reduction of the valuation allowance applied against
deferred tax assets in accordance with the provisions of FASB statement No.109
"Accounting for Income Taxes" which provided a one-time income tax benefit of
$1,681,502. The valuation allowance was established in fiscal year 1997 because
the future tax benefit of certain stock option grants issued at that time could
not be reasonably assured. The Company continually reviews the adequacy of the
valuation allowance and recognized the income tax benefit during the quarter due
to the reasonable expectation that such tax benefit will be realized due to the
fiscal strength of the Company. Management believes that it is more likely than
not that it will generate taxable income sufficient to realize the tax benefit
associated with future deductible temporary differences and therefore, the
Company reduced the valuation allowance to zero at September 30, 2000.
OTHER INCOME (EXPENSE): Other income during the three months ended September 30,
2000 was $260,334. During the three months ended September 30, 1999, other
income was $188,442. This increase was principally due to increased royalty
income received from the Company's licensees on the sales of medical devices and
an increase in interest income on investments offset by amortization of the
investment in capital stock of Focus Surgery, Inc. and Hearing Innovations, Inc.
9
MISONIX, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES:
Working capital at September 30, 2000 and June 30, 2000 was $17,739,530 and
$17,280,404, respectively. The increase is due to the buildup of inventory
offset by lower accounts receivable collections.
During the fourth quarter of fiscal 2000, the Company entered into four loan
agreements whereby Hearing Innovations was required to pay the Company amounts
of $24,000 due July 1, 2000, $45,000 due July 15, 2000, $29,000 due July 15,
2000 and $13,000 due July 15, 2000. During the first quarter of fiscal 2001, the
Company entered into an additional four loan agreements whereby Hearing
Innovations was required to pay the Company the total principal amounts of
$39,000, $13,000, $13,000 and $13,000 due September 15, 2000. All notes bore
interest at 8% per annum. The notes were secured by a lien on all of Hearing
Innovations' 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 these agreements. On September
11, 2000, the Company loaned an additional $108,000 to Hearing Innovations,
which together with the then outstanding loans aggregating $192,000 (with
accrued interest) described above were exchanged for a $300,000 7% Secured
Convertible Debenture due August 27, 2002 (the "Debenture"), and warrants to
acquire 66,667 shares of common stock at $2.25 per share. The Debenture is
convertible at the option of the Company at any time into shares of common stock
of Hearing Innovations at a conversion rate of $2.25 per share. Interest accrues
and is payable at maturity, or is convertible on the same terms as the
Debenture's principal amount. The warrants expire August 27, 2002. If the
Company were to convert the Debenture and exercise all warrants, including those
previously outstanding, the Company would hold a 20% interest in Hearing
Innovations.
In October 2000, under the terms of the revised purchase agreement (the
"Labcaire Agreement") with Labcaire (as discussed in the Form 10-K at June 30,
2000), the Company paid approximately $118,000 for 9,286 shares (2.65%) of the
outstanding common stock of Labcaire. This represents the fiscal 2001 buy-back
portion, as defined in the Labcaire Agreement.
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.
Forward Looking Statements: This report contains certain forward looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act, which are intended to be covered by the safe harbors
created thereby. Although the Company believes that the assumptions underlying
the forward looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore, there can be no assurance that
the forward looking statements contained in this report will prove to be
accurate. Factors that could cause actual results to differ from the results
specifically discussed in the forward looking statements include, but are not
limited to, the absence of anticipated contracts, higher than historical costs
incurred in performance of contracts or in conducting other activities, product
mix in sales, results of joint venture and investment in related entities,
future economic, competitive and market conditions, the outcome of legal
proceedings, particularly those including patent litigation with Mentor
Corporation as well as management business decisions.
10
MISONIX, INC.
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Currency Risk:
Approximately 23% of the Company's revenues in fiscal 2001 were
received in English Pounds Sterling currency. To the extent that the Company's
revenues are generated in English Pounds, its operating results are converted
into U.S. Dollars using rates of 1.48 and 1.59 for the three months ended
September 30, 2000 and 1999, respectively. A strengthening of the English Pound,
in relation to the U.S. Dollar, will have the effect of increasing its reported
revenues and profits, while a weakening of the English Pound will have the
opposite effect. Since the Company's operations in England generally sets 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.
Euro Conversion: The January 1, 1999 adoption of the Euro created a
single-currency market in much of Europe. For a transition period from January
1, 1999 through January 1, 2002, the existing local currencies are anticipated
to remain legal tender as denominations of the Euro. The Company does not
anticipate that its operations will be materially adversely effected by the
conversion to the Euro. The Company has analyzed the impact of conversion to the
Euro on its existing systems and operations and implemented modifications to its
systems to enable the Company to handle Euro invoicing for the transactions
which commenced in 1999. The Company anticipates that the cost of such
modifications should not have a material effect on its consolidated results of
operations or liquidity.
11
MISONIX, INC.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a)Exhibits:
Exhibit 11 - Computation of Net Earnings Per Share
Exhibit 27 - Financial Data Schedule
(b)There were no reports on Form 8-K filed during the quarter ended
September 30, 2000.
12
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: November 14, 2000
MISONIX, INC.
--------------------------------------
(Registrant)
By:
------------------------------------
Michael A. McManus, Jr.
President, Chief Executive Officer
By:
------------------------------------
Richard Zaremba
Vice President,
Chief Financial Officer,
Treasurer and Secretary
13