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| MSON > SEC Filings for MSON > Form 10-K on 28-Sep-2009 | All Recent SEC Filings |
28-Sep-2009
Annual Report
Year ended June 30,
2009 2008
United States $ 19,799,757 $ 20,105,381
United Kingdom 14,961,133 14,107,027
Europe 2,190,183 2,842,250
Asia 1,092,314 1,856,016
Canada and Mexico 733,160 720,783
Middle East 251,388 342,524
Other 762,220 1,170,158
$ 39,790,155 $ 41,144,139
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Summarized financial information for each of the segments for the years ended
June 30, 2009 and 2008 are as follows:
For the year ended June 30, 2009:
Medical Laboratory and Corporate and
Devices Scientific Products Unallocated Total
Net sales $ 22,758,079 $ 17,032,076 $ - $ 39,790,155
Cost of goods sold 12,201,353 11,584,848 - 23,786,201
Gross profit 10,556,726 5,447,228 - 16,003,954
Selling expenses 4,536,437 2,227,901 - 6,764,338
Research and development 1,771,719 678,291 - 2,450,010
Litigation expense 278,000 - - 278,000
General and administrative - - 9,009,280 9,009,280
Total operating expenses 6,586,156 2,906,192 9,009,280 18,501,628
Operating income (loss) from
continuing operations $ 3,970,570 $ 2,541,036 $ (9,009,280 ) $ (2,497,674 )
Net income from discontinued
operations, net of tax $ - $ 3,352,618 $ - $ 3,352,618
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For the year ended June 30, 2008:
Medical Laboratory and Corporate and
Devices Scientific Products Unallocated Total
Net sales $ 24,273,450 $ 16,870,689 $ - $ 41,144,139
Cost of goods sold 12,530,535 10,848,052 - 23,378,587
Gross profit 11,742,915 6,022,637 - 17,765,552
Selling expenses 5,031,208 2,283,476 - 7,314,684
Research and development 1,982,341 776,396 - 2,758,737
Litigation expense - - - -
General and administrative - - 10,518,550 10,518,550
Total operating expenses 7,013,549 3,059,872 10,518,550 20,591,971
Operating income (loss) from
continuing operations $ 4,729,366 $ 2,962,765 $ (10,518,550 ) $ (2,826,419 )
Net income from discontinued
operations, net of tax $ - $ 535,912 $ - $ 535,912
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Net sales for the three months ended June 30, 2009 were $10,464,809 compared to $10,555,489 for the three months ended June 30, 2008. The decrease of $90,680 is due to an increase in laboratory product sales of $811,088, primarily due to an increase in Labcaire products sales. Therapeutic medical device products sales decreased approximately $397,540 and diagnostic medical device products sales decreased approximately $504,228. The decrease in diagnostic medical device products sales was primarily attributable to lower sales of Lysonix and neuroaspirator products, partially offset by increased bone cutter AutoSonix sales.
Summarized financial information for each of the segments for the three months
ended June 30, 2009 and 2008 are as follows:
For the three months ended June 30, 2009:
Medical Laboratory and Corporate and
Devices Scientific Products Unallocated Total
Net sales $ 5,516,850 $ 4,947,959 $ - $ 10,464,809
Cost of goods sold 2,814,701 3,497,434 - 6,312,135
Gross profit 2,702,149 1,450,525 - 4,152,674
Selling expenses 1,266,085 1,068,959 - 2,335,044
Research and development 387,532 166,108 - 553,640
Litigation expense 174,000 - - 174,000
General and administrative - - 2,061,944 2,061,944
Total operating expenses 1,827,617 1,235,067 2,061,944 5,124,628
Operating income (loss) from
continuing operations $ 874,532 $ 215,458 $ (2,061,944 ) $ (971,954 )
Net income from discontinued
operations, net of tax $ - $ 2,980,746 $ - $ 2,980,746
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For the three months ended June 30, 2008:
Medical Laboratory and Corporate and
Devices Scientific Products Unallocated Total
Net sales $ 6,418,617 $ 4,136,871 $ - $ 10,555,488
Cost of goods sold 3,477,492 2,891,126 - 6,368,618
Gross profit 2,941,125 1,245,745 - 4,186,870
Selling expenses 1,464,348 576,811 - 2,041,159
Research and development 412,858 170,166 - 583,024
Litigation expense - - - -
General and administrative - - 2,922,326 2,922,326
Total operating expenses 1,877,206 746,977 2,922,326 5,546,509
Operating income (loss) from
continuing operations $ 1,063,919 $ 498,768 $ (2,922,326 ) $ (1,359,639 )
Net income from discontinued
operations, net of tax $ - $ 63,421 $ - $ 63,421
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Gross profit: Gross profit decreased to 40.2% in fiscal 2009 from 43.2% in fiscal 2008. Gross profit for medical device products decreased to 46.4% in fiscal 2009 from 48.4% in fiscal 2008. Gross profit for therapeutic medical device products was negatively impacted by an unfavorable product mix due to lower sales of the Neuroaspirator product in the United States. Gross profit for laboratory and scientific products decreased to 32% in fiscal 2009 from 35.7% in fiscal 2008 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, 2009 and the three months ended June 30, 2008 was 39.7%. Gross margins for medical device products sales increased to 49.0% in the 2009 period from 45.8% in the 2008 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 29.3% in the 2009 period from 30.1% in the 2008 period.
Selling expenses: Selling expenses decreased $550,346 to $6,764,338 (17% of net
sales) in fiscal 2009 from $7,314,684 (17.8% of net sales) in fiscal 2008.
Laboratory and scientific products selling expenses decreased approximately
$56,000, predominately due to decreased selling expenses at Labcaire. Selling
expenses for therapeutic medical device products decreased approximately
$494,346, principally due reduced expenses related to advertising trade shows
and exhibitions. Selling expenses for the three months ended June 30, 2009
increased $293,885 to $2,335,044 (22.3% of net sales) from $2,041,159 (19.3% of
net sales) in the three months ended June 30, 2008. Selling expenses related to
therapeutic medical device products sales decreased approximately $198,263 due
to lower marketing and staffing expenses. Laboratory and scientific products
selling expenses increased approximately $492,148, principally due to the
transferring of demo equipment at Labcaire to general inventory.
General and administrative expenses: Total corporate and unallocated expenses
decreased $1,509,270 in fiscal 2009 to $9,009,280 from $10,518,550 in fiscal
2008. General and administrative expenses decreased in fiscal 2009 principally
due to decreased employee related expenses of $619,772, the favorable impact of
foreign exchange on expenses of $583,587, and a decrease in other costs of
$28,241. General and administrative expenses for the three months ended June 30,
2009 decreased $860,382 to $2,061,944 from $2,922,326 for the three months ended
June 30, 2008. The decrease is primarily related to reduced staffing costs in
the U.S. and lower staffing costs at Misonix, Ltd. and UKHIFU of $364,069, lower
bad debt of $145,726, decreased shareholder relations expense of $78,934, lower
consulting expenses of $50,727, legal expenses of $40,015 and other expenses of
$6,911.
Research and development expenses: Research and development expenses decreased
$308,727 to $2,450,010 in fiscal 2009 from $2,758,737 in fiscal 2008. Research
and development expenses for medical device products decreased $210,622, this
decrease is almost entirely related to 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 $98,105 related to lower
spending at Labcaire. Research and development expenses for the three months
ended June 30, 2009 decreased $29,384 to $553,640 from $583,024 for the three
months ended June 30, 2008. Medical device products research and development
costs decreased $25,326 and expenses for laboratory and scientific products
decreased $4,058.
Other income: Other income increased $1,711,034 in fiscal 2009 to $1,816,618
from $105,584 in fiscal 2008. The increase in other income is primarily related
to the sale of the Company's equity position in Focus, $1,516,866, and lower
interest expense of $166,176. Other income (expense) increased $265,219 to
$232,853 for the three months ended June 30, 2009 from $(32,366) for the three
months ended June 30, 2008. The increase is due to gains on the disposal of
equipment of approximately $100,000, favorable foreign exchange of $68,000,
lower interest expense of $64,000 and higher interest income of $25,000.
Income taxes: In fiscal 2009 the Company decreased the valuation allowance
related to deferred tax assets by approximately $545,000 net which decreased
income tax expense to an effective tax rate of 24.6%. The valuation allowance
was reduced due to the sale of the Company's Ultrasonics Laboratory Products
business to iSonix for a cash payment of $3.5 million and gain on sale of
$2.6 million. A portion of the valuation allowance established in prior years
was due to no identified capital gain to offset the capital losses recorded on
the write down of Hearing Innovations and Focus equity. Upon recording the
capital gain on the sale of the Company's Ultrasonic Laboratory Products
business, the valuation allowance was reversed to the extent of offsetting the
capital gain against the capital losses. The effective tax rate in fiscal 2008
of 23.7% 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.
Discontinued operations:
The following amounts relate to the Ultrasonic Laboratory Products business that
have been segregated from the Company's continuing operations and are reported
as "assets of discontinued operations" in the consolidated balance sheet and in
the results of operations classified as discontinued operations:
June 30, 2009 June 30, 2008
Inventory $ -0- $ 745,473
Property, plant and equipment - net -0- 27,494
Total assets of discontinued operations $ 0 $ 772,967
For the Twelve Months Ended
June 30,
2009 2008
Revenues $ 3,788,669 $ 4,495,568
Income from discontinued operations, before tax $ 1,016,451 $ 900,693
Income tax expense 345,593 364,781
Income from discontinued operations, net of tax 670,858 535,912
Gain on sale of discontinued operations, before tax 2,671,077 -0-
Income tax benefit 10,683 -0-
Gain on sale of discontinued operations, net of tax 2,681,760 -0-
Net income from discontinued operations, net $ 3,352,618 $ 535,912
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Liquidity and Capital Resources:
Working capital at June 30, 2009 and June 30, 2008 was $8,161,000 and
$8,841,000, respectively. For the year ended June 30, 2009, cash used in
operations totaled $3,190,000. The major use of cash from operations was related
to decreased accounts payable of approximately $3,269,000, increase in accounts
receivable of $1,418,000, gain on disposal of PP&E of $260,000, deferred income
of $63,000, income taxes of $16,000, partially offset by changes in inventory of
$2,902,000, during the year ended June 30, 2009. For the fiscal year 2009, cash
provided by investing activities totaled $857,000, primarily consisting of the
purchase of property, plant and equipment during the regular course of business
offset by the proceeds from the sale of the Company's investment in Focus in the
amount of $ 1,516,866. For the fiscal year 2009, cash provided by financing
activities was $16,233, primarily consisting of net proceeds from short-term
borrowings of $29,223,544, offset by principal payments of approximately
$28,936,964 and lease obligations of $270,347.
The Company maintains cash balances at various financial institutions. At June
30, 2009, these financial institutions held cash that was approximately
$2,722,675 in excess of amounts insured by the Federal Deposit Insurance
Corporation and other government agencies.
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 have a Net Income (as defined in the
Credit Agreements) of not less than (a) $100,000 for the fiscal quarter ended
March 31, 2009 and (b) $130,000 for the fiscal quarter ending June 30, 2009 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, 2009, the Borrowers
were in compliance with these covenants.
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 1/2 % per annum
on the Unused Amount (as defined in the Credit Agreements) is payable monthly in
arrears. At June 30, 2009, the balance outstanding under the Credit Agreement
was $2,633,059 and an additional $511,290 was available under this line of
credit.
Labcaire has a debt purchase agreement with The Royal Bank of Scotland. The
amount of this facility bears interest at the bank's base rate plus 2% and
fluctuates based upon the outstanding United Kingdom and European receivables.
The agreement expires September 30, 2010. The agreement covers all United
Kingdom and European sales. At June 30, 2009, the balance outstanding under this
credit facility was $1,820,891 and Labcaire was in compliance with all financial
covenants.
Labcaire had an overdraft facility with Lloyds Bank, which was secured by the
Labcaire building. All amounts borrowed under the facility were paid when the
Labcaire building was sold and the overdraft facility was cancelled.
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, 2009, the Company's contractual cash obligations and commitments relating to the revolving credit facilities, note payable and capital and operating leases are as follows:
Less than After
Commitment 1 year 1-3 years 4-5 years 5 years Total
Revolving credit facilities $ 4,453,950 $ - $ - $ - $ 4,453,950
Note payable 261,485 - - - 261,485
Capital leases 180,970 27,716 - - 208,686
Operating leases 1,111,174 982,074 410,541 594,720 3,098,509
$ 6,007,579 $ 1,009,790 $ 410,541 $ 594,720 $ 8,022,630
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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.
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 is 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 believes that the following are our more
critical estimates and assumptions used in the preparation of our consolidated
financial statements.
Accounts Receivable and Allowance for Doubtful Accounts: 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
. . .
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