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MSON > SEC Filings for MSON > Form 10-Q on 10-May-2013All Recent SEC Filings

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Form 10-Q for MISONIX INC


10-May-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

This Management's Discussion and Analysis of Financial Condition and Results of Operations of Misonix and its subsidiaries, in which we refer to the Company as "Misonix", "we", "our", and "us", should be read in conjunction with the accompanying unaudited financial statements included in "Item 1. Financial Statements" of this Report and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (the "SEC") on September 20, 2012, for the fiscal year ended June 30, 2012 ("2012 Form 10-K"). Item 7 of the 2012 Form 10-K describes the application of our critical accounting policies, for which there have been no significant changes as of March 31, 2013.

Forward Looking Statements

This Report contains certain forward looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which are intended to be covered by the safe harbors created thereby. Although the Company believes that the assumptions underlying the forward looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward looking statements contained in this Report will prove to be accurate. Factors that could cause actual results to differ from the results specifically discussed in the forward looking statements include, but are not limited to, the absence of anticipated contracts, higher than historical costs incurred in the performance of contracts or in conducting other activities, product mix in sales, future economic, competitive and market conditions, and the outcome of legal proceedings as well as management business decisions.

Nine months ended March 31, 2013 and 2012.

Net sales: Net sales increased $690,763 to $11,068,243 for the nine months ended March 31, 2013 from $10,377,480 for the nine months ended March 31, 2012. The increase in sales was primarily attributable to sales of the Company's BoneScalpel and SonicOne products of $1,720,731 and $649,234, respectively, partially offset by lower Lysonix revenue of $750,820, lower NeuroAspirator revenue of $234,703 and lower Autosonix revenue of $724,115.

Set forth below are tables showing the Company's net sales by (i) product category and (ii) geographic region for the nine months ended March 31, 2013 and 2012:

                                      Nine months ended March 31,
                                 2013             2012           Variance
               BoneScalpel   $  4,831,205     $  3,110,474     $  1,720,731
               SonicOne         1,427,209          777,885          649,324
               SonaStar         3,912,875        4,147,578         (234,703 )
               Other              896,954        2,341,543       (1,444,589 )
                             $ 11,068,243     $ 10,377,480     $    690,763




                                       Nine months ended March 31,
                                          2013               2012
                 United States       $     5,652,072     $  5,690,301
                 Australia                   321,374          165,070
                 Europe                    2,299,808        1,919,508
                 Asia                      1,093,479        1,052,988
                 Canada and Mexico           436,738          346,316
                 South America               578,380          454,625
                 South Africa                363,429          253,250
                 Middle East                 322,963          495,422
                                     $    11,068,243     $ 10,377,480

Gross profit: Gross profit decreased to 55.2% for the nine months ended March 31, 2013 from 59.3% for the nine months ended March 31, 2012. The decrease is related to an unfavorable mix of high and low margin product deliveries in addition to the increase in minimum gross profit contribution requirement cost related to the Soma product, as a result of the Product License and Distribution Agreement with Puricore International Limited ("PuriCore") dated July 19, 2011 (the "Distribution Agreement"), which had a 5% adverse effect on gross profit.

Selling expenses: Selling expenses increased $1,148,788 to $4,768,867 for the nine months ended March 31, 2013 from $3,620,079 for the nine months ended March 31, 2012. Selling expenses increased due to higher personnel costs of $707,364, primarily from an increase in headcount for customer service and support, higher commission expense of $156,078, higher travel expense of $120,731, higher advertising expenses of $50,507 and higher training, depreciation, freight costs and consulting expenses of $111,321.

General and administrative expenses:General and administrative expenses increased $16,437 to $3,290,671 for the nine months ended March 31, 2013 from $3,274,234 for the nine months ended March 31, 2012.

Research and development expenses:Research and development expenses increased $196,305 to $1,143,289 for the nine months ended March 31, 2013 from $946,984 for the nine months ended March 31, 2012. The increase is due to higher salary expenses of $121,557 and higher third party vendor product development costs of $76,370.

Other income (expense): Other income for the nine months ended March 31, 2013 was $1,713,415 as compared to $549,421 for the nine months ended March 31, 2012. The increase in other income is related to higher royalty income of $1,308,700, partially offset by higher royalty expense of $117,912. The increased royalty expense is due to a net fee recovery of $182,000 of BoneScalpel royalty expense for which we were not obligated to pay in the second quarter of fiscal 2012.

Income taxes: For the nine months ended March 31, 2013, the Company's continuing operations effective tax rate was 4%, a tax benefit of $55,297, as compared to a benefit of 25% for the nine months ended March 31, 2012. The Company estimates its financial statement effective tax rate for the full year, inclusive of discontinued operations, to be approximately 1%. The actual effective rate for continuing operations may vary materially based on several factors including the realization of earn-outs recorded in discontinued operations and the related intraperiod tax allocation, the ratio of permanent differences to pretax income
(loss), and a change in the valuation allowances as well as other factors.

Three months ended March 31, 2013 and 2012.

Net sales: Net sales decreased $586,259 to $3,023,487 for the three months ended March 31, 2013 from $3,609,746 for the three months ended March 31, 2012. The decrease in sales is primarily related to lower Lysonix revenue of $241,990, lower NeuroAspirator revenue of $233,467, lower BoneScalpel revenue of $126,579 and lower AutoSonic and Lithotripsy revenue of $169,287, partially offset by higher SonicOne revenue of $184,388.

Set forth below are tables showing the Company's net sales by (i) product category and (ii) geographic region for the three months ended March 31, 2013 and 2012:

                                      Three months ended March 31,
                                  2013            2012          Variance
                 BoneScalpel   $ 1,126,284     $ 1,252,863     $ (126,579 )
                 SonicOne          398,074         213,686        184,388
                 SonaStar        1,286,779       1,520,246       (233,467 )
                 Other             212,350         622,951       (410,601 )
                               $ 3,023,487     $ 3,609,746     $ (586,259 )




                                      Three months ended March 31,
                                         2013                2012
                United States       $     1,566,912       $ 1,940,250
                Australia                    39,700            84,244
                Europe                      579,509           445,504
                Asia                        309,696           569,302
                Canada and Mexico           180,756            55,375
                South America               171,992           174,886
                South Africa                 51,162           111,535
                Middle East                 123,760           228,650
                                    $     3,023,487       $ 3,609,746

Gross profit: Gross profit decreased to 51.0% for the three months ended March 31, 2013 from 58.7% for the three months ended March 31, 2012. The decrease is related to unabsorbed factory costs due to lower sales volume, along with an unfavorable mix of low and high margin product deliveries in addition to the increase in minimum gross profit contribution requirement cost related to the Soma products as a result of the Distribution Agreement with Puricore dated July 19, 2011, which had a 6.2% adverse effect on gross profit.

Selling expenses: Selling expenses increased $518,936 to $1,764,718 for the three months ended March 31, 2013 from $1,245,782 for the three months ended March 31, 2012. Selling expenses increased due to higher personnel costs of $257,956, primarily from an increase in headcount for customer service and support, higher travel expenses of $94,206, higher commission expense of $60,109, higher advertising expenses of $38,578, higher depreciation expenses of $27,281 and higher training, clinical and consulting expenses of $42,416.

General and administrative expenses:General and administrative expenses increased $131,584 to $1,155,613 for the three months ended March 31, 2013 from $1,024,029 for the three months ended March 31, 2012. The increase is primarily related to higher non-cash stock based compensation expense of $48,898 and higher stockholder relations expense of $19,870.

Research and development expenses:Research and development expenses increased $46,593 to $379,901 for the three months ended March 31, 2013 from $333,308 for the three months ended March 31, 2012. The increase is primarily due to higher personnel costs of $32,201.

Other income (expense): Other income for the three months ended March 31, 2013 was $999,611 as compared to $122,322 for the three months ended March 31, 2012. The increase in other income is related to higher royalty income of $889,359.

Income taxes: For the three months ended March 31, 2013, the Company recorded an effective tax rate of 8%, a benefit of $59,126, as compared to a benefit of $85,862, or 24%, for the three months ended March 31, 2012. The Company estimates its financial statement effective tax rate for the full year, inconclusive of discontinued operations to be approximately 1%. The actual effective rate for continuing operations may vary materially based on several factors including the realization of earn-outs recorded in discontinued operations and the related intraperiod tax allocation, the ratio of permanent differences to pretax income (loss), and a change in the valuation allowances as well as other factors.

Discontinued Operations



See Note 1 of the notes to consolidated financial statements included in Part I,
Item 1 of this Report for a description of the discontinued operations. The
following summarizes the results of the discontinued operations:



                                          For the three months ended          For the nine months ended
                                                   March 31,                          March 31,
                                            2013               2012             2013              2012
Revenues                                $       4,975       $    28,588     $     14,925       $ 1,455,791
Income/(loss) from discontinued
operations, before tax                  $       4,975       $  (214,313 )   $     14,768       $  (551,011 )
Gain on sale of discontinued
operations                                    250,000           254,788          250,000         1,705,414
Income tax expense                            (82,968 )          21,314          (82,968 )        (380,437 )
Net income from discontinued
operations net of tax                   $     172,007       $    61,789     $    181,800       $   773,966

Liquidity and Capital Resources

We regularly review our cash funding requirements and attempt to meet those requirements through a combination of cash on hand, cash provided by operations and possible future public or private debt and/or equity offerings. At times, we evaluate possible acquisitions of, or investments in, businesses that are complementary to ours, which may require the use of cash. We believe that our cash, other liquid assets and access to equity capital markets, taken together, provide adequate resources to fund ongoing operating expenditures. In the event that they do not, we may require additional funds in the future to support our working capital requirements or for other purposes and may seek to raise such additional funds through the sale of public or private equity and/or debt financings, and divestiture of current business lines as well as from other sources. No assurance can be given that additional financing will be available in the future or that if available, such financing will be obtainable on favorable terms when required.

Working capital at March 31, 2013 and June 30, 2012 was $11,086,000 and $11,734,000, respectively. For the nine months ended March 31, 2013, cash provided by operations totaled $131,235, primarily due to lower inventory of $130,558. For the nine months ended March 31, 2013, cash used in investing activities totaled $730,314, primarily due to Company owned placed units. For the nine months ended March 31, 2013, cash provided by financing activities was $235,828 from the exercise of stock options.

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 are material to the Company.

Other

In the opinion of management, inflation has not had a material effect on the operations of the Company.

New Accounting Pronouncements

We are required to adopt certain new accounting pronouncements. See note 11 to our consolidated financial statements included herein.

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