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MISONIX Inc. Reports Operating Results (10-K)
Posted by: gurufocus (IP Logged)
Date: September 20, 2011 08:12PM
MISONIX Inc. (MSON) filed Annual Report for the period ended 2011-06-30. Misonix Inc. has a market cap of $14.49 million; its shares were traded at around $2.07 with and P/S ratio of 1.08.
Highlight of Business Operations:
On August 4, 2009, the Company sold its Labcaire Systems, Ltd. ("Labcaire") subsidiary to PuriCore International Limited ("PuriCore Limited") for a total purchase price of up to $5.6 million. The Company received $3.6 million at closing and a promissory note in the principal amount of $1 million, payable in equal installments of $250,000 on the next four anniversaries of the closing. In August 2011, the Company received the first installment. The note receivable was discounted over the four years using a 4% imputed interest rate. This rate is consistent with published discounts. The discounted value of the note ($900,000) was used to determine gain or loss on the sale and the remaining outstanding balance is included in other assets in the consolidated balance sheet, with the current portion reflected as a component of notes receivable. The Company will also receive a commission paid on sales for the period commencing on the date of closing and ending on December 31, 2013 of 8% of the pass through Automated Endoscope Reprocessing ("AER") and Drying Cabinet products, and 5% of license fees from any chemical licenses marketed by Labcaire directly associated with sale of AERs, specifically for the disinfection of the endoscope. The aggregate commission payable to the Company is subject to a maximum payment of $1,000,000. The aggregate commission will not be recognized in determining the current gain or loss on the sale of Labcaire until the commission is paid. As of June 30, 2011, there were no commissions paid. For the year ended June 30, 2010, the Company recorded a pre-tax loss on the sale of Labcaire of $295,879. Results of Labcaire operations have been reported as a discontinued operation for all periods presented.
On July 19, 2011, PuriCore Limited and the Company reached an agreement to settle the Lawsuit (the "Settlement"). The Settlement provides that the Company (i) forgive in full PuriCore Limited and PuriCore plc's obligation under the SPA to pay up to $1,000,000 of previously unrecorded, contingent Commissions (as defined in the SPA); (ii) pay PuriCore, Inc. ("PuriCore"), an affiliate of PuriCore Limited, $650,000 towards PuriCore Limited's legal costs and (iii) enter into a Product License and Distribution Agreement, dated as of July 19, 2011, with PuriCore (the "Distribution Agreement").
On October 2, 2009, Acoustic Marketing Research, Inc. d/b/a Sonora Medical Systems ("Sonora") sold substantially all of its assets to Medical Imaging Holdings, Inc. ("Medical Imaging") for a cash payment of $8,000,000 (subject to a future adjustment based on net working capital, at the closing). On April 6, 2010, the Company paid $257,029 to Medical Imaging for the net difference of adjustments of working capital and the effect of income taxes. These amounts were reflected in discontinued operations in the June 30, 2010 audited financial statements. The Company also purchased at the closing of such transaction, utilizing $1,200,000 of the proceeds, the remaining outstanding 5% of Sonora's shares. Sonora is engaged in the business of (i) selling, repairing and servicing new and used diagnostic ultrasound systems and consumable accessories used in conjunction therewith, (ii) selling, repairing, servicing and testing diagnostic ultrasound transducers, (iii) developing and selling equipment for testing ultrasound transducers, (iv) selling equipment used for cleaning and disinfecting ultrasound transducers including, but not limited to, transesophogeal echocardiography probes, (v) selling equipment used for testing endoscopic probes, (vi) repairing and servicing MRI systems and parts and subsystems used therein, and (vii) performing training for the service and maintenance of diagnostic ultrasound and MRI systems, in each instance throughout the world. The net assets and results of Sonora operations have been reported as a discontinued operation for all periods presented.
On May 28, 2010, Misonix announced the sale to USHIFU, LLC ("USHIFU") of all of its rights to the High Intensity Focused Ultrasound ("HIFU") technology together with other HIFU-related assets. In consideration for the sale, Misonix will receive up to approximately $5.8 million, paid out of an earn-out of 7% of gross revenues received by USHIFU related to the businesses being sold, up to the time the Company has received the first $3 million, and thereafter 5% of gross revenues up to the $5.8 million. Commencing 90 days after each December 31st and, beginning December 31, 2011, the payments will be the greater of (a) $250,000 or (b) 7% of gross revenues received up to the time the Company has received the first $3 million, and thereafter 5% of gross revenues up to the $5.8 million. Misonix will also be paid for 3 units in inventory of new Sonablate® 500 machines which totaled $465,000. The obligation to pay for such machines was secured by a note due December 31, 2010. At December 31, 2010, the note was fully paid, and cash received is shown in the discontinued operations section of the Company's cash flow statements. At the closing of such transaction, USHIFU paid Misonix for inventory associated with manufacturing the Sonablate® 500 and reimbursed Misonix for certain monies expended in connection with the HIFU Registry. The net assets and results of HIFU operations have been reported as a discontinued operation for all periods presented.
On July 19, 2011, Misonix and PuriCore, Inc., a U.S. subsidiary of PuriCore, entered into a Product License and Distribution Agreement (the "Distribution Agreement") whereby Misonix will distribute, on a limited exclusive basis with respect to other therapeutic ultrasound companies in the United States, a private label version of PuriCore's Vashe® wound therapy product, which is a solution intended for cleansing, irrigating, moistening, and debriding acute and chronic dermal lesions. Use of the new product will be emphasized in conjunction with clinical procedures performed with Misonix ultrasonic systems and gives surgeons and clinicians an expanding line of products for treating wounds. The Distribution Agreement is for three years with a two year extension contingent on meeting certain goals. As part of this Distribution Agreement, Misonix has the obligation over a three year period to either purchase or pay a minimum of $2 million in gross margin value to PuriCore. When PuriCore receives $2 million in gross margin purchases under the Distribution Agreement, it is anticipated that Misonix will have received more than $4 million in gross margin.
In October 1996, the Company entered into a twenty-year license agreement (the "USS License") with United States Surgical, now 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 laparoscopic surgery. The USS License gives USS exclusive worldwide marketing and sales rights for this technology and device. Total sales of this device were approximately $3,260,000 and $3,172,000 for the fiscal years ended June 30, 2011 and 2010, respectively. Total royalties from sales of this device were approximately $550,000 and $576,000 for the fiscal years ended June 30, 2011 and 2010, respectively.
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