##### Table of Contents



FORM 10-Q
 SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For
the transition period
from 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. Employerincorporation or organization)
    
    Identification No.)1938 New Highway, Farmingdale, NY
    
    11735(Address of principal executive offices)
    
    (Zip Code)
 (Registrants telephone number, including area code)
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ
  Outstanding atClass of Common Stock
    
    November 10, 2008Common Stock, $.01 par value
    
    7,001,369




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##### 



MISONIX, INC.
 INDEX
 PagePart I   FINANCIAL INFORMATIONItem 1. Financial Statements:Consolidated Balance Sheets as of
September 30, 2008 (Unaudited) and June 30, 2008
    
    
    3Consolidated Statements of Operations
Three months ended September 30, 2008
and 2007 (Unaudited)
    
    
    4Consolidated Statement of Stockholders Equity
Three months ended September 30, 2008 (Unaudited)
    
    
    5Consolidated Statements of Cash Flows
Three months ended September 30, 2008 and 2007 (Unaudited)
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    19Item 4. Controls and Procedures
    
    
    19Part II  OTHER INFORMATIONItem 1A. Risk Factors
    
    
    20Item 6. Exhibits
    
    
    20Signatures
    
    
    21Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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##### Table of Contents



Part I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 MISONIX, INC. and Subsidiaries
 
 Consolidated Balance Sheets
 September 30,
    
    
    June 30,2008
    
    
    2008(Derived fromaudited financial(Unaudited)
    
    
    statements)AssetsCurrent assets:Cash
    
    $
    1,836,591
    
    
    $
    1,873,863Accounts receivable, less allowance for doubtful accounts of
$312,440 and $376,998, respectively
    
    
    6,911,337
    
    
    
    7,986,802Inventories, net
    
    
    12,319,012
    
    
    
    12,651,564Deferred income taxes
    
    
    1,246,922
    
    
    
    1,562,279Prepaid expenses and other current assets
    
    
    832,981
    
    
    
    904,737Total current assets
    
    
    23,146,843
    
    
    
    24,979,245Property, plant and equipment, net
    
    
    3,925,137
    
    
    
    4,398,867Deferred income taxes
    
    
    952,502
    
    
    
    1,280,217Goodwill
    
    
    5,754,120
    
    
    
    5,784,542Other assets
    
    
    856,112
    
    
    
    807,203Total assets
    
    $
    34,634,714
    
    
    $
    37,250,074Liabilities and stockholders equityCurrent liabilities:Revolving credit facilities
    
    $
    3,778,487
    
    
    $
    4,470,389Notes payable
    
    
    119,111
    
    
    
    246,888Accounts payable
    
    
    4,624,174
    
    
    
    5,497,541Accrued expenses and other current liabilities
    
    
    3,947,974
    
    
    
    4,760,115Foreign income taxes payable
    
    
    606,831
    
    
    
    696,791Current portion of deferred gain from sale and leaseback of building
    
    
    145,024
    
    
    
    159,195Current maturities of capital lease obligations
    
    
    282,028
    
    
    
    307,325Total current liabilities
    
    
    13,503,629
    
    
    
    16,138,244Capital lease obligations
    
    
    164,232
    
    
    
    225,909Deferred lease liability
    
    
    330,000
    
    
    
    348,502Deferred income taxes
    
    
    246,892
    
    
    
    250,514Deferred gain from sale and leaseback of building
    
    
    1,123,931
    
    
    
    1,273,772Deferred income
    
    
    424,039
    
    
    
    371,452Total liabilities
    
    
    15,792,723
    
    
    
    18,608,393Commitments and contingenciesMinority interest
    
    
    217,184
    
    
    
    199,237Stockholders equity:Common stock, $.01 par valueshares authorized 10,000,000;
7,079,169 issued and 7,001,369 outstanding
    
    
    70,792
    
    
    
    70,792Additional paid-in capital
    
    
    25,105,564
    
    
    
    25,052,539Accumulated deficit
    
    
    (6,310,168
    )
    
    
    (6,630,170
    )Accumulated other comprehensive income
    
    
    171,043
    
    
    
    361,707Treasury stock, 77,800 shares
    
    
    (412,424
    )
    
    
    (412,424
    )Total stockholders equity
    
    
    18,624,807
    
    
    
    18,442,444Total liabilities and stockholders equity
    
    $
    34,634,714
    
    
    $
    37,250,074
 See Accompanying Notes to Consolidated Financial Statements.
  3




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MISONIX, INC. and Subsidiaries
 
 Consolidated Statements of Operations

(Unaudited)
 For the three months endedSeptember 30 ,2008
    
    
    2007Net sales
    
    $
    11,306,473
    
    
    $
    10,532,237Cost of goods sold
    
    
    6,881,043
    
    
    
    5,866,443Gross profit
    
    
    4,425,430
    
    
    
    4,665,794Operating expenses:Selling expenses
    
    
    1,837,257
    
    
    
    1,688,510General and administrative expenses
    
    
    2,652,805
    
    
    
    2,505,760Research and development expenses
    
    
    776,474
    
    
    
    710,237Total operating expenses
    
    
    5,266,536
    
    
    
    4,904,507Loss from operations
    
    
    (841,106
    )
    
    
    (238,713
    )Other income (expense):Interest income
    
    
    10,263
    
    
    
    17,732Interest expense
    
    
    (93,325
    )
    
    
    (132,309
    )Royalty income and license fees
    
    
    176,227
    
    
    
    186,078Royalty expense
    
    
    (48,578
    )
    
    
    (85,970
    )Recovery of Focus Surgery, Inc. investment
    
    
    1,516,866
    
    
    
    Other
    
    
    (89,102
    )
    
    
    (6,692
    )Total other income (expense)
    
    
    1,472,351
    
    
    
    (21,161
    )Income (loss) before minority interest and income taxes
    
    
    631,245
    
    
    
    (259,874
    )Minority interest in net income of consolidated
subsidiaries
    
    
    16,727
    
    
    
    9,444Income (loss) before income taxes
    
    
    614,518
    
    
    
    (269,318
    )Income tax provision (benefit)
    
    
    294,516
    
    
    
    (43,054
    )Net income (loss)
    
    $
    320,002
    
    
    $
    (226,264
    )Net income (loss) per share  Basic
    
    $
    0.05
    
    
    $
    (0.03
    )Net income (loss) per share  Diluted
    
    $
    0.05
    
    
    $
    (0.03
    )Weighted average common shares outstanding  Basic
    
    
    7,001,369
    
    
    
    7,001,369Weighted average common shares outstanding  Diluted
    
    
    7,031,953
    
    
    
    7,001,369
 See Accompanying Notes to Consolidated Financial Statements
  4




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MISONIX, INC. and Subsidiaries
 
 Consolidated Statement of Stockholders Equity

(Unaudited)
  AccumulatedCommon Stock
    
    

Treasury
Stock
    
    
    Additional
    
    
    
    
    
    
    other
    
    
    TotalNumber
    
    
    
    
    
    
    Number
    
    
    
    
    
    
    paid-in
    
    
    Accumulated
    
    
    comprehensive
    
    
    stockholdersof shares
    
    
    Amount
    
    
    of shares
    
    
    Amount
    
    
    capital
    
    
    deficit
    
    
    income
    
    
    equityBalance, June 30,
2008
    
    
    7,079,169
    
    
    $
    70,792
    
    
    
    (77,800
    )
    
    $
    (412,424
    )
    
    $
    25,052,539
    
    
    $
    (6,630,170
    )
    
    $
    361,707
    
    
    $
    18,442,444Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    320,002
    
    
    
    
    
    
    
    320,002Foreign
currency
translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (190,664
    )
    
    
    (190,664
    )Comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    129,338Stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53,025
    
    
    
    
    
    
    
    
    
    
    
    53,025Balance, September
30, 2008
    
    
    7,079,169
    
    
    $
    70,792
    
    
    
    (77,800
    )
    
    $
    (412,424
    )
    
    $
    25,105,564
    
    
    $
    (6,310,168
    )
    
    $
    171,043
    
    
    $
    18,624,807
 See Accompanying Notes to Consolidated Financial Statements.
  5




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MISONIX, INC. and Subsidiaries
 
 Consolidated Statements of Cash Flows
(Unaudited)
 For the three months endedSeptember 30,2008
    
    
    2007Operating activitiesNet income (loss)
    
    $
    320,002
    
    
    $
    (226,264
    )Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:Depreciation and amortization and other non cash items
    
    
    336,038
    
    
    
    470,912Bad debt expense
    
    
    38,536
    
    
    
    39,095Deferred income tax expense (benefit)
    
    
    457,010
    
    
    
    (43,985
    )Loss on disposal of property, plant and equipment
    
    
    38,493
    
    
    
    6,363Minority interest in net income of subsidiaries
    
    
    16,727
    
    
    
    9,444Stock-based compensation
    
    
    53,025
    
    
    
    45,249Deferred income (loss)
    
    
    52,587
    
    
    
    (74,443
    )Deferred leasehold costs
    
    
    (56,341
    )
    
    
    (49,609
    )Recovery of Focus Surgery, Inc. investment
    
    
    (1,516,866
    )
    
    
    Unrealized foreign currency exchange loss
    
    
    85,388
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    750,171
    
    
    
    304,745Inventories
    
    
    (161,394
    )
    
    
    (174,284
    )Income taxes
    
    
    (52,274
    )
    
    
    (2,446
    )Prepaid expenses and other current assets
    
    
    42,162
    
    
    
    803,214Accounts payable and accrued expenses
    
    
    (1,100,883
    )
    
    
    (1,254,845
    )Foreign income taxes payable
    
    
    99,241
    
    
    
    (8,161
    )Other assets
    
    
    (80,940
    )
    
    
    13,144Net cash used in operating activities
    
    
    (678,328
    )
    
    
    (141,871
    )Investing activitiesAcquisition of property, plant and equipment
    
    
    (89,383
    )
    
    
    (185,944
    )Recovery of Focus Surgery, Inc. investment
    
    
    1,516,866
    
    
    
    Investment in UKHIFU Limited
    
    
    
    
    
    
    (12,632
    )Acquisition of minority interest
    
    
    
    
    
    
    (279,884
    )Net cash provided by (used in) investing activities
    
    
    1,427,483
    
    
    
    (478,460
    )Financing activitiesProceeds from short-term borrowings
    
    
    6,929,651
    
    
    
    2,909,118Payments of short-term borrowings
    
    
    (7,594,075
    )
    
    
    (4,283,357
    )Principal payments on capital lease obligations
    
    
    (84,949
    )
    
    
    (98,708
    )Net cash used in financing activities
    
    
    (749,373
    )
    
    
    (1,472,947
    )Effect of exchange rate changes on cash
    
    
    (37,054
    )
    
    
    10,039Net decrease in cash
    
    
    (37,272
    )
    
    
    (2,083,239
    )Cash at beginning of period
    
    
    1,873,863
    
    
    
    2,900,358Cash at end of period
    
    $
    1,836,591
    
    
    $
    817,119Supplemental disclosure of cash flow information:Cash paid for:Interest
    
    $
    92,828
    
    
    $
    137,182Income taxes
    
    $
    52,274
    
    
    $
    11,539Supplemental disclosure of noncash investing
and financing activities:Capital lease additions
    
    $
    38,863
    
    
    $
    226,814
 See Accompanying Notes to Consolidated Financial Statements.
  6




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MISONIX, INC. and Subsidiaries
 
 Notes to Consolidated Financial Statements
  Basis of Presentation
    Net Income (Loss) Per Share of Common Stock
   Three months ended September 30,2008
    
    
    2007Basic shares
    
    
    7,001,369
    
    
    
    7,001,369Dilutive effect of stock options
    
    
    30,584
    
    
    
    Diluted shares
    
    
    7,031,953
    
    
    
    7,001,369
  Comprehensive Income (Loss)
   7




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MISONIX, INC. and Subsidiaries
Notes to Consolidated Financial Statements
 Stock-Based Compensation
     September 30,
    
    
    September 30,2008
    
    
    2007Risk-free interest rate
    
    
    3.3
    %
    
    
    4.3
    %Expected option life in years
    
    
    6.5
    
    
    
    6.5Expected stock price volatility
    
    
    54.2
    %
    
    
    54.5
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %Weighted-average fair value of options granted
    
    $
    1.30
    
    
    $
    2.34
   8




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MISONIX, INC. and Subsidiaries
Notes to Consolidated Financial Statements
  OptionsWeightedWeighted
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateNumber of
    
    
    Exercise
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Price
    
    
    Life (years)
    
    
    Value(a)Outstanding as of June 30, 2008
    
    
    1,822,841
    
    
    $
    5.71
    
    
    
    4.9Granted
    
    
    171,000
    
    
    
    2.31Exercised
    
    
    
    
    
    
    Expired
    
    
    (14,500
    )
    
    
    7.57Outstanding as of September 30, 2008
    
    
    1,979,341
    
    
    $
    5.40
    
    
    
    5.3
    
    
    $
    78,720Exercisable and vested at September 30, 2008
    
    
    1,662,138
    
    
    $
    5.77
    
    
    
    4.7
    
    
    $
    Available for grant at September 30, 2008
    
    
    476,283
 (a)
    
    Intrinsic value for purposes of this table represents the amount by which the fair value of the
underlying stock, based on the respective market prices at September 30, 2008 or if exercised, the
exercise dates, exceeds the exercise prices of the respective options. Focus Surgery, Inc.
      9




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MISONIX, INC. and Subsidiaries
Notes to Consolidated Financial Statements
 Income Taxes
     Inventories
  September 30,
    
    
    June 30,2008
    
    
    2008Raw materials
    
    $
    6,246,068
    
    
    $
    6,234,467Work-in-process
    
    
    3,403,779
    
    
    
    3,375,878Finished goods
    
    
    4,559,617
    
    
    
    4,983,59314,209,464
    
    
    
    14,593,938Less valuation reserve
    
    
    1,890,452
    
    
    
    1,942,374$
    12,319,012
    
    
    $
    12,651,564
  10




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MISONIX, INC. and Subsidiaries
Notes to Consolidated Financial Statements
 Accrued Expenses and Other Current Liabilities
  September 30,
    
    
    June 30,2008
    
    
    2008Customer deposits and deferred contracts
    
    $
    1,301,941
    
    
    $
    1,765,827Accrued payroll and vacation
    
    
    963,583
    
    
    
    945,933Accrued VAT and sales tax
    
    
    202,573
    
    
    
    359,172Accrued commissions and bonuses
    
    
    489,036
    
    
    
    675,069Accrued professional fees
    
    
    173,172
    
    
    
    43,352Litigation
    
    
    324,000
    
    
    
    324,000Other
    
    
    493,669
    
    
    
    646,762$
    3,947,974
    
    
    $
    4,760,115
 Revolving Credit Facilities
   1 2
  11




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MISONIX, INC. and Subsidiaries
Notes to Consolidated Financial Statements
  Commitments and Contingencies
   Business Segments
 ®
  12




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MISONIX, INC. and Subsidiaries
Notes to Consolidated Financial Statements
   Medical Device
    
    
    Laboratory and
    
    
    Corporate andProducts
    
    
    Scientific Products
    
    
    Unallocated
    
    
    TotalNet sales
    
    $
    5,451,826
    
    
    $
    5,854,647
    
    
    $
    
    
    
    $
    11,306,473Cost of goods sold
    
    
    3,022,908
    
    
    
    3,858,135
    
    
    
    
    
    
    
    6,881,043Gross profit
    
    
    2,428,918
    
    
    
    1,996,512
    
    
    
    
    
    
    
    4,425,430Selling expenses
    
    
    1,247,791
    
    
    
    589,466
    
    
    
    
    
    
    
    1,837,257Research and development
expenses
    
    
    482,932
    
    
    
    293,542
    
    
    
    
    
    
    
    776,474General and administrative
expenses
    
    
    
    
    
    
    
    
    
    
    2,652,805
    
    
    
    2,652,805Total operating expenses
    
    
    1,730,723
    
    
    
    883,008
    
    
    
    2,652,805
    
    
    
    5,266,536Income (loss) from operations
    
    $
    698,195
    
    
    $
    1,113,504
    
    
    $
    (2,652,805
    )
    
    $
    (841,106
    )
  Medical Device
    
    
    Laboratory and
    
    
    Corporate andProducts
    
    
    Scientific Products
    
    
    Unallocated
    
    
    TotalNet sales
    
    $
    5,298,117
    
    
    $
    5,234,120
    
    
    $
    
    
    
    $
    10,532,237Cost of goods sold
    
    
    2,707,026
    
    
    
    3,159,417
    
    
    
    
    
    
    
    5,866,443Gross profit
    
    
    2,591,091
    
    
    
    2,074,703
    
    
    
    
    
    
    
    4,665,794Selling expenses
    
    
    1,080,171
    
    
    
    608,339
    
    
    
    
    
    
    
    1,688,510Research and development
expenses
    
    
    468,845
    
    
    
    241,392
    
    
    
    
    
    
    
    710,237General and administrative
expenses
    
    
    
    
    
    
    
    
    
    
    2,505,760
    
    
    
    2,505,760Total operating expenses
    
    
    1,549,016
    
    
    
    849,731
    
    
    
    2,505,760
    
    
    
    4,904,507Income (loss) from operations
    
    $
    1,042,075
    
    
    $
    1,224,972
    
    
    $
    (2,505,760
    )
    
    $
    (238,713
    )
  13




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MISONIX, INC. and Subsidiaries
Notes to Consolidated Financial Statements
   2008
    
    
    2007United States
    
    $
    5,786,706
    
    
    $
    5,643,733United Kingdom
    
    
    3,930,510
    
    
    
    3,448,066Europe
    
    
    526,415
    
    
    
    391,600Asia
    
    
    386,932
    
    
    
    682,610Canada and Mexico
    
    
    212,125
    
    
    
    108,143Middle East
    
    
    116,402
    
    
    
    27,921Other
    
    
    347,383
    
    
    
    230,164$
    11,306,473
    
    
    $
    10,532,237
 Recent Accounting Pronouncements
       14




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
  Net sales :
  Gross profit:
 Selling expenses:
  15




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General and administrative expenses:
 Research
and development expenses:
 Other income (expense):
 Income taxes:
 Critical Accounting Policies:
   Recent Accounting Pronouncements
   16




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Forward Looking Statements
  Liquidity and Capital Resources
   17




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Revolving Credit Facilities
   1 2
  Off-Balance Sheet Arrangements
  Other
   18




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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
 Market Risk:
  Foreign Exchange Rates:
  Interest Rate Risk:
  
 Item 4. Controls and Procedures.
    19




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Part II  OTHER INFORMATION
 
 Item 1A. Risk Factors.
  
 Item 6. Exhibits.
 Exhibits 31.1-
    
    Rule 13a-14(a)/15d-14(a) CertificationExhibits 31.2-
    
    Rule 13a-14(a)/15d-14(a) CertificationExhibits 32.1-
    
    Section 1350 Certification of Chief Executive OfficerExhibits 32.2-
    
    Section 1350 Certification of Chief Financial Officer
  20




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SIGNATURES
   MISONIX, INC.(Registrant)By:
    /s/ Michael A. McManus, Jr.Michael A. McManus, Jr.President and Chief Executive OfficerBy:
    /s/ Richard ZarembaRichard ZarembaSenior Vice President, Chief Financial Officer,

Treasurer and Secretary  21




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EXHIBIT INDEX
 ExhibitNumber
    
    Description31.1
    
    Rule 13a-14(a)/15d-14(a) Certification31.2
    
    Rule 13a-14(a)/15d-14(a) Certification32.1
    
    Section 1350 Certification of Chief Executive Officer32.2
    
    Section 1350 Certification of Chief Financial Officer
  22