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10-Q
MISONIX INC filed this Form 10-Q on 02/06/2018
Entire Document
 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

 

For the quarterly period ended December 31, 2017

 

OR

 

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 BETTER MATTERS LOGO) 

 

MISONIX, INC.

(Exact name of registrant as specified in its charter)

 

New York

(State or other jurisdiction of incorporation or
organization)

11-2148932

(IRS Employer Identification No.)

   

1938 New Highway

Farmingdale, New York

(Address of principal executive offices)

11735

(Zip code)

 

(631) 694-9555

(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 ☐ No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☑ Yes ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐ Accelerated filer ☑ Non-accelerated filer ☐ Smaller reporting company ☐
Emerging growth company ☐   (Do not check if a smaller
reporting company)
 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☑ No

 

Indicate the number of shares outstanding of the issuer’s common stock as of the latest practicable date: As of February 6, 2018 there were 9,400,666 shares of the registrant’s common stock, $0.01 par value, outstanding.

 

 

 

 

 

 

MISONIX, INC.

 

  Page
PART I — FINANCIAL INFORMATION
   
Item 1. Financial Statements 3
   
Consolidated Balance Sheets at December 31, 2017 (Unaudited) and June 30, 2017 3
   
Consolidated Statements of Operations for the Three and Six Months ended December 31, 2017 and 2016 (Unaudited) 4
   
Consolidated Statement of Shareholders’ Equity for the Six Months ended December 31, 2017 (Unaudited) 5
   
Consolidated Statements of Cash Flows for the Six Months ended December 31, 2017 and 2016 (Unaudited) 6
   
Notes to Consolidated Financial Statements (Unaudited) 7
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 16
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk 21
   
Item 4. Controls and Procedures 21
   
PART II — OTHER INFORMATION
   
Item 1. Legal Proceedings 23
   
Item 1A. Risk Factors 24
   
Item 6. Exhibits 25
   
Signatures 26

 

2 

 

 

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Misonix, Inc. and Subsidiaries
Consolidated Balance Sheets

 

    December 31,     June 30,  
    2017     2017  
      (unaudited)          
Assets                
Current assets:                
Cash and cash equivalents   $ 12,102,430     $ 11,557,071  
Accounts receivable, less allowance for doubtful accounts of $96,868 and $96,868, respectively     4,326,379       5,133,389  
Inventories, net     5,048,875       4,992,434  
Prepaid expenses and other current assets     328,621       918,899  
Total current assets     21,806,305       22,601,793  
                 
Property, plant and equipment, net of accumulated amortization and depreciation of $8,437,445 and $7,794,580, respectively     3,887,265       3,730,203  
Patents, net of accumulated amortization of $1,057,851 and $995,568, respectively     715,032       719,136  
Goodwill     1,701,094       1,701,094  
Intangible and other assets     262,264       282,876  
Deferred income tax           4,334,547  
Total assets   $ 28,371,960     $ 33,369,649  
                 
Liabilities and shareholders’ equity                
Current liabilities:                
Accounts payable   $ 1,651,078     $ 1,861,228  
Accrued expenses and other current liabilities     1,876,047       3,346,138  
Total current liabilities     3,527,125       5,207,366  
                 
Deferred lease liability     4,677       9,354  
Deferred income     2,165,993       13,087  
Total liabilities     5,697,795       5,229,807  
                 
Commitments and contingencies (Note 9)                
                 
Shareholders’ equity:                
Common stock, $.01 par value-shares authorized 20,000,000; 9,400,666 and 9,357,166 shares issued and outstanding, respectively     94,007       93,572  
Additional paid-in capital     38,502,821       36,808,810  
Accumulated deficit     (15,922,663 )     (8,762,540 )
Total shareholders’ equity     22,674,165       28,139,842  
Total liabilities and shareholders’ equity   $ 28,371,960     $ 33,369,649  

 

See Accompanying Notes to Consolidated Financial Statements.

 

3 

 

 

Misonix, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)

 

    For the three months ended     For the six months ended  
    December 31,     December 31,  
    2017     2016     2017     2016  
                         
Revenues   $ 8,323,845     $ 6,030,380     $ 15,604,568     $ 12,202,005  
Cost of goods sold, exclusive of depreciation from consigned product     2,465,826       1,818,672       4,643,181       3,730,679  
Gross profit     5,858,019       4,211,708       10,961,387       8,471,326  
                                 
Operating expenses:                                
 Selling expenses     3,919,515       3,271,134       7,490,228       6,596,821  
 General and administrative expenses     2,380,860       2,087,419       4,953,991       4,019,240  
 Research and development expenses     957,204       440,364       1,858,478       932,448  
Total operating expenses     7,257,579       5,798,917       14,302,697       11,548,509  
Loss from operations     (1,399,560 )     (1,587,209 )     (3,341,310 )     (3,077,183 )
                                 
Other income (expense):                                
 Interest income     45       19       58       38  
 Royalty income and license fees     71,550       949,048       524,521       1,893,116  
 Other     (4,387 )     (6,640 )     (8,845 )     (8,636 )
Total other income     67,208       942,427       515,734       1,884,518  
                                 
Loss from operations before income taxes     (1,332,352 )     (644,782 )     (2,825,576 )     (1,192,665 )
                                 
Income tax expense / (benefit)     5,524,422       (30,000 )     5,243,422       (56,000 )
Net loss   $ (6,856,774 )   $ (614,782 )   $ (8,068,998 )   $ (1,136,665 )
                                 
Net loss per share - Basic   $ (0.76 )   $ (0.07 )   $ (0.90 )   $ (0.14 )
                                 
Net loss per share - Diluted   $ (0.76 )   $ (0.07 )   $ (0.90 )   $ (0.14 )
                                 
Weighted average shares - Basic     8,977,984       8,374,900       8,968,195       8,092,143  
Weighted average shares - Diluted     8,977,984       8,374,900       8,968,195       8,092,143  

 

See Accompanying Notes to Consolidated Financial Statements.

 

4 

 

 

Misonix, Inc. and Subsidiaries
Consolidated Statement of Shareholders’ Equity
(Unaudited)

 

    Common Stock,                    
    $.01 Par Value     Additional           Total  
    Number           paid-in     Accumulated     stockholders’  
    of shares     Amount     capital     deficit     equity  
Balance, June 30, 2017     9,357,166     $ 93,572     $ 36,808,810     $ (8,762,540 )   $ 28,139,842  
Implementation of new accounting standard                             908,875       908,875  
Net loss                             (8,068,998 )     (8,068,998 )
Proceeds from exercise of stock options     43,500       435       224,117               224,552  
Stock-based compensation                     1,469,894               1,469,894  
Balance, December 31, 2017     9,400,666     $ 94,007     $ 38,502,821     $ (15,922,663 )   $ 22,674,165  

 

See Accompanying Notes to Consolidated Financial Statements.

 

5 

 

 

Misonix, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)

 

    For the six months ended  
    December 31,  
    2017     2016  
Operating activities                
Net loss   $ (8,068,998 )   $ (1,136,665 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:                
  Depreciation and amortization and other non-cash items     677,292       482,042  
  Disposals of property, plant and equipment     128,746        
  Deferred income tax expense / (benefit)     5,243,422       (56,000 )
  Stock-based compensation     1,469,894       83,865  
  Deferred lease liability     (4,677 )     46  
Changes in operating assets and liabilities:                
  Accounts receivable     807,010       99,259  
  Inventories     (839,361 )     (116,874 )
  Prepaid expenses and other assets     610,890       189,522  
  Deferred income     2,152,906       (23,920 )
  Accounts payable, accrued expenses     (1,680,241 )     377,394  
Net cash provided by (used in) operating activities     496,883       (101,331 )
                 
Investing activities                
Acquisition of property, plant and equipment     (117,897 )     (167,548 )
Acquisition of patents     (58,179 )     (155,175 )
Net cash used in investing activities     (176,076 )     (322,723 )
                 
Financing activities                
Proceeds from exercise of stock options     224,552       140,847  
Proceeds from the sale of common stock           4,000,000  
Net cash provided by financing activities     224,552       4,140,847  
                 
Net increase in cash and cash equivalents     545,359       3,716,793  
Cash and cash equivalents at beginning of period     11,557,071       9,049,327  
Cash and cash equivalents at end of period   $ 12,102,430     $ 12,766,120  
                 
Supplemental disclosure of cash flow information:                
Cash paid for:                
Income taxes   $ 895     $ 2,053  
                 
Supplemental disclosure of non-cash information:                
Transfer of inventory to property, plant and equipment   $ 782,920     $ 953,288  
Adoption of new accounting standard on deferred taxes   $ 908,875     $  

 

See Accompanying Notes to Consolidated Financial Statements.

 

6 

 

 

Misonix, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Three and Six Months Ended December 31, 2017 and 2016 (unaudited)

 

1. Basis of Presentation, Organization and Business and Summary of Significant Accounting Policies

 

Basis of Presentation

 

These consolidated financial statements of Misonix, Inc. (“Misonix” or the “Company”) include the accounts of Misonix and its 100% owned subsidiaries. All significant intercompany balances and transactions have been eliminated.

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not include all the information and footnotes required by U.S. GAAP for complete financial statements. As such, they should be read with reference to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2017, which provides a more complete explanation of the Company’s accounting policies, financial position, operating results, business properties and other matters. In the opinion of management, these financial statements reflect all adjustments considered necessary for a fair statement of interim results.

 

Organization and Business

 

Misonix designs, manufactures, develops and markets therapeutic ultrasonic devices. These products are used for precise bone sculpting, removal of soft tumors, and tissue debridement in the fields of orthopedic surgery, plastic surgery, neurosurgery, podiatry and vascular surgery. In the United States, the Company sells its products through a network of commissioned agents assisted by Company personnel. Outside of the United States, the Company sells to distributors who then resell the product to hospitals. The Company operates as one business segment.

 

High Intensity Focused Ultrasound Technology

 

The Company sold its rights to the high intensity focused ultrasound technology to SonaCare Medical, LLC (“SonaCare”) in May 2010. The Company may receive up to approximately $5.8 million in payment for the sale. SonaCare will pay the Company 7% of the gross revenues received from its sales of the (i) prostate product in Europe and (ii) kidney and liver products worldwide, until the Company has received payments of $3 million, and thereafter 5% of the gross revenues, up to an aggregate payment of $5.8 million, all subject to a minimum annual royalty of $250,000. Cumulative payments through December 31, 2017 were $2,292,579.

 

Major Customers and Concentration of Credit Risk

 

Total royalties from Medtronic Minimally Invasive Therapies (“MMIT”) related to their sales of the Company’s ultrasonic cutting and sculpting products, which use high frequency sound waves to coagulate and divide tissue for both open and laparoscopic surgery, were $524,000 and $1,885,788 for the six months ended December 31, 2017 and 2016, respectively. Accounts receivable from MMIT royalties were $925,000 at June 30, 2017. The license agreement with MMIT expired in August 2017.

 

At December 31, 2017 and June 30, 2017, the Company’s accounts receivable with customers outside the United States were approximately $627,000 and $860,000, respectively, none of which is over 90 days.

 

 7

 

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and judgments that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions are used for but not limited to establishing the allowance for doubtful accounts, valuation of inventory, depreciation, asset impairment evaluations and establishing deferred tax assets and related valuation allowances, and stock-based compensation. Actual results could differ from those estimates.

 

Loss Per Share

 

Diluted EPS for the three and six months ended December 31, 2017 and 2016 as presented is the same as basic EPS as the inclusion of the effect of common share equivalents then outstanding would be anti-dilutive. Accordingly, excluded from the calculation of diluted EPS are outstanding options to purchase 375,000 and 521,000 shares of common stock for the three months ended December 31, 2017 and 2016, respectively, and outstanding options to purchase 1,366,736 and 1,734,649 shares of common stock for the six months ended December 31, 2017 and 2016, respectively.

 

Recent Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued guidance on revenue from contracts with customers. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. The guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions include capitalization of certain contract costs, consideration of time value of money in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved, in certain circumstances. The guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. This guidance permits the use of either the retrospective or cumulative effect transition method and is effective for the Company beginning in fiscal 2019; early adoption is permitted beginning in 2018. We have not yet selected a transition method and are currently evaluating the impact of the guidance on the Company’s financial condition, results of operations and related disclosures. The FASB has also issued the following additional guidance clarifying certain issues on revenue from contracts with customers: Revenue from Contracts with Customers - Narrow-Scope Improvements and Practical Expedients and Revenue from Contracts with Customers - Identifying Performance Obligations and Licensing. The Company has engaged a consulting firm to assist with in evaluating this guidance to determine the impact it will have on its financial statements, and expects to complete its evaluation and implementation of necessary procedures and changes, if any, prior to June 30, 2018.

 

In February 2016, the FASB issued guidance on lease accounting requiring lessees to recognize a right-of-use asset and a lease liability for long-term leases. The liability will be equal to the present value of lease payments. This guidance must be applied using a modified retrospective transition approach to all annual and interim periods presented and is effective for the Company beginning in fiscal 2020. The Company is currently in the early stages of evaluating this guidance to determine the impact it will have on its financial statements.

 

In August 2016, the FASB issued guidance on the Statement of Cash Flows Classification of certain cash receipts and cash payments (a consensus of the Emerging Issues Task Force). This guidance addresses the following eight specific cash flow issues: Debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. This guidance will be effective for the Company beginning in fiscal 2019. The Company is currently in the early stages of evaluating this guidance to determine the impact it will have on its financial statements.

 

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations: Clarifying the Definition of a Business (“ASU 2017-01”). ASU 2017-01 clarifies the definition of a business for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2017, and early adoption is permitted. The Company is in the process of evaluating the impact of the adoption of ASU 2017-01 on its consolidated financial statements.

 

 8

 

 

There are no other recently issued accounting pronouncements that are expected to have a material effect on the Company’s financial position, results of operations or cash flows.

 

Recently Adopted Accounting Pronouncements

 

In March 2016, the FASB issued Accounting Standards Update No. 2016-09 “Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” intended to simplify several aspects of accounting for share-based payment transactions. The Company adopted these amendments beginning in the first quarter of fiscal 2018. The guidance requires that all excess tax benefits and tax deficiencies previously recorded as additional paid-in capital be prospectively recorded in income tax expense. The guidance allows for an increase in the threshold for net share settlement up to the maximum statutory rate in employees’ applicable jurisdictions without triggering liability classification. The adoption of this guidance had an immaterial impact on income taxes on the Company’s Consolidated Statement of Operations for the three and six months ended December 31, 2017. The Company elected to apply the presentation requirement for cash flows related to excess tax benefits prospectively, which had an immaterial impact on both net cash from operating activities and net cash used in financing activities for the three and six months ended December 31, 2017. The presentation requirements for cash flows related to employee taxes paid for withheld shares had no impact on any of the periods presented on the Company’s Consolidated Statements of Cash Flows since such cash flows have historically been presented as a financing activity. Finally, the Company has elected to account for forfeitures as they occur, rather than estimate expected forfeitures. As a result, the Company recorded the cumulative impact of $908,875 as an increase to Deferred Income Taxes with a corresponding decrease to Accumulated Deficit.

 

2. Fair Value of Financial Instruments

 

We follow a three-level fair value hierarchy that prioritizes the inputs to measure fair value. This hierarchy requires entities to maximize the use of “observable inputs” and minimize the use of “unobservable inputs.” The three levels of inputs used to measure fair value are as follows:

 

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets as of the measurement date.

 

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

 

Level 3: Significant unobservable inputs that reflect assumptions that market participants would use in pricing an asset or liability.

 

At December 31, 2017 and June 30, 2017, all of our cash and cash equivalents, trade accounts receivable and trade accounts payable were short term in nature, and their carrying amounts approximate fair value.

 

3. Inventories

 

Inventories are summarized as follows:

 

   December 31,   June 30, 
   2017   2017 
Raw material  $2,489,274   $2,409,148 
Work-in-process   1,076,545    741,994 
Finished goods   2,000,748    3,267,232 
    5,566,567    6,418,374 
Less valuation reserve   517,692    1,425,940 
   $5,048,875   $4,992,434 

 

 9

 

 

4. Property, Plant and Equipment

 

Depreciation and amortization of property, plant and equipment was $615,000 and $429,000 for the six months ended December 31, 2017 and 2016, respectively. Inventory items included in property, plant and equipment are depreciated using the straight line method over estimated useful lives of 3 to 5 years. Depreciation of generators which are consigned to customers was expensed over a 5 year period during the six months ended December 31, 2017 and was expensed over a 3 year period for the six months ended December 31, 2016, and depreciation was charged to selling expenses.

 

5. Goodwill

 

Goodwill is not amortized. We review goodwill for impairment annually and whenever events or changes indicate that the carrying value of an asset may not be recoverable. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of significant assets or products. Application of these impairment tests requires significant judgments, including estimation of cash flows, which is dependent on internal forecasts, estimation of the long term rate of growth for the Company’s business, the useful lives over which cash flows will occur and determination of the Company’s weighted average cost of capital. The Company primarily utilizes the Company’s market capitalization and a discontinued cash flow model in determining the fair value which consists of Level 3 inputs. Changes in the projected cash flows and discount rate estimates and assumptions underlying the valuation of goodwill could materially affect the determination of fair value at acquisition or during subsequent periods when tested for impairment. The Company completed its annual goodwill impairment tests for fiscal 2017 and 2016 as of June 30 of each year. There were no triggering events identified during the quarter ended December 31, 2017.

 

6. Patents

 

The costs of acquiring or processing patents are capitalized at cost. These amounts are being amortized using the straight-line method over the estimated useful lives of the underlying assets, which is approximately 17 years. Patents totaled $715,032 and $719,136 at December 31, 2017 and June 30, 2017, respectively. Amortization expense for the six months ended December 31, 2017 and 2016 was $61,000 and $53,000, respectively. The following is a schedule of estimated future patent amortization expenses by fiscal year as of December 31, 2017:

 

2018   $60,839 
2019    112,556 
2020    89,127 
2021    82,956 
2022    54,032 
Thereafter    315,522 
    $715,032 

 

 10

 

 

7. Accrued Expenses and Other Current Liabilities

 

The following summarizes accrued expenses and other current liabilities:

 

   December 31,   June 30, 
   2017   2017 
         
Accrued vacation  $203,346   $715,245 
Accrued bonus   250,000    343,400 
Accrued commissions   610,192    751,000 
Professional fees   133,487    662,537 
Litigation settlement       500,000 
Deferred income   19,236    27,901 
Trade payables and other   659,786    346,055 
           
   $1,876,047   $3,346,138 

 

8. Stock-Based Compensation Plans

 

Stock Option Awards

 

For the six months ended December 31, 2017 and 2016, the compensation cost relating to stock option awards that has been charged against income for the Company’s stock option plans was $1,016,026 and $83,865 respectively, which included a charge to modify certain stock options of $81,765 and a reversal of stock compensation from prior periods due to forfeitures of unvested options of $616,239, for the six months ended December 31, 2016. As of December 31, 2017, there was approximately $5,787,705 of total unrecognized compensation cost related to non-vested share-based compensation arrangements to be recognized over a weighted-average period of 3.0 years.

 

Stock options typically expire 10 years from the date of grant and vest over service periods, which typically are 4 years. All options are granted at fair market value, as defined in the applicable plans.

 

The fair value of each option award was estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions noted in the following table. The expected volatility represents the historical price changes of the Company’s stock over a period equal to that of the expected term of the option. The Company uses the simplified method for determining the option term. The risk-free rate was based on the U.S. Treasury yield curve in effect at the time of grant. The expected dividend yield is based upon historical and projected dividends. The Company has historically not paid dividends, and is not expected to do so in the near term.

 

The weighted average fair value at date of grant for options granted during the six months ended December 31, 2017 was $5.50. There were options to purchase 305,500 and 327,500 shares granted during the six months ended December 31, 2017 and 2016, respectively. The fair value was estimated based on the weighted average assumptions of:

 

   For six months ended
December 31,
 
   2017   2016 
Risk-free interest rates   1.98%   1.80%
Expected option life in years   5.95    6.25 
Expected stock price volatility   57.42%   54.68%
Expected dividend yield   0%   0%

 

 11

 

 

A summary of option activity under the Company’s equity plans as of December 31, 2017, and changes during the six months ended December 31, 2017 is presented below:

 

   Outstanding Shares   Average Exercise Price   Aggregate Intrinsic Value 
Outstanding at June 30, 2017   1,191,236   $7.66   $2,748,956 
Granted   305,500   $10.10      
Exercised   (43,500)  $5.16      
Forfeited   (11,500)  $7.45      
Expired   (75,000)  $4.87      
Outstanding as of December 31, 2017   1,366,736   $8.44   $2,090,727 
Vested and exercisable at December 31, 2017   589,484   $7.08   $1,651,775 

 

The total fair value of shares vested during the six months ended December 31, 2017 was $924,483. The number and weighted-average grant-date fair value of non-vested stock options at the beginning of fiscal 2018 was 673,875 and $4.77, respectively. The number and weighted-average grant-date fair value of stock options which vested during the six months ended December 31, 2017 was 193,123 and $4.79, respectively.

 

Restricted Stock Awards

 

On December 15, 2016, the Company issued 400,000 shares of restricted stock to its Chief Executive Officer. These awards vest over a period of up to five years, subject to meeting certain service, performance and market conditions. These awards were valued at approximately $3.6 million and compensation expense recorded in the six months ended December 31, 2017 related to these awards was $453,868. As of December 31, 2017, 26,800 shares from this set of awards have vested.

 

9. Commitments and Contingencies

 

Leases

 

The Company has entered into several non-cancellable operating leases for the rental of certain manufacturing and office space, equipment and automobiles expiring in various years through 2021. The principal building lease provides for a monthly rental of approximately $26,000. The Company also leases certain office equipment and automobiles under operating leases expiring through March 2019.

 

Class Action Securities Litigation

 

On September 19, 2016, Richard Scalfani, an individual shareholder of Misonix, filed a lawsuit against the Company and its former CEO and CFO in the U.S. District Court for the Eastern District of New York, alleging violations of the federal securities laws. The complaint alleges that the Company’s stock price was artificially inflated between November 5, 2015 and September 14, 2016 as a result of alleged false and misleading statements in the Company’s securities filings concerning the Company’s business, operations, and prospects and the Company’s internal control over financial reporting. Scalfani filed the action seeking to represent a putative class of all persons (other than defendants, officers and directors of the Company, and their affiliates) who purchased publicly traded Misonix securities between November 5, 2015 and September 14, 2016. Scalfani was seeking an unspecified amount of damages for himself and for the putative class under the federal securities laws. On March 24, 2017, the Court appointed Scalfani and another individual Misonix shareholder, Tracey Angiuoli, as lead plaintiffs for purposes of pursuing the action on behalf of the putative class. The lead plaintiffs, on behalf of the putative class, and the Company reached a settlement in principle under which the Company would pay $500,000 to resolve the matter. The district court approved the settlement and dismissed the lawsuit with prejudice in an order dated December 16, 2017. The Company has paid its $250,000, representing its insurance retention. The balance was paid by the Company’s insurance carrier.

 

 12

 

 

Former Chinese Distributor - FCPA

 

With the assistance of outside counsel, the Company conducted a voluntary investigation into the business practices of the independent Chinese entity that previously distributed its products in China and the Company’s knowledge of those business practices, which may have implications under the FCPA, as well as into various internal controls issues identified during the investigation.

 

On September 27, 2016 and September 28, 2016, the Company voluntarily contacted the SEC and the DOJ, respectively, to advise both agencies of these potential issues. The Company has provided and will continue to provide documents and other information to the SEC and the DOJ, and is cooperating fully with these agencies in their ongoing investigations of these matters.

 

Although the Company’s investigation is complete, additional issues or facts could arise which may expand the scope or severity of the potential violations. The Company has no current information derived from the investigation or otherwise to suggest that its previously reported financial statements and results are incorrect.

 

At this stage, the Company is unable to predict what, if any, action the DOJ or the SEC may take or what, if any, penalties or remedial measures these agencies may seek. Nor can the Company predict the impact on the Company as a result of these matters, which may include the imposition of fines, civil and criminal penalties, which are not currently estimable, as well as equitable remedies, including disgorgement of any profits earned from improper conduct and injunctive relief, limitations on the Company’s conduct, and the imposition of a compliance monitor. The DOJ and the SEC periodically have based the amount of a penalty or disgorgement in connection with an FCPA action, at least in part, on the amount of profits that a company obtained from the business in which the violations of the FCPA occurred. During its distributorship relationship with the prior Chinese distributor from 2010 through 2016, the Company generated revenues of approximately $8 million.

 

Further, the Company may suffer other civil penalties or adverse impacts, including lawsuits by private litigants in addition to the lawsuits that already have been filed, or investigations and fines imposed by local authorities. The investigative costs to date are approximately $2.8 million, of which approximately $0.1 million and $0.3 million was charged to general and administrative expenses during the three and six months ended December 31, 2017, respectively, compared with $0.6 million and $1.4 million for the three and six months ended December 31, 2016.

 

Former Chinese Distributor – Litigation

 

On April 5, 2017, the Company’s former distributor in China, Cicel (Beijing) Science & Technology Co., Ltd., filed a lawsuit against the Company and certain officers and directors of the Company in the United States District Court for the Eastern District of New York, alleging that the Company improperly terminated its contract with the former distributor. The complaint sought various remedies, including compensatory and punitive damages, specific performance and preliminary and post judgment injunctive relief, and asserted various causes of action, including breach of contract, unfair competition, tortious interference with contract, fraudulent inducement, and conversion. On October 7, 2017, the court granted the Company’s motion to dismiss all of the tort claims asserted against it, and also granted the individual defendants’ motion to dismiss all claims asserted against them. The only claim remaining in the case is for breach of contract against the Company. The Company believes it has various legal and factual defenses to the allegations in the complaint, and intends to vigorously defend the action. The case is at its earliest stages; discovery is just beginning and there is no trial date.

 

Stockholder Derivative Litigation

 

On June 6, 2017, Irving Feldbaum, an individual shareholder of Misonix, filed a lawsuit in the U.S. District Court for the Eastern District of New York. The complaint alleges claims against the Company’s board of directors, its former CEO and CFO, certain of its former directors, and the Company as a nominal defendant for alleged violations of Section 14(a) of the Securities Exchange Act of 1934 and state law claims for breach of fiduciary duty, waste of corporate assets, and unjust enrichment. The complaint alleges that the Company incurred damages as a result of alleged false and misleading statements in the Company’s securities filings concerning the Company’s business, operations, and prospects and the Company’s internal control over financial reporting. The complaint also alleges that the Company’s February 4, 2016 Proxy Statement contained false and misleading statements regarding executive compensation. The complaint seeks the recovery of damages on behalf of the Company and the implementation of changes to corporate governance procedures. On June 16, 2017, Michael Rubin, another individual shareholder of Misonix, filed a case alleging similar claims in the same district court. On July 21, 2017, the district court consolidated the two actions for all purposes. The case is at its earliest stages; there has been no discovery and there is no trial date. The Company is not able either to estimate the amount of potential loss it may recognize, if any, from these claims or to identify any changes in corporate governance procedures it may undertake, if any, as a result of these claims.

 

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10. Related Party Transactions

 

OrthoXact Proprietary Limited (“OrthoXact”) (formerly Applied BioSurgical) is an independent distributor for the Company in South Africa. The chief executive officer of OrthoXact is also the brother of Stavros G. Vizirgianakis, the CEO of Misonix, Inc.

 

Set forth below is a table showing the Company’s net revenues for the six months ended December 31 and accounts receivable at December 31 for the indicated time periods below with OrthoXact:

 

   For the six months ended 
   December 31, 
   2017   2016 
         
Sales  $436,551   $278,036 
Accounts receivable  $172,292   $274,641 

 

11. Income Taxes

 

For the three and six months ended December 31, 2017 and 2016, the Company recorded income tax expense (benefit), as follows:

 

    For the three months ended     For the six months ended  
    December 31,     December 31,  
    2017     2016     2017     2016  
                         
 Income tax benefit   $ (228,149 )   $ (30,000 )   $ (509,149 )   $ (56,000 )
Provisional reduction of deferred tax asset relating to Tax Legislation     1,764,039             1,764,039        
 Valuation allowance on deferred tax asset     3,988,532             3,988,532        
                                 
 Net income tax expense (benefit)   $ 5,524,422     $ (30,000 )   $ 5,243,422     $ (56,000 )

 

For the six months ended December 31, 2017 and 2016, the effective rate of 185.6% and (4.7)%, respectively, varied from the U.S. federal statutory rate primarily due to the recording of a full valuation allowance on the remaining deferred tax assets, permanent book tax differences relating principally to stock compensation expense and tax credits, and the impact of the Tax Cuts and Jobs Act of 2017.

 

Tax Cuts and Jobs Act of 2017

 

The Tax Cuts and Jobs Act of 2017 (the “Tax Legislation”), enacted on December 22, 2017, contains significant changes to U.S. tax law, including lowering the U.S. corporate income tax rate to 21%, implementing a territorial tax system, and imposing a one-time tax on deemed repatriated earnings of foreign subsidiaries.

 

The Tax Legislation reduces the U.S. statutory tax rate from 35% to 21%, effective January 1, 2018. U.S. tax law requires that taxpayers with a fiscal year that begins before and ends after the effective date of a rate change calculate a blended tax rate based on the pro rata number of days in the fiscal year before and after the effective date. As a result, for the fiscal year ending June 30, 2018, the Company’s statutory income tax rate will be 29.03%. For the fiscal year ending June 30, 2019, the Company’s statutory income tax rate will be 22.62%.

 

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Legislation. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Legislation enactment date for companies to complete the accounting under ASC 740, Income Taxes. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Legislation for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Legislation is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. During the three months ended December 31, 2017, using the information available at the time, the Company recorded a provisional $1,764,039 discrete tax expense representing the expense of remeasuring its U.S. deferred tax assets at the lower 21% statutory tax rate. The Company may make additional adjustments in fiscal 2018 as further information is identified to properly record this adjustment.

 

Valuation Allowance on Deferred Tax Assets

 

Deferred tax assets refer to assets that are attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets in essence represent future savings of taxes that would otherwise be paid in cash. The realization of the deferred tax assets is dependent upon the generation of sufficient future taxable income, including capital gains. If it is determined that the deferred tax assets cannot be realized, a valuation allowance must be established, with a corresponding charge to net income.

 

In accordance with ASC Topic 740, the Company establishes valuation allowances for deferred tax assets that, in its judgment are not more likely-than-not realizable. The guidance requires entities to evaluate all available positive and negative evidence, including cumulative results in recent periods, weighted based on its objectivity, in determining whether its deferred tax assets are more likely than not realizable.

 

The Company regularly assesses its ability to realize its deferred tax assets. While the Company had positive cumulative pretax income as of June 30, 2017, based on actual results to date and the Company’s current forecast for fiscal 2018 it expects to be in a cumulative pretax loss position as of June 30, 2018. Management evaluated available positive evidence, including the continued growth of the Company’s revenues and gross profit margins, its recent SonaStar technology sale to its Chinese partner and the reduction in investigative and professional fees recognized in fiscal 2017, along with available negative evidence, including the Company’s continuing investment in building its next generation Nexus platform and its continuing investment in building a direct sales force, while at the same time paying commissions to its domestic sales distributors. After weighing both the positive and negative evidence, management concluded that the Company’s deferred tax assets are not more likely-than-not realizable. Accordingly, the Company recorded a full valuation allowance of $3,988,532 against its remaining deferred tax assets at December 31, 2017. The Company will continue to assess its ability to utilize its net operating loss carryforwards, and will reverse this valuation allowance when sufficient evidence is achieved to allow the realizability of such deferred tax assets.

  

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As of December 31, 2017 and June 30, 2017, the Company has no material unrecognized tax benefits or accrued interest and penalties.

 

12. Licensing Agreements for Medical Technology

 

On October 19, 2017, the Company entered into a License and Exclusive Manufacturing Agreement (the “Agreement”) with Hunan Xing Hang Rui Kang Bio-technologies Co., Ltd., a Chinese corporation (the “Licensee”) under which Misonix has licensed certain manufacturing and distribution rights to its SonaStar product line in China, Hong Kong and Macau (the “Territory”) in exchange for payments totaling at least $11,000,000.

 

Pursuant to the Agreement, Licensee is obligated to pay the Company: (i) initial amounts consisting of upfront fees and stocking orders totaling $5,000,000, payable in five (5) equal monthly installments of $1,000,000 each; (ii) royalty payments from the sale of SonaStar products in the Territory, including minimum royalty payments of $2,000,000 per calendar year in each of 2019, 2020, and 2021; and (iii) reimbursement of technology transfer costs in an amount up to $1,000,000. The Agreement also provides that Misonix will supply SonaStar products to Licensee at agreed prices during the transition period prior to Licensee’s commencement of manufacturing.

 

In October 1996, the Company entered into a license agreement with MMIT which expired August 2017, covering the further development and commercial exploitation of the Company’s medical technology relating to laparoscopic products, which uses high frequency sound waves to coagulate and divide tissue for both open and laparoscopic surgery. The MMIT license provided for exclusive worldwide marketing and sales rights for this technology. The Company received a 5% royalty on sales of these products by MMIT. Royalties from this license agreement were $524,000 and $1,886,000 for the six months ended December 31, 2017 and 2016, respectively. This royalty agreement expired in August 2017.

 

13. Segment Reporting

 

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated on a regular basis by the chief operating decision-maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance of the segment. The Company has concluded that its Chief Executive Officer is the CODM as he is the ultimate decision maker for key operating decisions, determining the allocation of resources and assessing the financial performance of the Company. These decisions, allocations and assessments are performed by the CODM using consolidated financial information. Consolidated financial information is utilized by the CODM as the Company’s current product offering primarily consists of minimally invasive therapeutic ultrasonic medical devices. The Company’s products are relatively consistent and manufacturing is centralized and consistent across product offerings. Based on these factors, key operating decisions and resource allocations are made by the CODM using consolidated financial data and as such the Company has concluded that it operates as one segment.

 

Worldwide revenue for the Company’s products is categorized as follows:

 

      For the three months ended     For the six months ended  
      December 31,     December 31,  
      2017     2016     2017     2016  
Domestic     $ 5,400,423     $ 4,117,238     $ 10,052,566     $ 8,003,795  
International       2,923,422       1,913,142       5,552,002       4,198,210  
Total     $ 8,323,845     $ 6,030,380     $ 15,604,568     $ 12,202,005  

 

Substantially all of the Company’s long-lived assets are located in the United States.

 

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14. Severance

 

On August 26, 2016, the Company and the Company’s former Chief Executive Officer, Michael McManus (“McManus”) entered into a retirement agreement and general release (the “Retirement Agreement”). Pursuant to the Retirement Agreement, on September 2, 2016 Mr. McManus resigned as a Director and the Chairman of the Board of Directors of the Company and retired as President and Chief Executive Officer of the Company. Pursuant to the Retirement Agreement, the Company agreed to (i) pay Mr. McManus’ salary through June 30, 2017 at the then current level; (ii) continue to pay premiums for Mr. McManus’ and his dependents’ coverage under the Company’s medical, dental, vision, hospitalization, long term care and life insurance coverage through June 30, 2017 at the then current levels upon timely election by Mr. McManus under the law informally known as COBRA; and (iii) extend the exercisability of previously granted and then currently vested options to purchase shares of Common Stock through June 30, 2017. In addition, Mr. McManus had continued use of the vehicle provided him pursuant to his prior employment agreement through December 31, 2016. In connection with this Retirement Agreement, the Company recorded a charge of $330,000 during the quarter ended September 30, 2016 to accrue for the cash portion of these benefits, which was paid during the fiscal year ended June 30, 2017. In addition, during the quarter ended June 30, 2016, the Company recorded a non-cash compensation expense of $61,000 in connection with the modification of the terms of his vested stock options, and recorded a reduction in non-cash compensation expense of $596,000 relating to the forfeiture of his unvested stock options.

 

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, which we refer to as the “Company”, “Misonix”, “we”, “our” and “us”, should be read in conjunction with the accompanying unaudited financial statements included in Part I – 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 August 24, 2017, for the fiscal year ended June 30, 2017 (“2017 Form 10-K”). Item 7 of the 2017 Form 10-K describes the application of our critical accounting policies, for which there have been no significant changes during the three and six months ended December 31, 2017.

 

Forward Looking Statements

 

With the exception of historical information contained in this Form 10-Q, content herein may contain “forward looking statements” that are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on management’s current expectations and are subject to uncertainty and changes in circumstances. We cannot guarantee that any forward looking statements will be accurate, although we believe that we have been reasonable in our expectations and assumptions. Investors should realize that if underlying assumptions prove inaccurate or unknown risks or uncertainties materialize, actual results could vary materially from our expectations and projections. These factors include general economic conditions, delays and risks associated with the performance of contracts, risks associated with international sales and currency fluctuations, uncertainties as a result of research and development, acceptable results from clinical studies, including publication of results and patient/procedure data with varying levels of statistical relevance, risks involved in introducing and marketing new products, regulatory compliance, potential acquisitions, consumer and industry acceptance, litigation and/or contemplated 510(k) filings, the ability to achieve and maintain profitability in our business lines, and other factors discussed in the 2017 Form 10-K, subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. We disclaim any obligation to update any forward-looking statements.

 

Overview

 

Misonix designs, manufactures, develops and markets therapeutic ultrasonic devices. These products are used for precise bone sculpting, removal of soft and hard tumors, and tissue debridement, orthopedic surgery, plastic surgery, and wound and burn care. In the United States, the Company sells its products through its direct sales force, in addition to a network of commissioned agents assisted by Company personnel. Outside of the United States, the Company generally sells to distributors who then resell the product to hospitals. The Company operates as one business segment.

 

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In the United States, the Company is taking a more aggressive approach to taking market share, expanding the market and increasing its share of recurring disposable revenue by using a consignment model, whereby the Company will consign the equipment (which is defined as a generator, hand units and accessories) (the “Equipment”) and sell to customers higher margin disposable, single use items (the “Consumables”) on a recurring basis. Title remains with the Company with respect to consigned Equipment, which is depreciated and charged to selling expenses over a five year period beginning in fiscal 2017, and a three year period in fiscal 2016. Outside of the United States, the Company has principally not yet adopted a consignment model. The Company’s overall goal is to increase the utilization rate of Equipment which will increase the total number of procedures and maximize the sale of Consumables to our customers, with the goal of becoming the standard of care in the various segments we focus on.

 

Results of Operations

 

The following discussion and analysis provides information which the Company’s management believes is relevant to an assessment and understanding of the Company’s results of operations and financial condition. This discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere herein. Unless otherwise specified, this discussion relates solely to the Company’s continuing operations.

 

All of the Company’s revenues have been derived from the sale of medical device products, which include manufacture and distribution of ultrasonic medical device products.

 

Three months ended December 31, 2017 and 2016

 

Our revenues by category for the three months ended December 31, 2017 and 2016 are as follows:

 

    For the three months ended         
    December 31,   Net change 
    2017   2016   $   % 
Total                 
Consumables   $6,162,064   $4,908,885   $1,253,179    25.5%
Equipment    2,161,781    1,121,495    1,040,286    92.8%
Total   $8,323,845   $6,030,380   $2,293,465    38.0%
                      
Domestic:                     
Consumables   $4,623,545   $3,844,609   $778,936    20.3%
Equipment    776,878    272,629    504,249    185.0%
Total   $5,400,423   $4,117,238   $1,283,185    31.2%
                      
International:                     
Consumables   $1,538,519   $1,064,276   $474,243    44.6%
Equipment    1,384,903    848,866    536,037    63.1%
Total   $2,923,422   $1,913,142   $1,010,280    52.8%

 

Revenues

 

Revenues increased 38.0% or $2,293,465 to $8,323,845 in the second quarter of fiscal 2018, from $6,030,380 in fiscal 2017. Consumables revenue in the United States increased 20.3%, or $778,936 for the second quarter, principally due to the strength in the Company’s BoneScalpel product line, which grew 36% during the quarter. Domestic equipment revenues grew by 185.0% during the second quarter, resulting from strong SonaStar sales.

 

International revenue grew 52.8% during the second quarter, largely due to a 60% growth in SonaStar sales and a 26% growth in BoneScalpel sales.

 

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Gross profit

 

Gross profit in the second quarter of fiscal 2018 was 70.4% of revenue, which increased from 69.8% in the second quarter of fiscal 2017. The increase resulted from a stronger mix of higher margin product.

 

Selling expenses

 

Selling expenses increased by $648,381, or 19.8% to $3,919,515 in the second quarter of fiscal 2018 from $3,271,134 in the prior year period. The increase is principally related to higher compensation costs resulting from the continued buildout of the Company’s direct sales force, along with higher commissions relating to the 38% increase in revenue.

 

General and administrative expenses

 

General and administrative expenses increased by $293,441, or 14.1% to $2,380,860 in the second quarter of fiscal 2018 from $2,087,419 in the prior year period. This increase is principally related to an increase of non-cash compensation expense for the second quarter of fiscal 2018 of $439,000 related to restricted stock and stock option grants to the Company’s board of directors and its current CEO, a decrease in professional fees of $266,000 and a decrease in accrued vacation costs of $118,000. During the second quarter of the prior year, the Company was incurring higher costs for its internal investigation.

 

Research and development expenses

 

Research and development expenses increased by $516,840, or 117.4% to $957,204 in the second quarter of fiscal 2018 from $440,364 in the prior year period. The Company is investing in the design and development of its next generation product, which is expected to be available in fiscal 2019. During the second quarter of fiscal 2018, approximately $600,000 was charged to research and development expenses related to this product.

 

Other income (expense)

 

Other income decreased by $875,219 to $67,208 in the second quarter of fiscal 2018 from $942,427 in the prior year period. The decrease is related to lower royalty income from MMIT. This royalty agreement expired in August 2017. There were no license fees recorded during the second quarter of fiscal 2018.

 

Income taxes

 

For the three months ended December 31, 2017 and 2016, the Company recorded an income tax expense (benefit) of $5,524,422 and ($30,000), respectively. For the three months ended December 31, 2017 and 2016, the effective rate of 414.6% and (4.7%), respectively, varied from the U.S. federal statutory rate due to changes in the Company’s projected pretax book income.

 

The income tax expense for the second quarter of fiscal 2018 included a one-time charge of $1,764,039 to revalue the Company’s deferred tax asset as of December 31, 2017 to give effect to the reduction in corporate tax rates to 21% effective January 1, 2018, as a result of the Tax Cuts and Jobs Act of 2017 (the “Tax Legislation”), enacted on December 22, 2017. Income tax expense also includes a $3,988,532 charge to record a full valuation allowance against the Company’s remaining deferred tax assets. In accordance with the guidance of ASC Topic 740, management concluded that in its judgment, the Company’s deferred tax assets at December 31, 2017 are not more likely-than-not realizable. The components of the tax provision are as follows:

 

    For the three months ended  
    December 31,  
    2017     2016  
             
Income tax benefit   $ (228,149 )   $ (30,000 )
Provisional reduction of deferred tax asset relating to Tax Legislation     1,764,039        
Valuation allowance on deferred tax asset     3,988,532        
                 
Net income tax expense (benefit)   $ 5,524,422     $ (30,000 )

 

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Six months ended December 31, 2017 and 2016

 

Our revenue by category for the six months ended December 31, 2017 and 2016 are as follows:

 

    For the six months ended         
    December 31,   Net change 
    2017   2016   $   % 
Total                 
Consumables   $11,505,826   $9,453,080   $2,052,746    21.7%
Equipment    4,098,742    2,748,925    1,349,817    49.1%
Total   $15,604,568   $12,202,005   $3,402,563    27.9%
                      
Domestic:                     
Consumables   $8,722,636   $7,162,538   $1,560,098    21.8%
Equipment    1,329,930    841,257    488,673    58.1%
Total   $10,052,566   $8,003,795   $2,048,771    25.6%
                      
International:                     
Consumables   $2,783,190   $2,290,542   $492,648    21.5%
Equipment    2,768,812    1,907,668    861,144    45.1%
Total   $5,552,002   $4,198,210   $1,353,792    32.2%

 

Revenue

 

Revenue increased 27.9% or $3,402,563 to $15,604,568 in the first half of fiscal 2018, from $12,202,005 in fiscal 2017. Consumables revenue in the United States increased 21.8%, or $1,560,098 for the period, principally due to the strength in the Company’s BoneScalpel product line, which grew 36% during the first half of fiscal 2018. Domestic equipment revenue grew by 58.1% during the first half of fiscal 2018, resulting from strong SonaStar sales.

 

International revenue grew 32.2% during the first half of fiscal 2018, largely due to a 43% growth in SonaStar sales and a 18% growth in BoneScalpel sales.

 

Gross profit

 

Gross profit in the first half of fiscal 2018 was 70.2% of revenue, which increased from 69.4% in the first half of fiscal 2017. The increase resulted from a stronger mix of higher margin product.

 

Selling expenses

 

Selling expenses increased by $893,407, or 13.5% to $7,490,228 in the first half of fiscal 2018 from $6,596,821 in the prior year period. The increase is principally related to higher compensation costs resulting from the continued buildout of the Company’s direct sales force, along with higher commissions relating to the 27.9% increase in revenue.

 

General and administrative expenses

 

General and administrative expenses increased by $934,751, or 23.3% to $4,953,991 in the first half of fiscal 2018 from $4,019,240 in the prior year period. This increase is principally related to an increase of non-cash compensation expense for the first half of fiscal 2018 of $743,000 related to restricted stock and stock option grants to the Company’s board of directors and its current CEO. In addition, during the first half of fiscal 2017, the Company recorded a reduction in non-cash stock compensation expense of $805,000, which includes a reversal of stock compensation previously recognized on the Company’s prior CEO. Expense reductions for the first half of fiscal 2018 also included a reduction in professional fees of $460,000 and a reduction in accrued vacation of $153,000. The Company also incurred a charge of $330,000 in the first half of the prior year relating to severance for it former chief executive officer.

 

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Research and development expenses

 

Research and development expenses increased by $926,030, or 99.3% to $1,858,478 in the first half of fiscal 2018 from $932,448 in the prior year period. The Company is investing in the design and development of its next generation product, which is expected to be available in fiscal 2019. For the first half of fiscal 2018, approximately $1.1 million has been charged to research and development expenses related to this product.

 

Other income (expense)

 

Other income decreased by $1,368,784 to $515,734 in the first half of fiscal 2018 from $1,884,518 in the prior year period. The decrease is related to lower royalty income from MMIT. This royalty agreement expired in August 2017.

 

Income taxes

 

For the six months ended December 31, 2017 and 2016, the Company recorded an income tax expense (benefit) of $5,243,422 and ($56,000), respectively. For the six months ended December 31, 2017 and 2016, the effective rate of 185.6% and (4.7%), respectively, varied from the U.S. federal statutory rate due to changes in the Company’s projected pretax book income.

 

The income tax expense for the first half of fiscal 2018 included a one-time charge of $1,764,039 to revalue the Company’s deferred tax asset as of December 31, 2017 to give effect to the reduction in corporate tax rates to 21% effective January 1, 2018, as a result of the Tax Legislation, enacted on December 22, 2017. Income tax expense also includes a $3,988,532 charge to record a full valuation allowance against the Company’s remaining deferred tax assets. In accordance with the guidance of ASC Topic 740, management concluded that in its judgment, the Company’s deferred tax assets at December 31, 2017 are not more likely-than-not realizable. The components of the tax provision are as follows:

 

    For the six months ended  
    December 31,  
    2017     2016  
             
Income tax benefit   $ (509,149 )   $ (56,000 )
Provisional reduction of deferred tax asset relating to Tax Legislation     1,764,039        
Valuation allowance on deferred tax asset     3,988,532        
                 
 Net income tax expense (benefit)   $ 5,243,422     $ (56,000 )

 

Liquidity and Capital Resources

 

Working capital at December 31, 2017 was $18,279,180. For the six months ended December 31, 2017, cash provided from operations was $496,883, mainly due to $2,152,906 of cash received from the Company’s SonaStar technology agreement in China which was treated as deferred income, a reduction in accounts receivable of $807,010, and a reduction of prepaid expenses and other assets of $610,890, offset by a reduction in accounts payable and accrued expenses of $1,680,241 and the Company’s net loss.

 

Cash used in investing activities was $176,076, primarily consisting of the purchase of property, plant and equipment along with filing for additional patents.

 

Cash provided by financing activities was $224,552, resulting from stock option exercises.

 

As of December 31, 2017, the Company had cash and cash equivalents of approximately $12.1 million and believes it has sufficient cash to finance operations for at least the next 12 months.

 

 20

 

 

Relating to the internal investigation described herein, the Company has incurred approximately $2.8 million in investigative costs through December 31, 2017 and is not expected to incur significant additional investigative costs to resolve this matter. Further, the Company could be subject to fines or penalties related to potential violations of the FCPA.

 

The Company has been receiving an annual royalty from MMIT which has averaged $3.7 million per year over the last three fiscal years. This royalty ended in August 2017. Additionally, as described in Note 12 to the financial statements, in October 2017, the Company entered into a License and Exclusive Manufacturing Agreement which is providing minimum payments to the Company of $11 million through 2021, of which $3 million has been received as of December 31, 2017.

 

The Company is investing in the design and development of its next generation product, which is expected to be available in fiscal 2019 of which $1.1 million in development costs have been incurred for the six months ended December 31, 2017.

 

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.

 

Recent Accounting Pronouncements

 

See Note 1 to our consolidated financial statements included herein.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Market Risk:

 

The principal market risks (i.e., the risk of loss arising from adverse changes in market rates and prices) to which the Company is exposed are interest rates on cash and cash equivalents.

 

Interest Rate Risk:

 

The Company earns interest on cash balances and pays interest on any debt incurred. In light of the Company’s existing cash, results of operations and projected borrowing requirements, the Company does not believe that a 10% change in interest rates would have a significant impact on its consolidated financial position.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to provide reasonable assurance that information required to be disclosed in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

 

 21

 

 

All internal control systems, no matter how well designed and tested, have inherent limitations, including, among other things, the possibility of human error, circumvention or disregard. Therefore, even those systems of internal control that have been determined to be effective can provide only reasonable assurance that the objectives of the control system are met and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

We carried out an evaluation, under the supervision and with the participation of management, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2017. Based on this evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were effective as of December 31, 2017.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2017 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 22

 

 

PART II — OTHER INFORMATION

 

Item 1. Legal Proceedings

 

Class Action Securities Litigation

 

On September 19, 2016, Richard Scalfani, an individual shareholder of Misonix, filed a lawsuit against the Company and its former CEO and CFO in the U.S. District Court for the Eastern District of New York, alleging violations of the federal securities laws. The complaint alleges that the Company’s stock price was artificially inflated between November 5, 2015 and September 14, 2016 as a result of alleged false and misleading statements in the Company’s securities filings concerning the Company’s business, operations, and prospects and the Company’s internal control over financial reporting. Scalfani filed the action seeking to represent a putative class of all persons (other than defendants, officers and directors of the Company, and their affiliates) who purchased publicly traded Misonix securities between November 5, 2015 and September 14, 2016. Scalfani was seeking an unspecified amount of damages for himself and for the putative class under the federal securities laws. On March 24, 2017, the Court appointed Scalfani and another individual Misonix shareholder, Tracey Angiuoli, as lead plaintiffs for purposes of pursuing the action on behalf of the putative class. The lead plaintiffs, on behalf of the putative class, and the Company reached a settlement in principle under which the Company would pay $500,000 to resolve the matter. The district court approved the settlement and dismissed the lawsuit with prejudice in an order dated December 16, 2017. The Company has paid its $250,000, representing its insurance retention. The balance was paid by the Company’s insurance carrier.

 

Former Chinese Distributor - FCPA

 

With the assistance of outside counsel, the Company conducted a voluntary investigation into the business practices of the independent Chinese entity that previously distributed its products in China and the Company’s knowledge of those business practices, which may have implications under the FCPA, as well as into various internal controls issues identified during the investigation.

 

On September 27, 2016 and September 28, 2016, the Company voluntarily contacted the SEC and the DOJ, respectively, to advise both agencies of these potential issues. The Company has provided and will continue to provide documents and other information to the SEC and the DOJ, and is cooperating fully with these agencies in their ongoing investigations of these matters.

 

Although the Company’s investigation is complete, additional issues or facts could arise which may expand the scope or severity of the potential violations. The Company has no current information derived from the investigation or otherwise to suggest that its previously reported financial statements and results are incorrect.

 

At this stage, the Company is unable to predict what, if any, action the DOJ or the SEC may take or what, if any, penalties or remedial measures these agencies may seek. Nor can the Company predict the impact on the Company as a result of these matters, which may include the imposition of fines, civil and criminal penalties, which are not currently estimable, as well as equitable remedies, including disgorgement of any profits earned from improper conduct and injunctive relief, limitations on the Company’s conduct, and the imposition of a compliance monitor. The DOJ and the SEC periodically have based the amount of a penalty or disgorgement in connection with an FCPA action, at least in part, on the amount of profits that a company obtained from the business in which the violations of the FCPA occurred. During its distributorship relationship with the prior Chinese distributor from 2010 through 2016, the Company generated revenue of approximately $8 million.

 

Further, the Company may suffer other civil penalties or adverse impacts, including lawsuits by private litigants in addition to the lawsuits that already have been filed, or investigations and fines imposed by local authorities. The investigative costs to date are approximately $2.8 million, of which approximately $0.1 million and $0.3 million was charged to general and administrative expenses during the three and six months ended December 31, 2017, respectively, compared with $0.6 million and $1.4 million for the three and six months ended December 31, 2016.

 

23

 

Former Chinese Distributor – Litigation

 

On April 5, 2017, the Company’s former distributor in China, Cicel (Beijing) Science & Technology Co., Ltd., filed a lawsuit against the Company and certain officers and directors of the Company in the United States District Court for the Eastern District of New York, alleging that the Company improperly terminated its contract with the former distributor. The complaint sought various remedies, including compensatory and punitive damages, specific performance and preliminary and post judgment injunctive relief, and asserted various causes of action, including breach of contract, unfair competition, tortious interference with contract, fraudulent inducement, and conversion. On October 7, 2017, the court granted the Company’s motion to dismiss all of the tort claims asserted against it, and also granted the individual defendants’ motion to dismiss all claims asserted against them. The only claim remaining in the case is for breach of contract against the Company. The Company believes it has various legal and factual defenses to the allegations in the complaint, and intends to vigorously defend the action. The case is at its earliest stages; discovery is just beginning and there is no trial date.

 

Stockholder Derivative Litigation

 

On June 6, 2017, Irving Feldbaum, an individual shareholder of Misonix, filed a lawsuit in the U.S. District Court for the Eastern District of New York. The complaint alleges claims against the Company’s board of directors, its former CEO and CFO, certain of its former directors, and the Company as a nominal defendant for alleged violations of Section 14(a) of the Securities Exchange Act of 1934 and state law claims for breach of fiduciary duty, waste of corporate assets, and unjust enrichment. The complaint alleges that the Company incurred damages as a result of alleged false and misleading statements in the Company’s securities filings concerning the Company’s business, operations, and prospects and the Company’s internal control over financial reporting. The complaint also alleges that the Company’s February 4, 2016 Proxy Statement contained false and misleading statements regarding executive compensation. The complaint seeks the recovery of damages on behalf of the Company and the implementation of changes to corporate governance procedures. On June 16, 2017, Michael Rubin, another individual shareholder of Misonix, filed a case alleging similar claims in the same district court. On July 21, 2017, the district court consolidated the two actions for all purposes. The case is at its earliest stages; there has been no discovery and there is no trial date. The Company is not able either to estimate the amount of potential loss it may recognize, if any, from these claims or to identify any changes in corporate governance procedures it may undertake, if any, as a result of these claims.

 

Item 1A. Risk Factors.

 

Risks and uncertainties that, if they were to occur, could materially adversely affect our business or that could cause our actual results to differ materially from the results contemplated by the forward-looking statements contained in this Report and other public statements were set forth in the Item 1A. – “Risk Factors” section of our Form 10-K for the fiscal year ended June 30, 2017. There have been no material changes from the risk factors disclosed in that Form 10-K.

 

24

 

Item 6. Exhibits

 

Exhibit No.   Description
     

10.1

 

 

License and Exclusive Manufacturing Agreement between Misonix, Inc. and Hunan Xing Hang Rui Kang Bio-technologies Co., Ltd. (confidential treatment requested for portions of this exhibit). 

     
31.1   Chief Executive Officer—Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2   Chief Financial Officer—Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1   Chief Executive Officer—Certification pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002.
     
32.2   Chief Financial Officer—Certification pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002.
     
101.INS   XBRL Instance Document
     
101.SCH   XBRL Taxonomy Extension Scheme Document
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

 

25

 

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.

 

  MISONIX, INC.
     
Dated: February 6, 2018 By: /s/ Stavros G. Vizirgianakis
    Stavros G. Vizirgianakis
    Chief Executive Officer
     
  By: /s/ Joseph P. Dwyer
    Joseph P. Dwyer
    Chief Financial Officer

 

26

 

Exhibit 10.1

 

LICENSE AND EXCLUSIVE MANUFACTURING AGREEMENT

 

This License and Exclusive Manufacturing Agreement (the “Agreement”) is entered into on the 21st day of August, 2017 (the “Effective Date”), by and between Misonix, Inc., a New York corporation, with offices at 1938 New Highway, Farmingdale, New York 11735 USA (“Misonix”), and Hunan Xing Hang Rui Kang Bio-technologies Co., Ltd. a Chinese corporation with offices at 26/F., Times Tower, 391-407 Jaffe Road, Wan Chai, Hong Kong (the “Company”) under the following terms and conditions. Misonix and Company may be referred to herein individually as a “Party” and collectively as the “Parties.”

 

BACKGROUND

 

WHEREAS, Company has the knowledge, expertise, personnel and facilities to develop, manufacture, promote and commercialize the Product in the Territory for surgical applications;

 

WHEREAS, Misonix and Company desire to license and transfer certain manufacturing technology associated with the Product, as further specified herein; and

 

WHEREAS, Misonix desires to grant to Company certain development, manufacturing and commercialization rights with respect to the Product and to appoint Company, on an exclusive basis, to promote, sell and distribute the Product in the Territory, in each case as further specified herein.

 

NOW, THEREFORE, the Parties hereby agree as follows:

 

1.            DEFINITIONS

 

1.1          “Commercialization” means any and all activities of importing, marketing, promoting, distributing, offering for sale, or selling a Product, including pre-commercial launch market development activities conducted in anticipation of Regulatory Approval of Product, preparing advertising and promotional materials, sales force training, marketing, promoting and selling the Product, and interactions and correspondence with the relevant regulatory authorities. Commercialization does not include manufacturing of the Product. When used as a verb, “Commercialize” means to engage in Commercialization.

 

1.2          “Commercially Reasonable Efforts” means the level of efforts and use of resources consistent with the exercise of reasonable and prudent business judgment, as normally used by a Third Party similarly situated to a Party in the performance of its contractual obligations with the aim to commercialize a medical device having similar market potential as the Product.

 

1.3          “Confidential Information” means any data, know-how or other information relating to the Product or otherwise relating to the subject matter of this Agreement that a Party discloses to the other Party, directly or indirectly, in writing, orally or otherwise and identifies as confidential, proprietary or some similar designation, which shall be so identified in writing within 60 days of disclosure with respect to any information orally disclosed, or which the recipient knows or should have reason to know is confidential. Notwithstanding the foregoing, information shall not be Confidential Information if:

 

(a)It is known to the receiving Party at the time of disclosure without any obligations of confidentiality, as demonstrated by the receiving Party’s written records made prior to such disclosure;

 

(b)It is disclosed to the receiving Party by a Third Party who has a right to make such disclosure;

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

(c)It was or it becomes publicly known and made generally available through no action or inaction of the receiving Party; or

 

(d)It is independently developed by the receiving Party without use of the disclosing Party’s Confidential Information, as evidenced by the receiving Party’s written records.

 

1.4          “Development” means all activities as may be required or recommended from time to time by a Governmental Authority to obtain, maintain or expand Regulatory Approval of the Product. Development includes all applicable activities related to preclinical testing, test method development, process development, manufacturing scale up, quality assurance/quality control, clinical studies, seeking Regulatory Approval and otherwise handling regulatory affairs, statistical analysis and report writing performed with respect to the Product. Development does not include manufacturing or Commercialization. When used as a verb, “Develop” means to engage in Development.

 

1.5          “Disposables” means disposable probes made for use in conjunction with the Generator and the Hand Piece.

 

1.6          “GDP” means Good Distribution Practices as specified in Articles 76 to 85 of Directive 2001/83/EC of the European Parliament and of the Council of 6 November 2001 and the guidelines for Good Distribution Practices as promulgated in “Guidelines on Good Distribution Practice of Medicinal Products for Human Use” (2013/C 343/01), as amended from time to time.

 

1.7           “GMP” means Good Manufacturing Practices as described in EC Directive 2003/94 and the guidelines for Good Manufacturing Practice as promulgated in Volume IV of the Rules Governing Medicinal Products in the European Union, as amended from time to time.

 

1.8          “Generator” means the generator described in Schedule 1.16.

 

1.9          “Governmental Authority” means any court, tribunal, arbitrator, agency, legislative body, commission, department, bureau, official or other entity of (a) any government of any country, and (b) a federal, state, province, region, county, city or other local political subdivision of any country, and (c) any supranational body.

 

1.10         “Hand Piece” means the handpiece described in Schedule 1.16.

 

1.11         “Know-How” means all inventions, discoveries, data, information (including scientific, technical or regulatory information), processes, methods, techniques, materials, technology, results, analyses, laboratory, pre-clinical and clinical data, or other knowhow, whether or not patentable, including without limitation manufacturing methodologies and techniques, clinical and non-clinical safety and efficacy studies, and marketing studies.

 

1.12         “Laws” means the laws, statutes, codes, regulations, judgments, orders and ordinances of a Governmental Authority, and any implementing legislation or other applicable laws promulgated by the Governmental Authority in any country in the Territory, as any of the same may be amended from time to time, and all directives, regulations, promulgations, guidance and guidelines promulgated thereunder and having jurisdiction over or related to the development, registration, approval, marketing, promotion, distribution, storage and sale of the Product in any country in the Territory.

 

1.13         “MA” or “Marketing Authorization” means the authorization granted by the appropriate Governmental Authority approving placing the Product on the market in any country in the Territory as a medical device, together with all subsequent submissions, supplements and amendments thereto.

 

1.14         “MAA” or “Marketing Authorization Application” means the application, health registration, or other regulatory submission filed in accordance with the Laws of the relevant Governmental Authorities to obtain the Marketing Authorization of the Product in any country in the Territory.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

1.15          “Misonix Know-How” means Know-How that Misonix controls at any time during the Term that is necessary or useful to manufacture, Develop or Commercialize the Product.

 

1.16          “Product” means the Generator, Hand Piece, Hand Piece subassemblies, and Disposables products sold by Misonix as of the Effective Date under the brand name SonaStar and meeting the specifications set forth in Schedule 1.16. For the avoidance of doubt, no rights to Misonix products other the Product are conferred by this Agreement.

 

1.17          “Quarter” means any three month period beginning on January 1, April 1, July 1 or October 1.

 

1.18          “Regulatory Approval” means all approvals, including, where applicable, the Marketing Authorization, schedule classifications, permits, licenses, filings and certifications of any Governmental Authorities, all to the extent necessary for the promotion, storage, distribution and sale of the Product in the Territory.

 

1.19           “Term” means the duration of this Agreement as provided in Section 13.1

 

1.20          “Territory” means China, Hong Kong and Macau.

 

1.21          “Third Party” means any person or entity other than Misonix or Company.

 

1.22          “Trademarks” means “SONASTAR” as used in connection with the Product.

 

2.            GRANT OF LICENSE

 

2.1          License to Company. Subject to the terms and conditions of this Agreement, Misonix hereby grants to Company the sole license under the Misonix Know-How to manufacture, Develop and Commercialize the Product in the Territory; provided that with respect to sub-assemblies of the Hand Pieces, such license shall extend solely to the right to assemble, Develop and Commercialize the Hand Piece in the Territory.

 

3.            FEES, ROYALTIES & PAYMENTS

 

3.1          Upfront Payment & Supply. As partial consideration for the specified Generators to be provided by Misonix to Company, and for the rights granted to Company by Misonix pursuant to the terms of this Agreement, Company shall pay Misonix a non-refundable, non-creditable payment equal to Five Million Dollars (US$5,000,000) by wire transfer of five installments of One Million Dollars (US$1,000,000) each on the payment due dates set forth in Table 3.1 below. Such installments shall be allocated in accordance with Table 3.1 below to: (i) the license provided for in Section 2.1 (amounts set forth under the heading “License Fee”); and (ii) the Generators to be supplied as set forth in Table 3.1 (amounts set forth under the heading “Total Generator Sales”).

 

Table 3.1

Payment Payment Due Date Generators Generator Delivery Date Price per Generator Total Generator Sales License Fee Total Payment Due
1 On Signing [***] 30 SEP 2017 [***] [***] [***] $1,000,000
2 28 SEP 2017 [***] 31 OCT 2017 [***] [***] [***] $1,000,000
3 27 OCT 2017 [***] 30 NOV 2017 [***] [***] [***] $1,000,000
4 28 NOV 2017 [***] 31 DEC 2017 [***] [***] [***] $1,000,000
5 28 DEC 2017 [***] 31 JAN 2018 [***] [***] [***] $1,000,000

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

3.2          Continuing Product Supply. Within ten (10) days of the Effective Date of this Agreement and prior to the tenth (10th) day of each Quarter thereafter, Company will provide Misonix with a written twenty four (24) month rolling forecast of Company’s estimated Product requirements (specifying the amount of Generators beyond the quantities specified in Section 3.1, Disposables and Hand Pieces and Hand Piece subassemblies) (the “Rolling Forecast”). Out of the twenty (24) month Rolling Forecast, the first twelve (12) months shall be binding for Company and shall be for at least the quantities specified in the Annual Obligation (the “Binding Forecast”) provided that no forecast applicable after the third anniversary of the Effective Date shall be binding on Misonix.

 

3.3          Purchase Orders. During the first three (3) years after the Effective Date, and prior to the tenth (10th) day of each Quarter, Company shall submit a Purchase Order to Misonix at quantities no lower than those in the Binding Forecast and at the prices of: (a) [***] per Generator beyond the quantities specified in Section 3.1, and (b) [***] per Disposable probe for Company’s purchases of Generators and Disposables pursuant to this Agreement (each, a “Purchase Order”). In addition, Company may order Hand Pieces and Hand Piece subassemblies on a Purchase Order basis pursuant to the order process described in this Section 3. For the avoidance of doubt, all transfers of goods under this Agreement shall not be subject to the terms and conditions contained on any Purchase Order and acceptance thereof except insofar as any such Purchase Order and acceptance establishes the quantity and requested delivery dates for such Product.

 

3.4          Acceptance of Purchase Orders. Provided Company submits its Purchase Order in accordance with the Binding Forecast and otherwise in compliance with Section 3, within thirty (30) days from receipt of a Purchase Order, Misonix will review the requested quantities and Misonix will: (i) if the requested quantities are consistent with the Binding Forecast, accept the Purchase Order, or (ii) if the requested quantities are greater than the Binding Forecast, confirm with Company the quantities greater than the Binding Forecast that Misonix is able to deliver, if any.

 

3.5          Delivery. All Products delivered by Misonix pursuant to a valid Purchase Order will be Ex Works (Incoterms 2010) at Misonix’s facilities located at Farmingdale, New York USA.

 

3.6          Royalties. After the third anniversary of the Effective Date, Company shall be solely responsible for the manufacture and supply of Generators and Disposables for distribution in the Territory. For all Generators and Disposables manufactured by Company at any time during the Term, Company shall pay Misonix a royalty of: (a) [***] per Generator, and (b) [***] per Disposable (each a “Royalty”). Company and Misonix shall negotiate in good faith on the royalty rate applicable to Hand Pieces and Hand Piece subassemblies purchased for use with the Generators or Disposables.

 

3.7          Minimum Annual Royalty. Company is obligated to pay Misonix a minimum annural Royalty for at least [***] Generators in each of 2019, 2020, and 2021 (the “Annual Obligation”).

 

3.8          Quarterly Reports. Within thirty (30) days after the end of each Quarter, Company will deliver to Misonix a report setting forth for such Quarter the following information: (a) the gross sales and net sales of the Generators, Hand Pieces and Disposables in the Territory, (b) the number of units manufactured by Company, (c) the royalties due hereunder for the manufacture of Products (by applicable component), and (d) the applicable exchange rate as determined in accordance with this Agreement. The total royalty payable for such Quarter shall be paid by Company simultaneously with the submission of each Quarterly report.

 

3.9          Records and Audit. Company will keep and maintain accurate and complete records regarding the information necessary to substantiate the reports due pursuant to this Agreement for three (3) years. Upon fifteen (15) days prior written notice from Misonix, Company will permit an independent certified public accounting firm of internationally recognized standing, selected by Misonix, to examine the relevant books and records of Company as may be reasonably necessary to verify the payments due under this Agreement. The accounting firm will be provided access to such books and records at Company’s facility or facilities where such books and records are normally kept and such examination will be conducted during Company’s normal business hours. Upon completion of the audit, the accounting firm will provide both Misonix and Company a written report disclosing whether the reports submitted or payments made by Company are correct or incorrect and the specific details concerning any discrepancies. If the accountant determines that the report submitted or payments made by Company understated the amount due to Misonix, then Company will promptly pay such understated amount, and, if, during any calendar year, the understated amount is more than five percent (5%) of the amount that was owed to Misonix, Company will reimburse Misonix for the expense incurred by Misonix in connection with the audit and promptly pay Misonix a ten percent (10%) surcharge on such shortfall.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

3.10          Currency. All amounts payable and calculations hereunder will be in U.S. Dollars. If, due to restrictions or prohibitions imposed by national or international authority, payments cannot be made as provided in this Agreement, the Parties will consult with a view to finding a prompt and acceptable solution, and the paying Party will deal with such monies as the other Party may lawfully direct at no additional out-of-pocket expense to the paying Party.

 

3.11          Interest. Any late payments shall bear interest, to the extent permitted by law, at two and one half percent (2.5%) above the then-applicable short-term three-month London Interbank Offered Rate (LIBOR) as reported in the Financial Times on the date payment is due.

 

4.          COMMERCIALIZATION

 

4.1          Sales Outside the Territory. No rights are granted to Company to market or sell the Product outside the Territory. To the extent permitted by applicable Laws, Company shall not, directly or indirectly, distribute, market, promote, manufacture, or sell the Product outside the Territory.

 

5.            TECHNOLOGY TRANSFER

 

5.1          Technology Transfer. Misonix shall transfer to Company the manufacturing processes developed by or on behalf of Misonix for the Generator and the Disposables. Misonix shall provide a transfer of the Generator and Disposable manufacturing technology such that Company is able to establish its own Generator and Disposable manufacturing operations, and is able to assemble Hand Pieces from subassemblies purchased from Misonix. Company shall reimburse Misonix, within 30 days of Misonix providing an invoice, for all direct and out-of-pocket costs incurred by Misonix activities associated with the transfer contemplated by this Section 5.1, in an aggregate amount up to one million dollars (U.S. $1,000,000). Misonix and Company shall in good faith seek to establish a mutually agreeable plan for accomplishing the technology transfer in a commercially reasonable manner. Misonix shall (a) provide necessary documentation to complete the technology transfer, including necessary portions of the Product specifications and (b) participate in technology transfer activities, including pilot batch runs at Company facilities, necessary to manufacture the Generator and the Disposables at Company facilities and to assemble Hand Pieces from subassemblies purchased from Misonix. Such technology transfer shall take place within twenty four (24) months after the Effective Date. After Misonix has received one million dollars (U.S. $1,000,000) in direct and out-of-pocket costs from Company for Misonix’s technical assistance, the Parties shall negotiate in good faith an agreement that reimburses Misonix for any additional technical assistance requested by Company.

 

6.            DUTIES OF COMPANY

 

6.1          General Conduct. Company, in the performance of its duties and obligations hereunder, shall not engage in any deceptive, misleading, illegal or unethical business practice.

 

6.2          Customer Support. For Products manufactured by Misonix, Company shall promptly report to Misonix all suspected Product defects or other problems relating to the use of the Product and shall keep Misonix reasonably informed of customer complaints concerning such defects or problems.

 

6.3          Sales Requests Outside the Territory. If Company receives any request or inquiry related to sales of the Product outside of the Territory, Company shall within five (5) business days inform Misonix of such requests or inquiries.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

6.4          Product Recall. Within thirty (30) days of the Effective Date, Company shall prepare and provide to Misonix for approval, certain standard operating procedures for potential recalls in the Territory of Products manufactured by Misonix .

 

6.5          Public Statements Regarding Products. For Products manufactured by Misonix: (a) Company shall be responsible for disseminating accurate information regarding the Products based on product labeling and promotional materials for the Products, and (b) Company shall seek to prevent claims or representations in respect of the Products or the characteristics of the Products (e.g., safety or efficacy) being made by or on behalf of it that do not represent an accurate or fairly balanced summary or explanation of the product labeling for the Products in the country in question.

 

6.6          Use of the Generator, Hand Pieces and Disposables. Company shall use the Generators, Hand Pieces and Disposables solely for the furtherance of this Agreement and shall not use Generators, Hand Pieces, Disposables or any other information or materials incorporating one or more essential elements thereof or produced therefrom (including any Confidential Information) for any profit-making or commercial purpose or for any purpose other than those expressly contemplated by this Agreement. Without limiting the foregoing, the Hand Pieces are not to be analyzed, modified or reverse engineered for any purpose.

 

7.            REGULATORY MATTERS

 

7.1          Regulatory Approvals. Company shall use Commercially Reasonable Efforts to obtain and maintain, in its name, the MAs required by any Governmental Authority for the promotion, storage, distribution and sale of the Product in the Territory, including preparing and filing, at Company’s expense, all necessary applications and supporting documentation or any other activities related thereto. Misonix shall provide such data, reports and other information in its possession that is required to be contained in an MAA.

 

7.2          Marketing Authorization Holder. Company shall be the Marketing Authorization holder; provided, that it acknowledges that Misonix shall be the beneficial owner of such Marketing Authorizations. Company shall not be entitled to transfer, assign, encumber or otherwise convey the Marketing Authorizations to any Third Party without the written consent of Misonix. Within ten (10) days of a written request by Misonix, Company shall relinquish its Marketing Authorization for the Product.

 

7.3          Communications with Governmental Authorities.

 

(a)          Company shall be responsible for interfacing, corresponding and meeting with all Governmental Authorities in connection with the Marketing Authorizations in all countries of the Territory.

 

(b)          Company shall promptly inform Misonix of any official communications with Governmental Authorities regarding the Marketing Authorization in any country in the Territory, including (i) any condition or requirement proposed by any Governmental Authority as a condition to granting Marketing Authorization of the Product and (ii) any request or requirement to change the Product specifications.

 

(c)          Company shall provide Misonix copies of all communications with any relevant Governmental Authorities regarding the MA in any country of the Territory, along with English translations thereof for the purposes of Misonix exercising its rights or complying its obligations under this Agreement. Misonix shall have the right to attend any meetings between Company and any Governmental Authorities, to the extent permitted by the Laws and the Governmental Authorities.

 

7.4          Storage and Distribution. Company shall: (a) adhere to all requirements of applicable Laws that relate to the storage and distribution of the Product in the Territory and comply with GDP; (b) store the Product in a safe and secure environment and ensure that such Product is adequately insured; and (c) comply with all of Misonix’s instructions with respect to the storage and distribution of the Product.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

7.5          Product Variations. Except as necessary for the packaging and labeling of the Product, Company may not modify the Product or the description of the Product or its manufacturing process in the MAs, without the prior written consent of Misonix.

 

8.          RECORDS

 

8.1          Records and Reports. For Products manufactured by Misonix, Company shall maintain (a) complete and accurate records of the distribution of the Products to the customers in the Territory covering information which is requisite to Misonix’s recall of the Products as necessary, including, without limitation the date of shipment, quantity shipped and lot number of the Products shipped, (b) complete and accurate records of any adverse events or customer complaints relating to the Products, (c) complete and accurate records of aggregate purchases and resales of the Products, (d) complete and accurate records of its expenditures related to the marketing, promotion and sale of the Products, and (e) complete and accurate records relating to the performance of its obligations under this Agreement, and shall permit, or cause to permit, Misonix or its agents at any time during regular business hours to examine such records for purposes related to the performance of the Agreement. Company shall provide copies of all such records and reports to Misonix within ten (10) Business Days of Misonix’s prior written request. Company shall maintain all such records for a minimum of five (5) years after expiration or termination of this Agreement, or longer as required to be in compliance with applicable laws and regulations.

 

8.2          Audits. Misonix has the right to authorize a representative of Company or to engage a third party, at Misonix’s expense, to audit Company’s all records and reports provided for under Section 8.1 and to verify Misonix’s products regulatory compliance records and systems. Company shall fully cooperate, at no additional charge to Misonix, in any such audit conducted by or on behalf of Misonix. Company shall immediately take all necessary or desirable corrective and preventive actions to resolve any issues discovered by any such audit conducted by or on behalf of Misonix.

 

9.           MARKETING ACTIVITIES

 

9.1          Promotional Materials. For Products manufactured by Misonix, Company shall use solely promotional materials prepared by or approved by Misonix.

 

9.2          Representations. For Products manufactured by Misonix, Company, its employees, officers, directors, agents and other personnel shall not make any false or misleading representations to customers or others regarding Misonix or the Products. Company and its employees and agents shall not make any representations, warranties or guarantees with respect to the specifications, features or capabilities of the Products that are not contained within Misonix-approved documentation accompanying the Products or Misonix’s literature describing the same, including Company’s standard limited warranty and disclaimers.

 

9.3          Acting in Good Faith. In no event shall Misonix or Company be obligated under this Agreement to take any action or omit to take any action that it believes in good faith would cause it to be in violation of any laws and regulations of the Territory or any other applicable laws as promulgated and implemented in jurisdictions other than the Territory.

 

9.4          Independent Contractor. The relationship of Misonix and Company established by this Agreement is that of independent contractors and nothing contained in this Agreement shall be construed to give either party the power to direct or control the day-to-day activities of the other or allow one party to create or assume any obligation, whether express or implied, on behalf of the other for any purpose whatsoever, except that Misonix shall have the warranty obligations with respect to all Hand Piece sub-assemblies and other Products sold to Company. All financial obligations associated with Company’s business are the sole responsibility of Company. All sales and other agreements between Company and Company’s customers are Company’s exclusive responsibility and shall have no effect on Company’s obligations under this Agreement and Misonix shall in no event be liable or deemed to be liable under such agreements.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

10.           INTELLECTUAL PROPERTY RIGHTS

 

10.1          Trademarks. Misonix hereby grants Company an exclusive, non-transferable, non-assignable right to use the Trademarks solely to promote, distribute and sell the Product in the Territory. Company acknowledges the Trademarks are and shall remain the sole property of Misonix and shall not use them in any way that might prejudice their distinctiveness or validity. Company shall have no right to use the Trademarks except as provided herein. Except for its own corporate trademarks, service marks, trade names and domain names, (a) Company shall not register any domain names in relation to the Product without the prior written approval of Misonix and (b) Company shall not use any trademarks other than the Trademarks in relation to the Product without Misonix’s prior written consent. Company shall not use any trademarks or trade names likely to cause confusion with the Trademarks in any country in the Territory.

 

10.2          Branding. For Products manufactured by Misonix, Company shall not alter Misonix brand elements or the affixed Trademarks. For Products manufactured by Company, and except for the Trademark, Company shall label Products with its own brand elements and shall not reference any Misonix brand elements.

 

11.            WARRANTIES AND LIMITATIONS OF LIABILITY

 

11.1Mutual Representations. Each of the Parties represents and warrants to the other that, as of the Effective Date:

 

(a)It is duly organized and validly existing under the Laws of its country of incorporation, and has full corporate power and authority to enter into this Agreement and to carry out the provisions hereof;

 

(b)It is duly authorized to execute and deliver this Agreement and to perform its obligations hereunder, and the person(s) executing this Agreement on its behalf has(ve) been duly authorized to do so by all requisite corporate action;

 

(c)This Agreement is legally binding upon it and enforceable in accordance with its terms. The execution, delivery and performance of this Agreement by it does not conflict with any agreement, instrument or understanding, oral or written, to which it is a party or by which it may be bound; and

 

(d)It is aware of no action, suit or inquiry or investigation instituted by any Governmental Authority that questions or threatens the validity of this Agreement.

 

11.2Company’s Warranties

 

Company represents and warrants to Misonix that:

 

11.2.1          it has the requisite power and authority to enter into and perform the obligations of this Agreement;

 

11.2.2          its obligations under this Agreement constitute legal and binding obligations of Company in accordance with the terms and provisions hereof;

 

11.2.3          the execution, delivery, and performance of this Agreement shall not: (a) result in a breach of any provision of the articles of incorporation or association of the Company; (b) result in a breach of or constitute a default under any instrument by which Company is bound; (c) result in a breach of any order, judgment or decree of any court or governmental agency to which Company is a party or by which Company is bound, or (d) require the consent of any party other than the Company or the board of directors of the Company;

 

11.2.4          it has obtained all regulatory approvals necessary for the importation, marketing, manufacture, distribution, sale, and exploitation of the Products in the Territory including without limitation the PRC medical device distribution license and import license, and such regulatory approvals shall remain valid and effective during the Term;

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

11.2.5          it has adequate facilities, financing, and personell to perform, at its own expense, its obligations under this Agreement;

 

11.2.6          it shall not provide any information or make any request to mislead Misonix with respect to Company’s compliance with applicable Laws;

 

11.2.7          it will maintain the validity and effectiveness of all licenses, permits, authorizations and other governmental approvals as necessary to perform its obligations under this Agreement; and

 

11.2.8          for Products manufactured by Misonix, Company shall provide the warranty and disclaimers specified in Schedule 11.2.8 to all customers and end users, and shall provide no other warranties and disclaimers; and,

 

11.2.9          it will not cause any act or omission that might reasonably be expected to prejudice the integrity, goodwill or reputation of Misonix.

 

11.3Non-Conforming Products. Misonix shall have no responsibility or liability for any product manufactured, distributed or sold that is not in strict compliance with Schedule 1.16.

 

11.4Product Warranties. EXCEPT AS ESTABLISHED IN THIS SECTION 11 AND SCHEDULE 11.2.8, MISONIX MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND WITH RESPECT TO THE PRODUCT, EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

 

12.          INDEMNIFICATION AND INSURANCE

 

12.1Indemnity. Company shall indemnify and defend Misonix, and their respective directors, employees, affiliates, agents and representatives from and against all losses, liabilities, damages and expenses of any kind (including reasonable attorney’s fees and expenses) suffered or incurred in connection with any claims, demands, actions or other proceedings (including those brought by Third Parties) which: (a) arise from or are attributable to any breach of this Agreement, failure to comply with applicable Laws, negligence or willful misconduct on the part of Company or any of its directors, employees, agents or representatives relating to any of Company’s obligations under this Agreement; (b) are attributable to the manufacture packaging, labeling and storage of the Products by the Company; (c) arise from or are attributable to the infringement of the patent rights of any Third Party caused by the manufacture of the Product by or for Company, to the extent such manufacture was not following the manufacturing processes described in writing by Misonix; or (d) arise from or are attributable to Company’s breach of its representations, warranties or covenants under this Agreement.

 

12.2Conditions of Indemnification. If Misonix expects to seek indemnification under Section 12.1, it shall promptly give notice to Company of the basis for such claim of indemnification. If indemnification is sought as a result of any Third Party claim or suit, such notice to Company shall be within 15 days after receipt by Misonix of such claim or suit. Misonix shall have full control over the defense of such claim or suit; provided, that Company shall have the right to participate, at its own expense, with counsel of its own choosing, in such defense. Company shall fully cooperate with Misonix in the defense of all such claims or suits.

 

12.3Insurance. Company shall for the Term and five years thereafter maintain comprehensive general liability insurance, including product liability insurance coverage, in accordance with any obligations imposed by local Laws, with a minimum limit of at least five thousand dollars (U.S. $5,000) per claim and three hundred thousand dollars (U.S. 300,000) in the annual aggregate.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

12.4Liability for Death or Personal Injury. Nothing in this Agreement shall operate to limit or exclude any Party’s liability for death or personal injury arising from its negligence, for fraud or for any other liability that, by law, cannot be limited or excluded.

 

12.5Limitation of Liability. EXCEPT WITH RESPECT TO COMPANY’S INDEMNIFICATION OBLIGATIONS IN THIS SECTION 12, IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR PUNITIVE, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES, WHETHER BASED ON CONTRACT, TORT (INCLUDING NEGLIGENCE) OR ANY OTHER LEGAL THEORY AND IRRESPECTIVE OF WHETHER THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF ANY SUCH LOSS OR DAMAGE.

 

13.          TERM AND TERMINATION

 

13.1Term. This Agreement shall commence on the Effective Date and, unless earlier terminated pursuant to this Section 13, shall continue for 10 years (the “Intitial Term”). The Initial Term may be extended by the Parties for successive five (5) year renewal terms (each a “Renewal Term”) by the Parties’ written mutual agreement which may be withheld in either Party’s sole discretion. The Initial Term and all Renewal Terms (if any) are collectively referred to herein as the “Term”). Section 2.1 shall survive any expiration of the Term. Upon Misonix’s notice to Company of Company’s uncured breach of this Agreement (including any breach of Company’s payment obligations in Section 3), and in addition to Misonix’s rights in law, equity, and under Section 13.2, the license rights granted by Section 2 shall terminate.

 

13.2Termination for Breach of Contract. Either Party may, without prejudice to any other remedies available to it at law or in equity, terminate this Agreement in its entirety, in the event that another Party breaches any of its obligations hereunder and has not cured such breach within 60 days after written notice thereof; provided that if such breach relates to a failure to make any payment when due then such breach must be cured within 20 days following written notice thereof.

 

13.3Termination for Insolvency. Without prejudice to any other remedies available to it at law or in equity, if at any time any Party shall (a) become insolvent or shall cease to carry on its business, (b) go into liquidation, whether compulsory or voluntary (other than a voluntary liquidation for the purposes of reconstruction or amalgamation), or (c) have a receiver appointed over the whole or any part of its assets, then, and in any of the foregoing events, the other Party shall be entitled to terminate this Agreement immediately upon notice in writing to the insolvent Party.

 

13.4Effect of Termination. Expiration or termination of this Agreement, for whatever reason, shall not affect any rights or obligations accrued by any Party prior to the effective date of termination. Any termination of this Agreement in its entirety or for any country shall:

 

(a)Extinguish all rights of Company under this Agreement, including any rights to distribute, sell or market the Product in the applicable countries in the Territory;

 

(b)Oblige Company, at its sole cost and expense, to promptly return to Misonix all applicable data and materials transferred by Misonix to Company under this Agreement (as well as its copies, printouts or translations) and any records and materials in Company’s possession or control containing Confidential Information of Misonix;

 

(c)Oblige Company to (i) provide Misonix all information related to any outstanding orders of Product, and (ii) notify Misonix of any tenders (public procurements governed by any law in the Territory) that will require the supply of the Product following termination of this Agreement;

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

(d)Oblige Company to prepare and submit to Misonix an inventory of its remaining stock of Product within 10 business days of the date of termination of this Agreement. Following receipt of such inventory, Misonix may at its discretion buy back all or part of the Product in the possession of Company at the landed cost for such Product supplied by Misonix and with respect to units of Product manufactured by Company for the amounts received by Misonix from Company for such products; provided that the Product continues to conform to all applicable specifications and warranties. Misonix shall give notice to Company within 15 business days from its receipt of such inventory, indicating (i) whether it desires to purchase any remaining stock of Product and (ii) how much stock of Product it will buy back from Company, if any. Company shall have the right to sell the Product in inventory at the time of termination that are not repurchased by Misonix for a period of 6 (six) months following termination hereof; provided that such sale shall be subject to the terms of this Agreement in effect immediately prior to the termination;

 

(e)If the Agreement is terminated, oblige Company to pay any outstanding unpaid invoices already submitted by Misonix and immediately on receipt of invoice pay any invoices in respect of Product supplied before termination but for which an invoice is not submitted until after termination;

 

(f)Oblige Company, within 30 days from the receipt of a request from Misonix, to transfer any domain names registered by Company related to the Product in respect of the applicable countries; and,

 

(g)Oblige Company to assign to Misonix all right, title and interest in and to all MAAs and MAs.

 

13.5Hand Piece Sub-Assemblies. In the event of: (a) a change in control of Misonix, or (b) a Misonix bankruptcy, Misonix (or its successor(s) as the case may be) shall, in its sole discretion, either (y) continue supplying Company with Hand Piece sub-assemblies pursuant to this Agreement, or (z) transfer technology and know-how sufficient for Company to manufacture its own Hand Piece sub-assemblies.

 

13.6Survival. The provisions in Sections 1, 3.7, 3.8-3.11, 4.1, 6.1, 6.3, 7.2, 8, 9.3, 11, 12, 13.4, 14, 15 and 16 shall survive the expiration or termination of this Agreement.

 

13.7No Damages from Termination. Without prejudice to the rights of the Parties to claim compensation for any damages deriving from any breach, upon expiration or termination of this Agreement, no Party shall be liable to any other for any damages (whether direct, consequential, or incidental and including expenditures, loss of profits, or prospective profits of any kind) sustained or arising out of, or alleged to have been sustained or to have arisen out of, such termination. In particular (but without limitation), Company shall have no claim against Misonix for compensation for loss of distribution rights, loss of goodwill or similar loss.

 

14.          CONFIDENTIALITY AND DISCLOSURE

 

14.1Confidentiality. Neither Party shall use or disclose any Confidential Information received by it pursuant to this Agreement without the prior written consent of the disclosing Party, during the Term and for five additional years following the expiration or termination of the Term.

 

14.2Disclosure. Nothing contained in this Section shall be construed to restrict the parties from using such Confidential Information as is reasonably necessary to perform acts permitted by this Agreement (including the registration, promotion, storage, distribution or sale of the Product) or from disclosing Confidential Information (i) to those of the receiving Party’s employees or representatives who have a need to know such information (collectively, “Authorized Recipients”) to perform such Party’s obligations hereunder so long as each Authorized Recipient is under a written obligation of confidentiality no less protective than the terms hereof and (ii) to any physical or legal person, including any Governmental Authority, as required (a) for regulatory, tax, securities or customs reasons, (b) by court or other government order, or (c) for confidential audit purposes; provided, that the disclosing Party shall, in the event of disclosure under subsections (ii)(a) or (ii)(b) above, provide the other Party with not less than 15 days’ notice prior to disclosure (except where the disclosing party itself receives less than 15 days’ prior notice, in which case the disclosing Party shall immediately notify the other Party), and the disclosing Party shall fully cooperate with the other Party to the extent permitted by law, so that the other Party may make any objections and/or secure any protective provisions it deems reasonably necessary.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

15.          COMPLIANCE WITH LAWS

 

15.1Compliance with Privacy Laws. As required by applicable laws and regulations, Company shall secure all necessary consents and other rights in writing before sharing any protected health information. Company shall not transfer any protected health information to Misonix. To the extent that this Agreement requires transfer of or reference to protected health information, Company and Misonix shall negotiate in good faith a data privacy amendment to this Agreement before such transfer or reference occurs.

 

15.2Compliance with Applicable Law. Company shall strictly comply with any and all applicable laws and regulations with regard to importation, distribution and sale of the Company’s products in the Territory, including without limitations all China’s importation laws and regulations, all applicable anti-bribery laws, including the Foreign Corrupt Practices Act of the U.S. (“FCPA”) and the U.K. Bribery Act, as well as all related local restrictions.

 

15.3Anti-Bribery and Sales Ethics Compliance. Company, including for its employees and agents, hereby represents, warrants, and covenants that:

 

15.3.1 Foreign Corrupt Practices Act Compliance. In carrying out its responsibilities under the Agreement, Company, its owners, officers, director, employees, and agents will comply strictly with FCPA and the United Kingdom Bribery Act of 2010 and all anti-corruption laws and regulations of China and of any jurisdiction upon which Company is bound

 

15.3.2 Prohibited Payments. Further, in carrying out its responsibilities under the Agreement, Company and its owners, officers, director, employees, or agents have not and will not pay, offer, or promise to pay, or authorize the payment directly or indirectly, of any money, gift, or anything of value to any government official for the purpose of influencing any act or decision of such official or of the government to obtain or retain business, or direct business to any person (any such payment is a “Prohibited Payment”). A Prohibited Payment does not include the payment of reasonable and bona fide expenditures, such as travel and lodging expenses, which are directly related to the promotion, demonstration, or explanation of products or services, or the execution or performance of a contract with a foreign government or agency, provided that such payments are permissible under the Chinese national and local law and customer guidelines. All such payments shall be documented for audit purposes and such documentation shall be maintained indefinitely and not discarded without the written consent of Misonix.

 

15.3.3 Gratuity Prohibition. Sales and marketing activities involving health care professionals and entities, including surgeons, will not involve personal gifts or gratuities or the direct or indirect funding of entertainment, sports or recreational events. All business-related meal expenses must be in compliance with local law and custom, modest in value, and involve business and professional interactions, activities and meetings.

 

15.3.4 Government Ownership. Company is not and will not become owned wholly or in part by the government, any agency or instrumentality thereof, or any Government Official during the term of this Agreement without prior written notice to the Misonix. No owner, partner, officer, director, or employee of Company is or will become an official or employee of the government during the Term without the prior written notice and approval of the Misonix.

 

15.3.5 Misonix Reliance on Company’s Compliance with Chinese Law. Company recognizes that Misonix is not fully familiar with the laws, rules, orders, regulations, policies, and customs of China and that Misonix has entered into this Agreement with material reliance on Company’s representation and warranty that this Agreement and the relationship created between the Company and Misonix does not violate any law, rule, or regulation of China, including laws regulating elections. Company further represents and warrants that neither the receipt of fees under this Agreement nor performance of the services under this Agreement is in any respect a violation of the laws, rules, orders, prohibitions, regulations, or policies of China.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

15.4Failure to Comply with Laws. In the event Misonix has reason to believe that non-compliance activity, a violation of the law or otherwise a breach of any of the representations and warranties and other obligations of this Agreement has occurred or may occur, Misonix may suspend any or all of its obligations under this Agreement until such time as it has received confirmation to its satisfaction that no breach has occurred or will occur. Misonix shall not be liable to Company for any claims, loses, or damages whatsoever related to its decision to suspend its obligations under this Section 15. In the event of non-compliance with the requirements of this Section 15, including a violation of applicable regulatory or anti-bribery laws, the Agreement shall be voidable ab initio in Misonix’s sole discretion without the requirement of any prior written notice of cancellation. In addition to and without limiting its obligations under this Agreement, the Company shall indemnify and hold Misonix harmless against any and all claims, losses, damages or costs of any kind (including reasonable fees and costs incurred by Misonix in connection with any audit, internal review, investigation or government disclosures) related to such breach of any warranty or representation of this Agreement. Company agrees to provide Misonix an annual certification as to FCPA compliance in the form requested by Misonix.

 

15.5Audit. Misonix shall have the right to audit the Company in order to satisfy itself that no breach related to this Section 15 has occurred. At Misonix’s option, Misonix may select an independent third party to conduct an audit to certify to Misonix that no breach has occurred or will occur. The Company shall cooperate fully in any audit conducted by or on behalf of the Misonix.

 

16.           MISCELLANEOUS

 

16.1Assignment. Misonix shall have the right to assign or transfer its rights and benefits under this Agreement at its sole discretion to any successor to substantially all of its assets relating to the Product. Company shall not assign, sublicense or transfer any right or obligation hereunder without the prior written consent of Misonix. The rights and obligations of the Parties under this Agreement shall be binding upon and inure to the benefit of the successors and permitted assigns of the Parties. Any purported assignment or sublicense not in accordance with this Agreement shall be null and void.

 

16.2Independent Contractors. The Parties to this Agreement are independent contractors and agree that the relationship between the Parties shall not constitute a partnership, joint venture or agency. No Party shall have the authority to make any statement, representations or commitments of any kind, or to take any action, which shall be binding on any other Party, without the prior written consent of that other Party.

 

16.3Force Majeure. Neither Party shall be held liable or responsible, nor be deemed to be in default or breach of this Agreement, for any delay or failure to fulfill or perform any provision of this Agreement (other than any payment obligation) if such delay or failure arises directly or indirectly out of an act of nature, acts of the public enemy, freight embargoes, strikes, plant shutdown, equipment failure, quarantine restrictions, unusually severe weather conditions, insurrection, riot, labor disputes or shortages or other causes beyond the reasonable control of the Party responsible for the delay or failure to perform; provided that the Party whose performance is delayed or prevented shall notify the other Party as soon as reasonably possible after the occurrence of such event and shall continue to use good faith diligent efforts to mitigate, avoid or end such delay or failure in performance as soon as practicable and that if such event continues for a period of three months or more, the non-affected Party may terminate this Agreement with immediate effect by giving written notice to the affected Party. Nothing contained in this Section 16.3 shall limit or restrict the right of any Party to handle or dispose of any strikes or labor disputes in its absolute discretion.

 

16.4Severability. If any one or more of the provisions of this Agreement is held to be invalid, illegal or unenforceable by any court of competent jurisdiction from which no appeal can be or is taken, the provision shall be considered severed from this Agreement and shall not serve to invalidate any remaining provisions hereof. The Parties shall make a good faith effort to replace any invalid or unenforceable provision with a valid and enforceable one such that the objectives contemplated by the Parties when entering into this Agreement may be realized

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

16.5Entire Agreement. This Agreement contains the entire understanding of the Parties with respect to the subject matter hereof. Except in the case of fraud, all express or implied agreements and understandings, either oral or written, made prior to the execution of this Agreement are superseded by this Agreement. Except as expressly provided elsewhere in this Agreement, this Agreement may be amended, or any term hereof modified, only by a written instrument duly executed by both Parties. The language of this Agreement is English.

 

16.6Publicity. Neither Party shall make any statement to the public regarding the execution or the subject matter of this Agreement without the prior written consent of the other Party except to the extent required by any applicable Governmental Authority and applicable Law, including disclosures required by any securities exchange regulation, as reasonably advised by such Party’s counsel.

 

16.7Waiver. Any delay or failure of a Party to enforce any provision of this Agreement shall not constitute a waiver of such provision or of that Party’s right to thereafter enforce any and all provisions under this Agreement.

 

16.8Notice. Any notices, approvals, or consents required or permitted to be given under this Agreement shall be in writing, shall specifically refer to this Agreement and shall be deemed to have been sufficiently given for all purposes if mailed by first class certified or registered mail, postage prepaid, internationally recognized express delivery service or personally delivered. Unless otherwise specified in writing, the mailing addresses of the Parties shall be as described below:

 

For Misonix:

Misonix, Inc.

ATTN: Scott Ludecker

Address: 1938 New Highway; Farmingdale, NY 11735

Tel: 631-927-9115

Email: sludecker@misonix.com

 

 

For Company:

Hunan Xing Hang Rui Kang Bio-technologies Co., Ltd. 

ATTN: Li Quain 

26/F., Times Tower, 391-407 Jaffe Road 

Wan Chai, Hong Kong 

Tel: +86 16273179999 

Email: 1092279853@qq.com

 

 
16.9Taxes.

 

(a)Payment of taxes. Each Party is solely responsible for determining its own tax treatment of all items hereunder. A Party receiving a payment pursuant to this Agreement shall pay any and all taxes levied on such payment. If applicable Laws require that taxes be deducted and withheld by the remitting Party from such a payment, the remitting Party shall (i) deduct those taxes from the payment; (ii) timely pay the withheld taxes to the proper taxing authority; and (iii) send proof of payment to the other Party within sixty (60) days upon request. Each Party shall furnish the other Party with appropriate documents to secure application of the most favorable rate of withholding tax under applicable Laws.

 

(b)Tax Residence Certificate. A Party entitled to receive a payment pursuant to this Agreement shall provide the remitting Party appropriate certification from the relevant revenue authorities that such receiving Party is a tax resident of that jurisdiction (a “Tax Residence Certificate”), if such receiving Party wishes to claim the benefits of an income tax treaty to which that jurisdiction is a party. Upon the receipt thereof, any deduction and withholding of taxes by the remitting Party shall be made at the appropriate treaty tax rate.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

16.10Interpretation. The paragraph and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. All references in this Agreement to a Section or Schedule shall refer to a Section or Schedule in or to this Agreement, unless otherwise stated. Any reference to any Law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. The word “including” and similar words mean “including without limitation.” The words “herein,” “hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular Section or other subdivision. References in this Agreement to “provisions of this Agreement” refer to the terms, conditions and promises contained in this Agreement taken as a whole, including all Schedules attached hereto. All references to months, quarters or years/annual are references to calendar months, calendar quarters, or calendar years, respectively, unless otherwise specified. References to the singular include the plural. This Agreement will be construed without any presumption or other rule requiring construction against the Party drafting the provision to be interpreted.

 

16.11Further Assurances. Each Party agrees to execute, acknowledge and deliver such further instruments, and to do all such other acts, as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement.

 

16.12Third Party Rights. This Agreement does not create any right enforceable by any person who is not a Party to it.

 

16.13Dispute Resolution and Applicable Law. This Agreement and any issues, disputes or claims arising out of or in connection with it (whether contractual or non-contractual in nature such as claims in tort, from breach of statute or regulation or otherwise) shall be governed by and construed in accordance with the laws of Switzerland excluding the provisions of the Swiss International Private Law. The United Nations Convention on Contracts for International Sale of Goods (1980) shall not govern this Agreement. For all disputes that cannot be resolved between the Parties, either Party shall have the right to refer such unresolved dispute to the respective chief executive officers of both Parties by written notice in accordance with Section 16.8, for attempted resolution by good faith negotiations within 30 days after such notice is received. In the event the chief executive officers (or their designees) are not able to resolve such dispute within such 30 day period after receipt of written notice, then all disputes between the Parties arising under, out of or relating to this Agreement or arising out of the circumstances and relationships contemplated by this Agreement shall be exclusively resolved by arbitration in New York City, New York, USA in accordance with the International Chamber of Commerce Rules of Arbitration, by one or three arbitrators appointed in accordance thereof. The language to be used in the arbitral proceedings shall be English. The decision reached by such arbitrators in any such proceeding shall be final and binding upon the parties thereto.

 

[Signature page follows]

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

IN WITNESS WHEREOF, the Parties have caused their duly authorized representatives to execute this Agreement as of the date first above written.

 

Misonix, Inc.   Hunan Xing Hang Rui Kang Bio-technologies Co., Ltd.
           
Signature: /s/ S.G. Vizirgianakis   Signature: /s/ Li Quan  
       
Title: CEO   Title: CEO  

  

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

Schedule 1.16 – Product Specifications

 

[***]

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

Schedule 11.2.8 – Product Warranty

 

WARRANTY

 

Limited Warranty. Manufacturer warrants to end users who purchase the Product(s) from a Distributor or directly from Manufacturer, that the Product(s), at the time of shipment will: (i) be free from defects in design, construction, material and workmanship, and (ii) comply with the product performance and packaging specifications that accompany the shipment of the Product(s) by Manufacturer. Manufacturer warrants the Product(s) for a time period of 12 months from shipment of the Product(s) to an end user or 18 months from the shipment to a Distributor, whichever is shorter.1 This warranty is contingent upon use of the Product(s) in accordance with Manufacturer’s instructions and in the application for which such Product(s) was intended and does not cover Product(s) that were modified without Manufacturer’s prior written approval, that have expired, or that were subjected by the customer to unusual physical, chemical or electrical stress. During the warranty period, Manufacturer shall be responsible to repair or replace Product(s) solely at its discretion.

 

 

1 Distribution partners will be required to provide end user proof of purchase for warranty claims to ensure that the Product(s) is still under warranty. Distributors will have a maximum of 12 additional months from shipment from Manufacturer to place a unit with an end user.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

Exhibit 31.1

 

CERTIFICATION

 

I, Stavros G. Vizirgianakis, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of Misonix, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Dated: February 6, 2018 /s/ Stavros G. Vizirgianakis
  Stavros G. Vizirgianakis
  Chief Executive Officer

 

 

 

Exhibit 31.2

 

CERTIFICATION

 

I, Joseph P. Dwyer, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of Misonix, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Dated: February 6, 2018 /s/ Joseph P. Dwyer
  Joseph P. Dwyer
  Chief Financial Officer

 

 

 

Exhibit 32.1

 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Misonix, Inc. (the “Company “) on Form 10-Q for the period ended December 31, 2017 as filed with the Securities and Exchange Commission (the “Report”), I, Stavros G. Vizirgianakis, Chief Executive Officer of the Company, certify, that: (1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

   
Dated: February 6, 2018 /s/ Stavros G. Vizirgianakis
  Stavros G. Vizirgianakis
  Chief Executive Officer

 

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Misonix, Inc. and will be retained by Misonix, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

 

 

 

Exhibit 32.2

 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Misonix, Inc. (the “Company “) on Form 10-Q for the period ended December 31, 2017 as filed with the Securities and Exchange Commission (the “Report”), I, Joseph P. Dwyer, Chief Financial Officer of the Company, certify, that: (1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

   
Dated: February 6, 2018 /s/ Joseph P. Dwyer
  Joseph P. Dwyer
  Chief Financial Officer

 

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Misonix, Inc. and will be retained by Misonix, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.