| Basis of Presentation, Organization and Business and Summary of Significant Accounting Policies Basis of Presentation | 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% All
intercompany balances and transactions have been eliminated. Organization
and Business Misonix
designs, manufactures and markets minimally invasive surgical ultrasonic medical devices and markets, sells and distributes TheraSkin®
(“TheraSkin”), a biologically active human skin allograft used to support healing of wounds which complements Misonix’s
ultrasonic medical devices. Misonix’s ultrasonic products are used for precise bone sculpting, removal of soft and hard tumors
and tissue debridement, primarily in the areas of neurosurgery, orthopaedic surgery, plastic surgery, wound care and maxillo-facial
surgery. In
the United States, the Company sells its products through its direct sales force, in addition to a network of commissioned agents assisted
by Misonix personnel. Outside of the United States, the Company sells BoneScalpel and SonaStar through distributors who then resell the
products to hospitals. The Company sells to all major markets in the Americas, Europe, Middle East, Asia Pacific, and Africa. The Company
manufactures and sells its products in two global reportable business segments: the Surgical segment and the Wound segment. The Company’s
sales force also operates as two Risks
and Uncertainties The Company’s business is subject
to material risks and uncertainties as a result of the coronavirus (“COVID-19”) pandemic. The extent of the impact of the
COVID-19 pandemic on the Company’s business is highly uncertain and difficult to predict, as the response to the pandemic is rapidly
evolving. Several jurisdictions are experiencing new increases in the rate of infection by COVID-19, and as a result, the
Company’s customers are diverting resources to treat COVID-19 patients and deferring elective surgical procedures, both of which
have and are likely to continue to impact demand for the Company’s products. Furthermore, capital markets and economies worldwide
have also been negatively impacted by the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic recession.
Such economic disruption could have a material adverse effect on the Company’s business as hospitals and surgery centers curtail
and reduce capital and overall spending. Policymakers around the globe have responded with fiscal policy actions to support the healthcare
industry and economy as a whole. The magnitude and overall effectiveness of these actions and the Company’s ability to benefit
from them remains uncertain. The severity of the impact of the COVID-19
pandemic on the Company’s business will depend on a number of factors, including, but not limited to, the duration and spread
of the outbreak, its severity, the actions taken to contain the virus or address its impact including vaccine distribution and efficacy,
U.S. and foreign government actions to respond to the reduction in global economic activity, and how quickly and to what extent normal
economic and operating conditions can resume, all of which are uncertain and cannot be predicted. The Company’s future results
of operations and liquidity could be materially and adversely impacted by delays in payments of outstanding receivable amounts beyond
normal payment terms, supply chain disruptions and uncertain demand, and the impact of any initiatives or programs that the Company may
undertake to address financial and operations challenges faced by its customers. As of the date of issuance of these consolidated financial
statements, the extent to which the COVID-19 pandemic may materially impact the Company’s financial condition, liquidity, or results
of operations is uncertain. Acquisition
of Solsys Medical, LLC On
September 27, 2019, the Company completed the acquisition (the “Solsys Acquisition”) of Solsys Medical, LLC (“Solsys”),
a privately held regenerative medical company, in an all-stock transaction valued at approximately $ 109 64% 36% 5,703,082 4.5 1.4 The
Company’s common stock was created with a par value per share of $ .0001 .01 151,964 High
Intensity Focused Ultrasound Technology In
May 2010, we sold our rights to our former high intensity focused ultrasound technology to SonaCare Medical, LLC, or SonaCare. Under
the terms of the sale, SonaCare is required to pay us 7%
of the gross revenues received from its sales
of the (i) prostate product in Europe and (ii) kidney and liver products worldwide, until we have received payments of $ 3.0
million, and thereafter 5%
of the foregoing gross revenues, until
we have received payments of $ 5.8
million . Until we have received payments
of $5.8 million, the minimum annual amount that SonaCare is required to pay, however, is $ 250,000 .
SonaCare was in default of its obligations to make payments to us on March 31, 2020 and March 31, 2021and as of June 30, 2021, we
had received cumulative payments of approximately $ 2.8
million from SonaCare . Due to SonaCare’s
default and inability to pay, we entered into an amended agreement with SonaCare on April 30, 2021 and SonaCare made a payment to us
of $ 300,000
on May 28, 2021.
The amended agreement with SonaCare requires that SonaCare make minimum annual payments of $ 300,000 300,000
payment received as other
income on our Consolidated Statement of Operations during the fourth quarter of fiscal year 2021. The Company’s allowance for
doubtful accounts includes all future amounts due from SonaCare. All future payments will be recorded as income to the extent
cash is received due to the uncertainty of payment receipt. Equity
Offering On
January 27, 2020, the Company completed an underwritten public offering of 1,868,750 18.50 34.6 Cash
and Cash Equivalents The
Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. All of
the Company’s cash is maintained in bank accounts and accordingly it does not have cash equivalents at June 30, 2021. The Company’s
cash balances at June 30, 2021 and 2020 were $ 31 38 30.5 37.4 Major
Customers and Concentration of Credit Risk No
customers exceeded 10% of consolidated revenues for the fiscal years 2021 and 2020. At June 30, 2021 and 2020, $ 0.1 0.8 At
June 30, 2021 and 2020, the Company’s accounts receivable with customers outside the United States were approximately $ 1.1
million and $ 2 .0
million, respectively. 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 consolidated 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,
intangible amortization, asset impairment evaluations and establishing deferred tax assets and related valuation allowances, and stock-based
compensation. Actual results could differ from those estimates. Accounts
Receivable Accounts
receivable, principally trade, are generally due within 30 to 90 days and are stated at amounts due from customers, net of an allowance
for doubtful accounts. The Company performs ongoing credit evaluations and adjusts credit limits based upon payment history and the customer’s
current credit worthiness, as determined by a review of their current credit information. The Company continuously monitors aging reports,
collections and payments from customers and maintains a provision for estimated credit losses based upon historical experience and any
specific customer collection issues that have been identified. While such credit losses have historically been within expectations and
the provisions established, the Company cannot guarantee that the same credit loss rates will be experienced in the future. The Company
writes off accounts receivable when they become uncollectible. Inventories Inventories
are stated at the lower of cost (first-in, first-out) or net realizable value and consist of raw materials, work-in process and finished
goods and include purchased materials, direct labor and manufacturing overhead. Management evaluates the need to record adjustments to
write down inventory to the lower of cost or net realizable value on a quarterly basis. The Company’s policy is to assess the valuation
of all inventories, including raw materials, work-in-process and finished goods and it writes down its inventory for estimated obsolescence
based upon the age of inventory and assumptions about future demand and usage. Inventory items used for demonstration purposes, rentals
or on consignment are classified as property, plant and equipment. Property,
Plant and Equipment Property,
plant and equipment are recorded at cost. Minor replacements and maintenance and repair expenses are charged to expense as incurred.
Depreciation of property and equipment is provided using the straight-line method over estimated useful lives ranging from 3 5 Depreciation of BoneScalpel and SonicOne generators which are consigned to customers are depreciated over a 5- year period,
and depreciation is charged to selling expenses. Revenue
Recognition The
Company generates revenue from the sale and leasing of medical equipment, from the sale of consumable products used with medical equipment
in surgical procedures, from the sale of TheraSkin, Therion and TheraGenesis, and from product supply and licensing arrangements. In
the United States, the Company’s products are marketed primarily through a hybrid sales approach that includes direct sales representatives,
managed by regional sales managers, along with independent distributors. Outside the United States, the Company sells BoneScalpel, SonaStar,
and SonicOne to specialty distributors who purchase products to resell to their clinical customer bases. The Company sells to all major
markets in the Americas, Europe, Middle East, Asia Pacific, and Africa. Revenue is disaggregated from contracts between products under
ship and bill arrangements and licensing agreements, and by geography, which the Company believes best depicts how the nature, amount,
timing and uncertainty of revenues and cash flows are affected by economic factors. Contracts
and Performance Obligations The
Company accounts for a contract with a customer when there is an approval and commitment from both parties, the rights of the parties
are identified, payment terms are identified, the contract has commercial substance and collectability of the consideration is probable.
The Company’s performance obligations consist mainly of transferring control of products and related services identified in the
contracts, purchase orders or invoices. For each contract, the Company considers the obligation to transfer products or bundled products
and services to the customer, of which each is distinct in the context of the contract, to be performance obligations. Transaction
Price and Allocation to Performance Obligations Transaction
prices of products are typically based upon contracted rates as specified on the purchase order for the purchase of consumables. The
Company’s contracted rates represent the standalone selling price of a consumable which is generally determined through the sale
of products and/or bundled products or services separately in similar circumstances to similar customers. The Company determines the
effects of variable consideration, inclusive of any constraints, in determining the transaction price with regard to its contracts with
customers. Recognition
of Revenue The
Company satisfies performance obligations either over time, or at a point in time, upon which control transfers to the customer. Revenue
derived from the shipping and billing of product is recorded upon shipment, when transfer of control occurs for products shipped freight
on board (“F.O.B.”) shipping. Products shipped F.O.B. destination are recorded as revenue when received at the point of destination
when the transfer of control is completed. Shipments under agreements with distributors are not subject to return, and payment for these
shipments is not contingent on sales by the distributor. Accordingly, the Company recognizes revenue on shipments to distributors in
the same manner as with other customers under the ship and bill process. Revenue
derived from the rental of equipment is recorded on a monthly basis over the term of the lease. Shipments of consumable products to these
rental customers is recorded as orders are received and shipments are made F.O.B. destination or F.O.B. shipping. Revenue
derived from consignment agreements is earned as consumables product orders are fulfilled. Therefore, revenue is recognized as shipments
are made F.O.B. shipping or F.O.B destination. Revenue
derived from service and maintenance contracts is recognized evenly over the life of the service agreement as the services are performed. Contract
Specific Performance Obligations and Significant Judgements Product
Placement/Consignment Agreements The
Company’s product placement/consignment agreements provide for the placement of a console or generator, at the customer’s
place of business and set pricing related to the purchase of consumables for use in conjunction with the console. These agreements do
not require any minimum consumable purchase quantities and do not have a stated term. The Company considers the transaction price in
these arrangements to be fully constrained variable consideration because it is dependent on future sales of consumables to the customer.
The Company has determined that the pattern of purchase of consumables by a customer is consistent with the benefit received by the customer
for the use of the generator and therefore the Company has a right to consideration based upon the pattern of consumable purchases placed
through purchase orders by the customer. The Company’s invoices to these customers have short-term payment terms and are aligned
with the transfer of goods and services to the customer and the Company recognizes revenue based upon its right to invoice customers. Selling
Costs Incremental
direct costs of obtaining a sales contract primarily include sales commissions paid to sales personnel and outside sales representatives
in connection with sales of products under ship and bill scenarios or through product placement scenarios. The expected period of benefit
of these costs is one year or less and therefore the Company has elected the practical expedient to expense such costs in the period
in which they are incurred. Typically, costs in fulfilling a contract represent shipping and handling costs and the Company accounts
for these costs as fulfilment costs and they are expensed as incurred. Costs in fulfilling a contract are only capitalized as
an asset if they relate directly to an existing contract or specific anticipated contract, they generate or enhance resources of the
entity that will be used to satisfy performance obligations in the future, and they are expected to be recovered. The Company has not
identified any such costs. The
following table disaggregates the Company’s product revenue by sales channel and geographic location: Schedule of Classification and Geographic Location
For the years ended
June 30,
2021 2020
Total
Surgical $ 40,379,693 $ 34,457,631
Wound 33,644,380 28,026,020
Total $ 74,024,073 $ 62,483,651
Domestic:
Surgical $ 27,384,277 $ 20,874,419
Wound 33,272,947 27,678,534
Total $ 60,657,224 $ 48,552,953
International:
Surgical $ 12,995,416 $ 13,583,212
Wound 371,433 347,486
Total $ 13,366,849 $ 13,930,698 Our
international sales include a concentration in China, aggregating $ 2.0 3.1 Beginning
with the fiscal third quarter of 2020, Misonix adopted certain changes in its quarterly financial results related to the presentation
of its sales performance supplemental data to more accurately reflect the Company’s two separate sales channels - its Surgical
and Wound product divisions. As a result, the Company presents total, domestic and international sales performance supplemental data
for its Surgical and Wound divisions and no longer presents total, domestic and international sales performance supplemental data based
on its consumables and equipment products. Further, in the Third Quarter of 2020, the Company began operating in two business segments,
and disclosing the Surgical and Wound businesses as its two segments. Long-Lived
Assets The
carrying values of intangible and other long-lived assets are periodically reviewed to determine if any impairment indicators are present.
If it is determined that such indicators are present and the review indicates that the assets will not be fully recoverable, based on
undiscounted estimated cash flows over the remaining amortization and depreciation period, their carrying values are reduced to estimated
fair value. Impairment indicators include, among other conditions, cash flow deficits, historic or anticipated decline in revenue or
operating profit, adverse legal or regulatory developments, accumulation of costs significantly in excess of amounts originally expected
to acquire the asset and a material decrease in the fair value of some or all of the assets. Assets are grouped at the lowest levels
for which there are identifiable cash flows that are largely independent of the cash flows generated by other asset groups. No such impairment
was deemed to exist in fiscal 2021 and 2020. Goodwill In
connection with the acquisition of Solsys, the Company has $ 106.5
million of goodwill recorded on its Consolidated
Balance Sheet as of June 30, 2021, $ 12.7
million of which is expected to be deductible
for tax purposes. The goodwill recognized from the Solsys acquisition represents the excess of the purchase price over aggregate
fair value of net assets acquired and is related to the benefits expected as a result of the acquisition, including sales, and a stronger
portfolio of Wound solutions that will drive growth in the would care market. Our goodwill balance as of each reporting period
and by segment, includes: Schedule of Goodwill
Surgical Wound Total
Balance as of June 30, 2019 $ 1,701,094 $ - $ 1,701,094
Acquisition of Solsys - 108,833,165 108,833,165
Purchase price accounting adjustments - (2,223,909 ) (2,223,909 )
Goodwill (gross) 1,701,094 106,609,256 108,310,350
Accumulated impairment losses - - -
Balance as of June 30, 2020 $ 1,701,094 $ 106,609,256 $ 108,310,350
Balance as of June 30, 2020 $ 1,701,094 $ 106,609,256 $ 108,310,350
Purchase price accounting adjustments - (75,686 ) (75,686 )
Goodwill (gross) 1,701,094 106,533,570 108,234,664
Accumulated impairment losses - - -
Balance as of June 30, 2021 $ 1,701,094 $ 106,533,570 $ 108,234,664 Goodwill
is not amortized. The Company reviews 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 this impairment
test 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 also compares its market capitalization to the value of its goodwill to view for evidence of impairment. The Company completed
its annual goodwill impairment tests for fiscal 2021 and 2020 as of March 31 of each year. No impairment of goodwill was deemed to exist
in fiscal 2021 and 2020. Patents,
net of accumulated amortization The
cost of acquiring or processing patents is capitalized at cost. This amount is being amortized using the straight-line method over the
estimated useful lives of the underlying assets, which is approximately 17 789,800 784,318 157,835 137,387 The
following is a schedule of estimated future patent amortization expense as of June 30, 2021 during the following fiscal years: Schedule of Estimated Future Patent Amortization Expense
1
2022 $ 105,516
2023 103,658
2024 91,234
2025 84,166
2026 72,764
Thereafter 332,462
Total $ 789,800 Income
Taxes Deferred
tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial
statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry
forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the enactment date. The ultimate realization of deferred tax assets
is dependent upon the generation of future taxable income in those periods in which temporary differences become deductible. Should management
determine that it is more likely than not that some portion of the deferred tax asset will not be realized, a valuation allowance against
the deferred tax asset would be established in the period such determination was made. The
Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained
on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the consolidated
financial statements from such position are measured based on the largest benefit that has a greater than fifty percent likelihood of
being realized upon ultimate settlement. The Company classifies income tax related interest and penalties as a component of income tax
expense. Earnings
Per Share Earnings
per share (“EPS”) is calculated using the two-class method, which allocates earnings among common stock and participating
securities to calculate EPS when an entity’s capital structure includes either two or more classes of common stock or common stock
and participating securities. Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents
(whether paid or unpaid) are participating securities. As such, unvested shares of restricted stock of the Company are considered participating
securities. The dilutive effect of options and their equivalents (including non-vested stock issued under stock-based compensation plans),
is computed using the “treasury” method. Basic
income per common share is based on the weighted average number of common shares outstanding during the period. Diluted income per common
share includes the dilutive effect of potential common shares outstanding. The following table sets forth the reconciliation of weighted
average shares outstanding and diluted weighted average shares outstanding: Schedule of Basic and Diluted Earnings Per Share Calculation
2021 2020
For the years ended
June 30,
2021 2020
Basic weighted average shares outstanding 17,226,190 14,670,663
Dilutive effect of restricted stock awards (participating securities) - -
Denominator for basic earnings per share 17,226,190 14,670,663
Dilutive effect of stock options - -
Diluted weighted average shares outstanding 17,226,190 14,670,663 Diluted
EPS for the years ended June 30, 2021 and 2020 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 the dilutive effect of options
to purchase 351,355
and 501,554
shares of common stock for the years ended June
30, 2021 and 2020, respectively. Also excluded from the calculation of both basic and diluted earnings per share for the years ended
June 30, 2021 and 2020 are 159,800 186,600
shares, respectively,
of restricted common stock which were issued in December 2016. Research
and Development All
research and development expenses are expensed as incurred and are included in operating expenses. Depreciation
Expense for Consigned Inventory The
Company typically provides to its United States customers, on a consignment basis, the generators used to power its BoneScalpel and SonicOne
products. Title to these generators remains at all times with the Company. When these generators are deployed in the field at customer
locations, the Company depreciates these units over a five-year period and charges the depreciation to selling expenses. Depreciation
expense relating to consigned generators and for demonstration equipment for the years ended June 30, 2021 and 2020 was $ 2,261,845 1,586,000 Shipping
and Handling Shipping
and handling costs which were charged to customers for the fiscal years ended June 30, 2021 and 2020 were approximately $ 0.1
million and $ 0.1
million ,
respectively, and are reported as a component of revenue. Shipping and handling costs which were not charged to customers for the fiscal
years ended June 30, 2021 and 2020 were approximately $ 3.9
million and $ 3.8
million ,
respectively, and are reported as a component of selling expenses. Stock-Based
Compensation The
Company measures compensation cost for all share-based payments at fair value and recognizes the cost over the vesting period. The Company
uses the Black-Scholes method to value awards and utilizes the straight-line amortization method to recognize the expense associated
with the awards with graded vesting terms. Restricted
Stock Awards The
Company measures compensation cost for all restricted stock awards at fair value and recognizes the cost over the vesting period. For
awards that have market conditions, the Company uses the Monte Carlo valuation method to value awards and utilizes the straight line
amortization method to recognize the expense associated with the awards with graded vesting terms. Where awards have performance conditions,
the Company will determine the probability of achieving those conditions and will record compensation expense when it is probable that
the conditions will be met. Recent
Accounting Pronouncements In
June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13,
Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instrument (“ASU 2016-13”).
ASU 2016-13 replaces the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses
and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13
is effective for SEC small business filers for fiscal years beginning after December 15, 2022. Management is currently assessing the
impact that ASU 2016-13 will have on the Company. Recently
Adopted Accounting Pronouncements In
February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), and has since issued amendments thereto, related to the accounting for
leases (collectively referred to as “ASC 842”). ASC 842 establishes a right-of-use (“ROU”) model that requires
a lessee to record a ROU asset and a lease liability on the consolidated balance sheet for all long-term leases. Leases will be classified
as either financing or operating, with classification affecting the pattern of expense recognition and classification in the consolidated
statement of operations. The Company adopted ASC 842 on July 1, 2019. A modified retrospective transition approach is required for lessees
for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the
consolidated financial statements, with certain practical expedients available. Entities have the option to continue to apply historical
accounting under Topic 840, including its disclosure requirements, in comparative periods presented in the year of adoption. An entity
that elects this option recognizes a cumulative effect adjustment to the opening balance of accumulated deficit in the period of adoption
instead of the earliest period presented. The Company adopted the optional ASC 842 transition provisions beginning on July 1, 2019. Accordingly,
the Company will continue to apply Topic 840 prior to July 1, 2019, including Topic 840 disclosure requirements, in the comparative periods
presented. The Company elected the package of practical expedients for all its leases that commenced before July 1, 2019. The Company
has evaluated its real estate lease, its copier leases and its generator rental agreements. The adoption of ASC 842 did not materially
impact the Company’s consolidated balance sheet and had an immaterial impact on its results of operations. Based on the Company’s
current agreements, upon the adoption of ASC 842 on July 1, 2019, the Company recorded an operating lease liability of approximately
$ 436,000 |
