Revenue Recognition

6 Months Ended

Dec. 31, 2019

Revenue Recognition and Deferred Revenue [Abstract]

Revenue Recognition

2. Revenue Recognition

On July 1, 2018 the Company adopted Accounting Standards Codification ("ASC") Topic 606 "Revenue from Contracts with Customers, as amended" ("ASC Topic 606"), using the modified retrospective method applied to those contracts that had not been completed as of the adoption date. The Company's reported results for the year ended June 30, 2019 reflect the application of ASC Topic 606 guidance while the Company's reported results for fiscal year 2018 were prepared under the guidance of ASC Topic 605, "Revenue Recognition". The Company's adoption of ASC Topic 606 resulted in a cumulative prior period adjustment in the amount of $960,000 related to the Company's license and manufacturing agreement dated October 19, 2017, under which the Company licensed to its Chinese partner certain manufacturing and distribution rights to its SonaStar product line in China, Hong Kong and Macau (the "License and Exclusive Manufacturing Agreement"), but the remainder of the adoption did not have a material impact on the timing or amount of revenue recognized.

The Company has made the following accounting policy elections and elected to use certain practical expedients, as permitted by the FASB, in applying ASC Topic 606: 1) the Company accounts for amounts collected from customers for sales and other taxes net of related amounts remitted to tax authorities; 2) the Company expenses costs to obtain a contract as they are incurred if the expected period of benefit, and therefore the amortization period, is one year or less; 3) the Company accounts for shipping and handling activities that occur after control transfers to the customer as a fulfillment cost rather than an additional promised service and these fulfillment costs fall within selling, general and administrative expenses; 4) the Company does not assess whether promised goods or services are performance obligations if they are immaterial in the context of the contract with the customer; 5) the Company will utilize the right-to-invoice practical expedient with regard to the recognition of revenue upon the purchase of consumable goods in connection with a product placement/consignment arrangement.

Recognition of Revenue

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, a regenerative skin product, and from product 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 and SonaStar 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. The Company also provides an immaterial amount of service revenue that is recognized over time, but not stated separately because the amounts are immaterial.

The Company satisfies performance obligations either over time, or at a point in time, upon which control of a product shipped transfers to the customer.

Revenue derived by the Company 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 point. Products shipped F.O.B. destination point 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 point.

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 point 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.

The following table disaggregates the Company's product revenue by classification and geographic location:

	For the three months ended				For the six months ended
	December 31,				December 31,
	2019		2018		2019		2018
Total
Surgical	$	9,988,559	$	8,628,587	$	19,599,856	$	16,771,546
Wound		9,733,427		1,547,866		11,268,052		2,766,071
Total	$	19,721,986	$	10,176,453	$	30,867,908	$	19,537,617
Domestic:
Surgical	$	5,652,381	$	4,706,926	$	10,767,402	$	8,953,194
Wound		9,606,332		1,371,628		11,036,219		2,534,683
Total	$	15,258,713	$	6,078,554	$	21,803,621	$	11,487,877
International:
Surgical	$	4,336,178	$	3,921,661	$	8,832,454	$	7,818,351
Wound		127,095		176,238		231,833		231,388
Total	$	4,463,273	$	4,097,899	$	9,064,287	$	8,049,739

Beginning with the fiscal first 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. The Surgical division includes the Company's Nexus, BoneScalpel and SonaStar product lines, and the Wound division includes the Company's SonicOne and TheraSkin product lines. 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.

Contract Assets

The timing of revenue recognition, customer invoicing, and collections produces accounts receivable and contract assets on the Company's consolidated balance sheet. Contract liabilities are not material to the operations of the Company as of December 31, 2019. The Company invoices in accordance with contract payment terms. Invoices to customers represent an unconditional right of the Company to receive consideration. When revenue is recognized in advance of customer invoicing a contract asset is recorded. Unpaid customer invoices are reflected as accounts receivable.

Upon the adoption of ASC Topic 606 on July 1, 2018, the Company recorded a contract asset for $960,000 relating to royalties to be received from its Chinese partner relating to its License and Exclusive Manufacturing Agreement. This resulted in a cumulative prior period adjustment in the amount of $960,000 which was charged to accumulated deficit. When this contract asset was established, the value of such asset was determined based upon the Company's assessment of the most likely variable consideration to be received by the Company as a result of the royalty provisions in the contract. As of December 31, 2019, the Company's Chinese partner has defaulted on its initial royalty payment obligations. Management has determined that collection of this contract is unlikely, and accordingly, has recorded a full $960,000 reserve against such asset, and has charged this reserve to bad debt expense, classified as general and administrative expenses.