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, orthopedic surgery, plastic surgery, wound care and maxillo-facial surgery.

The Company strives to help proprietary procedural solutions become the standard of care and enhance patient outcomes throughout the world. Misonix intends to accomplish this, in part, by utilizing its best in class surgical ultrasonic technology to change patient outcomes in the areas of spinal surgery, neurosurgery and wound care. Misonix is currently developing proprietary procedural solutions around its Nexus generator (“Nexus”), which received U.S. Food and Drug Administration (“FDA”) 510(k) marketing clearance in June 2019 and its CE mark clearance in July 2019 for sale in Europe, and which combines the capabilities of the Company’s three legacy ultrasonic products, namely BoneScalpel® Surgical System (“BoneScalpel”), SonaStar® Surgical Aspirator (“SonaStar”) and SonicOne® Wound Cleansing and Debridement System (“SonicOne”), into a single system that can be used to perform soft and hard tissue resections. The Nexus platform is driven by Misonix’s proprietary ultrasonic digital algorithm and additionally integrates the delivery of radio frequency energy for use in general surgical procedures. In addition, through its acquisition of Solsys Medical, LLC (“Solsys”) in September 2019, Misonix completed its first procedural expansion of its ultrasonic surgical technology in September 2019, adding the TheraSkin product, a leading cellular skin substitute indicated for all wounds, to its product portfolio.

BoneScalpel is a state of the art, ultrasonic bone cutting and sculpting system capable of making precise cuts with minimal necrosis, minimal burn artifact, minimal inflammation and minimal bone loss. The device is also capable of preserving surrounding soft tissue structures because of its unique ability to differentiate soft tissue from rigid bone. This device can make precise linear or curved cuts, on any plane, with precision not normally associated with powered instrumentation. The Company believes that BoneScalpel offers the speed and convenience of a powered instrument without the dangers associated with conventional rotary devices. The effect on surrounding soft tissue is minimal due to the elastic and flexible structure of healthy tissue. This is a significant advantage in anatomical regions like the spine where patient safety is of primary concern. In addition, the linear motion of the blunt, tissue-impacting tips avoids accidental ‘trapping’ of soft tissue while largely eliminating the high-speed spinning and tearing associated with rotary power instruments. BoneScalpel allows surgeons to improve on existing surgical techniques by creating new approaches to bone cutting and sculpting and removal, leading to substantial time savings and increased operation efficiencies. BoneScalpel is now recognized by many surgeons globally as a critical surgical tool enabling improved patient outcomes in the spinal arena.

SonicOne is an innovative, tissue specific approach for the effective removal of devitalized or necrotic tissue and fibrin deposits while sparing viable, surrounding cellular structures. The tissue specific capability is, in part, due to the fact that healthy and viable tissue structures have a higher elasticity and flexibility than necrotic tissue and are more resistant to destruction from the impact effects of ultrasound. The ultrasonic debridement process separates devitalized tissue from viable tissue layers, allowing for a more defined treatment and, usually, a reduced pain sensation. The Company believes SonicOne establishes a new standard in wound and burn bed preparation, the essential first step in the healing process, while contributing to a faster patient healing.

SonaStar is used to emulsify and remove soft and hard tumors. Specifically, SonaStar provides powerful precise aspiration following the ultrasonic ablation of hard or soft tissue. SonaStar has been used for a wide variety of surgical procedures applying both open and minimally invasive approaches, including neurosurgery and general surgery.

Nexus is a next-generation integrated ultrasonic surgical platform that combines all the features of BoneScalpel, SonicOne and SonaStar into a single fully integrated platform that will also serve to power future solutions. The Nexus platform is driven by a new proprietary digital algorithm that results in more power, efficiency and control. Nexus uniquely integrates radio frequency capabilities, allowing for use in general surgery procedures. Nexus’ increased power improves tissue resection rates for both soft and hard tissue removal making it a unique surgical platform for a variety of different surgical specialties. In addition, Nexus’ easy setup and use enables physicians to fully leverage Nexus’ impressive set of capabilities via its digital touchscreen display and smart system technology. Because BoneScalpel, SonaStar and SonicOne all work on the Nexus generator, hospitals have access to all of the Company’s product offerings on the all in one Nexus platform. Nexus received FDA 510(k) clearance in June 2019 and received its CE mark clearance in July 2019 for sale in Europe.

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 generally sells to distributors who then resell the products to hospitals. The Company’s sales force operates as two groups, Surgical (neurosurgery and spinal surgery applications) and Wound Care. The Company operates with two business segments.

Acquisition of Solsys Medical, LLC

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 million. Solsys is the exclusive marketer and distributor of TheraSkin in the United States, through an agreement with LifeNet Health ("LifeNet"). Solsys owns the TheraSkin® brand name, which was commercially launched in January 2010. TheraSkin is a biologically active human skin allograft which has all of the relevant characteristics of human skin, including living cells, growth factors, and a collagen matrix, needed to heal wounds. TheraSkin is derived from human skin tissue from consenting and highly screened donors and is manufactured by LifeNet Health. As a result of the Solsys Acquisition, the Company became the parent public-reporting company of the combined entity; Misonix, Inc., a New York corporation, now known as Misonix Opco, Inc., and Solsys became direct, wholly owned subsidiaries of the Company. The acquisition of Solsys is expected to broaden the Company's addressable market through wound care solutions that are complementary to its existing products. After the completion of the Solsys Acquisition, the Company's shareholders immediately prior to the closing owned 64% of the combined entity, and Solsys unitholders immediately prior to the closing owned 36%. The Company issued 5,703,082 shares in connection with this transaction. Transaction fees were approximately $4.5 million, of which $1.4 million were capitalized as additional paid in capital in connection with the registration of these shares. The Solsys assets, liabilities and results of operations are included in the Company's financial statements from the acquisition date.

The Company's common stock was created with a par value per share of $.0001, whereas the par value of Misonix Opco, Inc. was $.01. Accordingly, the Company recorded a reclassification of $151,964 between common stock and additional paid in capital during the three months ended September 30, 2019 to account for this change.

Equity Offering

Equity Offering

On January 27, 2020, the Company completed an underwritten public offering of 1,868,750 shares of its common stock at a price to the public of $18.50 per share. The gross proceeds of the offering were $34.6 million. The Company intends to use the net proceeds of the offering for general corporate purposes, which may include investment in sales and marketing initiatives and funding growth opportunities such as collaborations and acquisitions of complementary products or technologies.

Earnings Per Share

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 restricted stock awards 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 the Company’s basic and diluted earnings per share calculation:

	For the three months ended				For the nine months ended
	March 31,				March 31,
	2020		2019		2020		2019

Basic weighted average shares outstanding		16,619,981		9,390,665		13,841,032		9,245,879
Dilutive effect of restricted stock awards (participating securities)		-		-		-		-

Denominator for basic earnings per share		16,619,981		9,390,665		13,841,032		9,245,879

Dilutive effect of stock options		-		-		-		-

Diluted weighted average shares outstanding		16,619,981		9,390,665		13,841,032		9,245,879

Diluted EPS for the three months and nine months ended March 31, 2020 and 2019 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 unvested restricted stock and stock options of 398,920 and 484,966 shares of common stock for the three months ended March 31, 2020 and 2019, respectively, and the dilutive effect of unvested restricted stock and stock options of 562,388 and 491,212 shares of common stock for the nine months ended March 31, 2020 and 2019, respectively.

Recently Adopted Accounting Pronouncements

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 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 income statement. 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 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 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 and corresponding ROU assets based on the present value of the remaining minimum rental payments associated with the Company's leases. As the Company's leases do not provide an implicit rate, nor is one readily available, the Company used its incremental borrowing rate of 10.5% based on information available at July 1, 2019 to determine the present value of its future minimum rental payments.