10-Q

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 March 31, 2019

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, 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)

Securities registered pursuant to Section 12(b) of the Act:

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 every Interactive Data File required to be submitted 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 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 ☐

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $.01 par value	MSON	Nasdaq Global Market

Indicate the number of shares outstanding of the issuer’s common stock as of the latest practicable date: As of April 25, 2019, there were 9,641,103 shares of the registrant’s common stock, $0.01 par value, outstanding.

1 

MISONIX, INC.

	Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements	3
Condensed Consolidated Balance Sheets at March 31, 2019 (Unaudited) and June 30, 2018	3
Condensed Consolidated Statements of Operations for the Three and Nine Months ended March 31, 2019 and 2018 (Unaudited)	4
Condensed Consolidated Statement of Shareholders’ Equity for the Three and Nine Months ended March 31, 2019 and 2018 (Unaudited)	5
Condensed Consolidated Statements of Cash Flows for the Nine Months ended March 31, 2019 and 2018 (Unaudited)	6
Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3. Quantitative and Qualitative Disclosures About Market Risk	24
Item 4. Controls and Procedures	24
PART II - OTHER INFORMATION
Item 1. Legal Proceedings	25
Item 1A. Risk Factors	25
Item 6. Exhibits	25
Signatures	26

2 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Misonix, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

	March 31,			June 30,
	2019			2018
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	9,012,220		$	10,979,455
Accounts receivable, less allowance for doubtful accounts of $160,000 and $200,000, respectively		5,333,839			5,245,549
Inventories, net		6,332,586			5,019,886
Prepaid expenses and other current assets		864,452			611,647
Total current assets		21,543,097			21,856,537
Property, plant and equipment, net of accumulated amortization and depreciation of $10,097,703 and $9,023,235, respectively		4,394,548			4,188,378
Patents, net of accumulated amortization of $1,169,131 and $1,063,393, respectively		779,621			757,447
Goodwill		1,701,094			1,701,094
Contract assets		960,000			—
Intangible and other assets		433,842			517,295
Total assets	$	29,812,202		$	29,020,751
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$	3,521,657		$	1,794,098
Accrued expenses and other current liabilities		2,325,023			2,411,172
Deferred income		3,995			13,303
Total current liabilities		5,850,675			4,218,573
Non current liabilities		401,000			401,000
Total liabilities		6,251,675			4,619,573
Commitments and contingencies
Shareholders’ equity:
Common stock, $.01 par value-shares authorized 40,000,000; 9,641,103 and 9,430,466 shares issued and outstanding in each period		96,411			94,305
Additional paid-in capital		43,011,214			39,772,973
Accumulated deficit		(19,547,098	)		(15,466,100	)
Total shareholders’ equity		23,560,527			24,401,178
Total liabilities and shareholders’ equity	$	29,812,202		$	29,020,751

See Accompanying Notes to Consolidated Financial Statements.

3 

Misonix, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

	For the three months ended						For the nine months ended
	March 31,						March 31,
	2019			2018			2019			2018
Revenues
Product	$	9,556,590		$	8,429,132		$	29,094,208		$	24,033,700
License		—			4,010,000			—			4,010,000
Total revenue		9,556,590			12,439,132			29,094,208			28,043,700
Cost of goods sold		2,801,571			2,631,893			8,600,194			7,275,073
Gross profit		6,755,019			9,807,239			20,494,014			20,768,627
Operating expenses:
Selling expenses		4,414,710			4,447,421			13,950,357			11,937,649
General and administrative expenses		2,512,510			1,925,086			8,043,078			6,879,077
Research and development expenses		1,426,483			1,199,895			3,570,468			3,058,374
Total operating expenses		8,353,703			7,572,402			25,563,903			21,875,100
(Loss) income from operations		(1,598,684	)		2,234,837			(5,069,889	)		(1,106,473	)
Other income (expense):
Interest income		22,653			9,074			59,708			9,131
Royalty income		—			916			—			525,438
Other		(13,650	)		(5,712	)		(30,817	)		(15,474	)
Total other income		9,003			4,278			28,891			519,095
(Loss) income from operations before income taxes		(1,589,681	)		2,239,115			(5,040,998	)		(587,378	)
Income tax expense		—			—			—			5,243,422
Net (loss) income	$	(1,589,681	)	$	2,239,115		$	(5,040,998	)	$	(5,830,800	)
Net (loss) income per share:
Basic	$	(0.17	)	$	0.24		$	(0.55	)	$	(0.65	)
Diluted	$	(0.17	)	$	0.23		$	(0.55	)	$	(0.65	)

See Accompanying Notes to Consolidated Financial Statements.

4 

Misonix, Inc. and Subsidiaries

Condensed Consolidated Statement of Shareholders’ Equity

(Unaudited)

	Common Stock,
	$.01 Par Value				Additional					Total
	Number				paid-in		Accumulated			shareholders’
Fiscal Year 2019	of shares		Amount		capital		deficit			equity
Balance, June 30, 2018		9,430,466	$	94,305	$	39,772,973	$	(15,466,100	)	$	24,401,178
Cumulative effect of the adoption of ASC 606 - revenue recognition								960,000			960,000
Net loss		—		—		—		(2,610,986	)		(2,610,986	)
Proceeds from exercise of stock options		51,660		517		415,230		—			415,747
Stock-based compensation		—		—		1,004,498		—			1,004,498
Balance, September 30, 2018		9,482,126		94,822		41,192,701		(17,117,086	)		24,170,437
Net loss		—		—		—		(840,331	)		(840,331	)
Proceeds from exercise of stock options		102,052		1,020		450,570		—			451,590
Stock-based compensation		—		—		500,088		—			500,088
Balance, December 31, 2018		9,584,178		95,842		42,143,359		(17,957,417	)		24,281,784
Net loss		—		—		—		(1,589,681	)		(1,589,681	)
Proceeds from exercise of stock options		56,925		569		483,267		—			483,836
Stock-based compensation		—		—		384,588		—			384,588
Balance, March 31, 2019		9,641,103	$	96,411	$	43,011,214	$	(19,547,098	)	$	23,560,527

	Common Stock,
	$.01 Par Value				Additional					Total
	Number				paid-in		Accumulated			shareholders’
Fiscal Year 2018	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		—		—		—		(1,212,224	)		(1,212,224	)
Proceeds from exercise of stock options		8,500		85		56,117		—			56,202
Stock-based compensation		—		—		625,293		—			625,293
Balance, September 30, 2017		9,365,666		93,657		37,490,220		(9,065,889	)		28,517,988
Net loss		—		—		—		(6,856,774	)		(6,856,774	)
Proceeds from exercise of stock options		35,000		350		168,000		—			168,350
Stock-based compensation		—		—		844,601		—			844,601
Balance, December 31, 2017		9,400,666		94,007		38,502,821		(15,922,663	)		22,674,165
Net loss		—		—		—		2,238,198			2,238,198
Proceeds from exercise of stock options		1,800		18		3,653		—			3,671
Stock-based compensation		—		—		611,127		—			611,127
Balance, March 31, 2018		9,402,466	$	94,025	$	39,117,601	$	(13,684,465	)	$	25,527,161

See Accompanying Notes to Consolidated Financial Statements.

5 

Misonix, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	For the nine months ended
	March 31,
Operating activities	2019			2018
Net loss	$	(5,040,998	)	$	(5,830,800	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization		1,180,206			1,046,511
Disposals of property, plant and equipment		—			138,972
Bad debt expense		69,613			—
Deferred income tax expense		—			5,243,422
Stock-based compensation		1,889,175			2,081,021
Deferred lease liability		(9,308	)		(7,015	)
Changes in operating assets and liabilities:
Accounts receivable		(157,903	)		654,610
Inventories		(2,004,812	)		(1,194,747	)
Prepaid expenses and other current assets		(252,805	)		(92,987	)
Deferred income		—			5,514
Intangible and other assets		83,453			—
Accounts payable, accrued expenses and other current liabilities		1,641,410			(1,041,513	)
Net cash (used in) / provided by operating activities		(2,601,969	)		1,002,988
Investing activities
Acquisition of property, plant and equipment		(588,526	)		(358,013	)
Additional patents		(127,912	)		(120,638	)
Net cash used in investing activities		(716,438	)		(478,651	)
Financing activities
Proceeds from exercise of stock options		1,351,172			228,223
Net cash provided by financing activities		1,351,172			228,223
Net (decrease) increase in cash and cash equivalents		(1,967,235	)		752,560
Cash and cash equivalents at beginning of period		10,979,455			11,557,071
Cash and cash equivalents at end of period	$	9,012,220		$	12,309,631
Supplemental disclosure of cash flow information:
Cash paid for:
Income taxes	$	71,787		$	895
Transfer of inventory to property, plant and equipmment for consignment of product	$	692,112		$	1,022,680
Adoption of new accounting standard on deferred taxes	$	—		$	908,875

See Accompanying Notes to Consolidated Financial Statements.

6 

Misonix, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Months Ended March 31, 2019 and 2018 (unaudited)

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

Basis of Presentation

These condensed 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 condensed 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, 2018, 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 and markets minimally invasive therapeutic ultrasonic medical devices. These 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. In the United States, our products are marketed primarily through a hybrid sales approach. This includes direct sales representatives, managed by regional sales managers, along with independent distributors. Outside the United States, we sell BoneScalpel and SonaStar to specialty distributors who purchase products from us to resell to their clinical customer bases. We sell to all major markets in the Americas, Europe, Middle East, Asia Pacific and Africa. The Company operates as one business segment.

Pending Merger with Solsys Medical, LLC

On May 2, 2019, the Company announced that it has entered into a definitive agreement with Solsys Medical, LLC (“Solsys”), a privately held regenerative medical company, to acquire Solsys in an all-stock transaction valued at approximately $97 million. The planned acquisition of Solsys is expected to substantially broaden Misonix’s addressable market through wound care solutions that are complementary to its existing products. The transaction has been approved by both the Company’s Board of Directors and the Solsys Board of Managers. After the completion of the transaction, it is expected that Misonix shareholders immediately prior to the closing will own 64% of the combined entity, and Solsys unitholders will own 36%. The completion of the acquisition and the issuance of shares in connection with the proposed transaction is subject to the approval by Misonix shareholders and the completion of the transaction is subject to approval by 55% of Solsys’ Series E unitholders and a majority of its Common unitholders, Series A unitholders, Series B unitholders, Series C unitholders and Series D unitholders, voting as a single class, as well as the satisfaction of certain customary closing conditions. The Company will convene a special shareholder meeting to vote on the transaction. The Company anticipates that the transaction will close in the third quarter of calendar year 2019. Professional fees incurred during the quarter ended March 31, 2019 with respect to this matter were $98,000.

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 is obligated to 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. No payments were received for the nine months ended March 31, 2019 and 2018. Cumulative royalties paid to the Company through March 31, 2019 were $2,542,579.

Major Customers and Concentration of Credit Risk

Included in revenues are sales to the Company’s distributor of Bone Scalpel in China of approximately $4 million and $0, for the nine months ended March 31, 2019 and 2018, respectively. Accounts receivable from this customer were $1 million and $0 at March 31, 2019 and June 30, 2018, respectively.

Total royalties from Medtronic Minimally Invasive Therapies (“MMIT”) related to its 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 $0 and $524,000 for both the three and nine months ended March 31, 2019 and 2018, respectively. Accounts receivable from MMIT royalties were $0 at March 31, 2019 and June 30, 2018. The license agreement with MMIT expired in August 2018.

7 

At March 31, 2019 and June 30, 2018, the Company’s accounts receivable with customers outside the United Sates were approximately $2,500,000 and $1,630,000, respectively, $152,000 of which is over 90 days at March 31, 2019.

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:

	For the three months ended				For the nine months ended
	March 31,				March 31,
	2019		2018		2019		2018
Basic weighted average shares outstanding		9,390,665		9,028,506		9,245,879		8,999,938
Dilutive effect of resticted stock awards
(participating securities)		—		373,200		—		—
Denominator for basic earnings per share		9,390,665		9,401,706		9,245,879		8,999,938
Dilutive effect of stock options		—		174,238		—		—
Diluted weighted average shares outstanding		9,390,665		9,575,944		9,245,879		8,999,938

Diluted EPS for the three and nine months ended March 31, 2019 and the nine months ended March 31, 2018 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 484,966 and 0 shares of common stock for the three months ended March 31, 2019 and 2018, respectively, and the dilutive effect of options to purchase 491,212 and 482,093 shares of common stock for the nine months ended March 31, 2019 and 2018, respectively. Also excluded from the calculation of earnings per share for the three and nine months ended March 31, 2019 and 2018 are the unvested restricted stock awards which were issued in December 2016.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued ASC Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), which was subsequently updated (“ASU 2014-09”). The purpose of the updated standard is to provide enhancements to the quality and consistency of revenue recognition between companies using U.S. GAAP and International Financial Reporting Standards. The new five-step recognition model introduces the core principle of recognizing revenue in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the promised goods or services, which includes additional footnote disclosures to describe the nature, amount, timing and uncertainty of revenue, certain costs and cash flow arising from customers.

As amended, ASU 2014-09 requires the Company to use either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients; or (ii) a modified retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption. This standard became effective for the Company on July 1, 2018 and the Company adopted the new pronouncement under the modified retrospective approach.

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, Accounting Standards Update (“ASU”) 2016-02 – Leases (Topic 842). 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 evaluating this guidance to determine the impact it will have on its consolidated financial statements.

8 

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) ASU 2016-15, Statement of Cash Flows (Topic 230) (“ASU 2016-150”). 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 became effective for the Company beginning in fiscal 2019. As this guidance only affects the classification within the statement of cash flows, ASU 2016-15 did not have a material impact on the Company’s consolidated financial statements.

In January 2018, the FASB issued ASU No. 2018-01, Business Combinations: Clarifying the Definition of a Business (“ASU 2018-01”). ASU 2018-01 clarifies the definition of a business for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2018-01 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2018, and early adoption is permitted. The Company’s adoption of ASU 2018-01 did not have a material effect on the Company’s consolidated financial statements.

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.

Critical Accounting Policies and Use of Estimates

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.

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 which were not completed as of the adoption date. The reported results for the nine months ended March 31, 2019 reflect the application of Topic 606 guidance while the reported results for fiscal year 2018 were prepared under the guidance of ASC Topic 605, “Revenue Recognition”. The 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 Exclusive Manufacturing Agreement described below, but the remainder of the adoption did not have a material impact on the timing or amount of revenue recognized.

The impacts of adopting ASC Topic 606 on the Company’s consolidated balance sheets as of July 1, 2018 were as follows:

					As
					Adjusted
	As		ASC 606		Under
	Reported		Adjustments		ASC 606
Contract assets	$	—	$	960,000	$	960,000
Total Shareholders’ equity	$	24,401,178	$	960,000	$	25,361,178

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.

9 

The Company determines revenue recognition through the following steps:

● Identification of the contract, or contracts, with a customer

● Identification of the performance obligations in the contract

● Determination of the transaction price

● Allocation of the transaction price to the performance obligations in the contract

● Recognition of revenue when, or as, a performance obligation is satisfied

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. The Company historically has not made provisions for returns and allowances as they have not been material to the operations of the Company.

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 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.

Contract Specific Performance Obligations and Significant Judgements

Product Placement/Consignment Agreements

The Company’s product placement/consignment agreements provide for the placement of a generator at the customer’s place of business and set pricing related to the purchase of consumables for use in conjunction with the generator. 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.

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License and Manufacturing Agreement

On October 19, 2018, the Company entered into a License and Exclusive Manufacturing Agreement (the “L&M 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 Licensee was obligated to make an initial payment of $5,000,000 for the transfer of functional intellectual property and initial stocking orders of product. In addition, the Licensee is required to make minimum royalty payments of $2,000,000 per calendar year for three years beginning in 2019, based upon the manufacture of products by the Licensee. The Company collected $5,000,000 of initial revenue for the quarter ended March 31, 2018 under ASC 605. Upon the adoption of ASC Topic 606, the Company evaluated this contract under the provisions of the new revenue standard. The Company determined that the satisfied performance obligations and allocation of the transaction price related to the $5,000,000 received prior to adoption was consistent with the provisions of ASC Topic 606 and also recorded a transitional adjustment to accumulated deficit in the amount of $960,000 as follows:

Minimum royalty revenue provided by the contract	$	6,000,000
Implicit price concession		(5,040,000	)
Adoption adjustment to accumulated deficit under ASC Topic 606	$	960,000

Although the contract includes minimum royalties, the Company concluded that a significant portion of those guaranteed minimums are actually variable consideration subject to the constraint because the Company has provided an implicit price concession. Specifically, the fact that production of the product in China is not assured and the Licensee must develop a manufacturing process, coupled with the fact that new technology related to the product is expected to be available for sale domestically, may result in the Licensee not earning sufficient revenue in order to pay the minimum royalties. Therefore, the Company has determined variable consideration through utilization of the most likely method based upon forecasts and projections of shipment of products.

The Company will monitor facts and circumstances over time and adjust management’s most likely estimate of variable consideration on a quarterly basis.

Disaggregation of Revenue

The Company generates revenue from the sale and leasing of medical equipment and from the sale of consumable products used with medical equipment in surgical procedures as well as through product licensing arrangements. In the United States, the Company’s products are marketed primarily through a hybrid sales approach which 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 which is recognized over time, but not stated separately because the amounts are immaterial.

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

	For the three months ended				For the nine months ended
	March 31,				March 31,
	2019		2018		2019		2018
Total
Consumables	$	6,870,398	$	5,898,937	$	20,785,446	$	17,404,539
Equipment		2,686,192		2,530,195		8,308,762		6,629,161
Total Product		9,556,590		8,429,132		29,094,208		24,033,700
License		—		4,010,000		—		4,010,000
Total	$	9,556,590	$	12,439,132	$	29,094,208	$	28,043,700
Domestic:
Consumables	$	4,862,308	$	4,340,759	$	15,170,476	$	13,063,171
Equipment		547,470		590,269		1,727,181		1,920,424
Total	$	5,409,778	$	4,931,028	$	16,897,657	$	14,983,595
International:
Consumables	$	2,008,090	$	1,558,178	$	5,614,970	$	4,341,368
Equipment		2,138,722		1,939,926		6,581,581		4,708,737
Total	$	4,146,812	$	3,498,104	$	12,196,551	$	9,050,105
License	$	—	$	4,010,000	$	—	$	4,010,000

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 March 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.

The Company has established a contract asset in conjunction with the Company’s L&M Agreement based upon its assessment of the most likely variable consideration to be received by the Company as a result of the royalty provisions in the contract. The asset is recorded as a long-term asset as the Company believes that payment will be made on this asset in a duration exceeding one year. Contract assets as of March 31, 2019 and June 30, 2018 were $960,000 and $0, respectively.

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 fulfillment 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.

3. Fair Value of Financial Instruments

The Company follows 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.

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At March 31, 2019 and June 30, 2018, all of the Company’s cash and cash equivalents, trade accounts receivable and trade accounts payable were short term in nature, and their carrying amounts approximate fair value.

4. Inventories

Inventories are summarized as follows:

	March 31,			June 30,
	2019			2018
Raw material	$	3,698,319		$	3,540,205
Work-in-process		323,650			180,442
Finished goods		2,754,875			1,743,497
		6,776,844			5,464,144
Less valuation reserve		(444,258	)		(444,258	)
	$	6,332,586		$	5,019,886

5. Property, Plant and Equipment

Depreciation and amortization of property, plant and equipment was $1,074,000 and $953,000 for the nine months ended March 31, 2019 and 2018, 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 is expensed over a 5-year period, and depreciation is charged to selling expenses.

6. Goodwill

The excess of the cost over the fair value of net assets of acquired businesses is recorded as goodwill. Goodwill is not subject to amortization, but is reviewed for impairment at the reporting unit level annually, or more frequently if impairment indicators arise. The Company’s assessment of the recoverability of goodwill is based upon a comparison of the carrying value of goodwill with its estimated fair value and the value of the Company at the measurement date.

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’s market capitalization exceeds the value of the goodwill. The Company concluded that there was no impairment to goodwill at June 30, 2018 and June 30, 2017. There were no triggering events identified during the quarter ended March 31, 2019.

7. 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, net of accumulated amortization, totaled $779,621 and $757,447 at March 31, 2019 and June 30, 2018, respectively. Amortization expense for the nine months ended March 31, 2019 and 2018 was $106,000 and $94,000, respectively. The following is a schedule of estimated future patent amortization expenses by fiscal year as of March 31, 2019:

2019	$	34,998
2020		117,217
2021		110,025
2022		72,364
2023		71,273
Thereafter		373,744
	$	779,621

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8. Accrued Expenses and Other Current Liabilities

The following summarizes accrued expenses and other current liabilities:

	March 31,		June 30,
	2019		2018
Accrued payroll, payroll taxes and vacation	$	443,623	$	351,435
Accrued bonus		450,144		552,988
Accrued commissions		698,534		742,807
Professional fees		167,240		102,065
Vendor, tax and other accruals		565,482		661,877
	$	2,325,023	$	2,411,172

9. Stock-Based Compensation Plans

Stock Option Awards

For the nine months ended March 31, 2019 and 2018, the compensation cost relating to stock option awards that has been charged against income for the Company’s stock option plans was $896,730 and $1,405,152, respectively. As of March 31, 2019, there was $2,965,772 of total unrecognized compensation cost related to non-vested share-based compensation arrangements to be recognized over a weighted-average period of 2.9 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 per share at date of grant for options granted during the nine months ended March 31, 2019 was $9.22. There were options to purchase 255,000 and 305,500 shares granted during the nine months ended March 31, 2019 and 2018, respectively. The fair value was estimated based on the weighted average assumptions of:

	For nine months ended
	March 31, 2019
	2019			2018
Risk-free interest rates		2.80	%		1.98	%
Expected option life in years		6.25			5.95
Expected stock price volatility		56.01	%		57.42	%
Expected dividend yield		0	%		0	%

A summary of option activity under the Company’s equity plans as of March 31, 2019, and changes during the nine months ended March 31, 2019 is presented below:

	Outstanding Shares			Average Exercise Price		Aggregate Intrinsic Value
Outstanding at June 30, 2018		1,330,193		$	8.47	$	5,369,557
Granted		255,000			16.64
Exercised		(240,210	)		7.97
Forfeited		(159,252	)		10.18
Expired		(15,000	)		2.66
Outstanding as of March 31, 2019		1,170,731		$	10.27	$	10,530,733
Vested and exercisable at March 31, 2019		642,355		$	8.28	$	7,034,104

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The total fair value of stock options vested during the nine months ended March 31, 2019 was $1,101,971. The number and weighted-average grant-date fair value of non-vested stock options at the beginning of fiscal 2018 was 648,877 and $5.08, respectively. The number and weighted-average grant-date fair value of stock options which vested during the nine months ended March 31, 2019 was 220,624 and $4.99, 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. Compensation expense recorded in the nine months ended March 31, 2019 and 2018 related to these awards was $992,445 and $675,869 respectively. As of March 31, 2019, there was approximately $1,256,204 of total unrecognized compensation cost related to non-vested restricted stock awards to be recognized over a weighted-average period of 2.82 years. The awards contain a combination of vesting terms which include time vesting, performance vesting relating to revenue achievement, and market vesting related to obtaining certain levels of Company stock prices. At March 31, 2019, the Company has estimated that it is probable that the performance conditions will be met. The awards were valued using a Monte Carlo valuation model using a stock price at the date of grant of $9.60, a term of 3 to 5 years, a risk free interest rate of 1.6% to 2.1% and a volatility factor of 66.5%. As of March 31, 2019, 186,600 shares from this set of awards have vested.

During the nine months ended March 31, 2019, the performance conditions of one of these restricted stock awards were met, resulting in the full amortization of this award during the period, totaling $475,286 of additional amortization during the first quarter of the current fiscal year. The number of restricted stock awards which vested was 133,333.

10. 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 $28,000.

Class Action Securities Litigation

On September 19, 2016, Richard Scalfani, an individual shareholder of Misonix, filed a lawsuit against the Company and its former chief executive officer and chief financial officer 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 the Company’s products in China and the Company’s knowledge of those business practices, which may have had implications under the FCPA, as well as into various internal controls issues identified during the investigation (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 information to the SEC and the DOJ, if requested, and is cooperating fully with these agencies in their 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.

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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, including costs of litigation relating to the Company’s former Chinese distributor as described below, are approximately $3.7 million, of which approximately $0.2 million and $0.6 million was charged to general and administrative expenses during the three and nine months ended March 31, 2019, respectively, compared with $0.1 million and $0.3 million for the three and nine months ended March 31, 2018.

Former Chinese Distributor - Litigation

On April 5, 2018, 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, 2018, 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 currently remaining in the case is for breach of contract against the Company; the plaintiff has moved to amend its complaint to add tort claims, which the Company intends to oppose. The Company believes it has various legal and factual defenses to the allegations in the complaint, and intends to vigorously defend the action. Fact discovery in the case is currently scheduled to end on May 31, 2019, and there is no trial date currently set.  

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 chief executive officer and chief financial officer, 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. On July 16, 2018, counsel for the Company and counsel for Mr. Feldbaum and Mr. Rubin informed the District Court that the parties had reached a settlement in principle. On May 7, counsel for Mr. Feldbaum and Mr. Rubin filed a motion for preliminary approval of the settlement, to which the executed settlement agreement is an exhibit.  The Company has agreed to certain corporate governance reforms in resolving the case and to pay counsel for Mr. Feldbaum and Mr. Rubin an attorneys fee of $500,000 which is expected to be covered by Misonix’s insurance carrier.  If the court preliminarily approves the settlement, the settlement will remain subject to the district court's final approval. 

11. 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 Company’s chief executive officer.

Sales to OrthoXact for the nine months ended March 31, 2019 and 2018 were $996,631 and $675,943, respectively. Accounts receivable at March 31, 2019 and June 30, 2019 were $286,852 and $120,376, respectively.

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12. Income Taxes

For the three and nine months ended March 31, 2019 and 2018, the Company recorded income tax expense (benefit), as follows:

	For the three months ended						For the nine months ended
	March 31,						March 31,
	2019			2018			2019			2018
Income tax expense (benefit)	$	(509,000	)	$	411,405		$	(1,164,000	)	$	(97,744	)
Reduction of deferred tax assets relating to Tax Legislation		—			—			—			1,764,039
Valuation allowance on deferred tax assets		509,000			(411,405	)		1,164,000			3,577,127
Net income tax expense	$	—		$	—		$	—		$	5,243,422

For the nine months ended March 31, 2019 and 2018, the effective rate of 0% and (892.7%), 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 2018.

Tax Cuts and Jobs Act of 2017

The Tax Cuts and Jobs Act of 2017, 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.

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, 2018, based on actual results for fiscal 2018 and the Company’s current forecast for fiscal 2019 the Company is in a three-year cumulative loss position at March 31, 2019, and it expects to be in a cumulative pretax loss position as of June 30, 2019. Management evaluated available positive evidence, including the continued growth of the Company’s revenues and gross profit margins, its recent SonaStar technology license to its Chinese partner and the reduction in investigative and professional fees recognized in fiscal 2018, 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 against its deferred tax assets. 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.

As of March 31, 2019 and June 30, 2018, the Company had no material unrecognized tax benefits or accrued interest and penalties.

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.

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

	For the three months ended				For the nine months ended
	March 31,				March 31,
	2019		2018		2019		2018
Product revenue:
Domestic	$	5,409,778	$	4,931,028	$	16,897,657	$	14,983,595
International		4,146,812		3,498,104		12,196,551		9,050,105
Total		9,556,590		8,429,132		29,094,208		24,033,700
License revenue		—		4,010,000		—		4,010,000
Total revenue	$	9,556,590	$	12,439,132	$	29,094,208	$	28,043,700

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

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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 September 13, 2018, for the fiscal year ended June 30, 2018 (“2018 Form 10-K”). Item 7 of the 2018 Form 10-K describes the application of our critical accounting policies, for which there have been no significant changes during the nine months ended March 31, 2019.

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, the ability to complete the pending transaction with Solsys on the terms and within the timeframe, and on the financing terms, currently contemplated, any material regulatory or other unexpected requirements in connection therewith, consumer and industry acceptance, litigation and/or contemplated 510(k) filings, the ability to achieve and maintain profitability in our business lines, the pending FCPA investigation and other factors discussed in the 2018 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 and markets minimally invasive therapeutic ultrasonic medical devices. These 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. 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 products to hospitals. The Company operates as one business segment.

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. 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 medical procedures on which we focus.

Pending Acquisition of Solsys Medical, LLC

On May 2, 2019, the Company announced that it has entered into a definitive agreement with Solsys Medical, LLC (“Solsys”), a privately held regenerative medical company, to acquire Solsys in an all-stock transaction valued at approximately $97 million. The planned acquisition of Solsys is expected to substantially broaden Misonix’s addressable market through wound care solutions that are complementary to its existing products. Under the terms of the agreement, a new holding company will issue approximately 5.7 million new shares of common stock to Solsys unitholders and current Misonix shareholders will have their shares of the Company’s common stock converted into shares of the holding company’s common stock on a one-for-one basis. After the completion of the transaction, it is expected that Misonix shareholders immediately prior to the closing will own 64% of the holding company, and Solsys unitholders will own 36%. Misonix will also assume Solsys’ outstanding secured debt, with an expected balance of approximately $20 million, upon closing. In addition, the holding company’s Board of Directors will consist of five members: three current Misonix directors, including Stavros Vizirgianakis, and two directors nominated by Solsys at closing.

The transaction has been approved by both the Company’s Board of Directors and the Solsys Board of Managers. The completion of the acquisition and the issuance of the holding company’s shares in connection with the proposed transaction is subject to the approval by Misonix shareholders and the completion of the transaction is subject to approval by 55% of Solsys’ Series E unitholders and a majority of its Common unitholders, Series A unitholders, Series B unitholders, Series C unitholders and Series D unitholders, voting as a single class, as well as the satisfaction of certain customary closing conditions. The Company will convene a special shareholder meeting to vote on the transaction. the Company anticipates that the transaction will close in the third quarter of calendar 2019.

19

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 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, licensing and related services.

Three months ended March 31, 2019 and 2018

The Company’s revenues by category for the three months ended March 31, 2019 and 2018 are as follows:

	For the three months ended
	March 31,				Net change
	2019		2018		$			%
Total
Consumables	$	6,870,398	$	5,898,937	$	971,461			16.5	%
Equipment		2,686,192		2,530,195		155,997			6.2	%
Total Product		9,556,590		8,429,132		1,127,458			13.4	%
License		—		4,010,000		(4,010,000	)		-100.0	%
Total	$	9,556,590	$	12,439,132	$	(2,882,542	)		-23.2	%
Domestic:
Consumables	$	4,862,308	$	4,340,759	$	521,549			12.0	%
Equipment		547,470		590,269		(42,799	)		-7.3	%
Total	$	5,409,778	$	4,931,028	$	478,750			9.7	%
International:
Consumables	$	2,008,090	$	1,558,178	$	449,912			28.9	%
Equipment		2,138,722		1,939,926		198,796			10.2	%
Total	$	4,146,812	$	3,498,104	$	648,708			18.5	%
License	$	—	$	4,010,000	$	(4,010,000	)		100.0	%

Revenues

Total revenue decreased 23.2% in the third quarter of fiscal 2019, resulting from $4 million of license revenue being recorded in the third quarter of fiscal 2018, with no corresponding license revenue in the third quarter of fiscal 2019. Product revenue (consumables and equipment) increased 13.4% or $1.1 million to $9.6 million in the third quarter of fiscal 2019, from $8.4 million in the third quarter of fiscal 2018. The largest portion of the product revenue increase was due to the continued growth of consumables in the domestic and international markets as expected. Domestic sales of BoneScalpel and SonicOne were strong, and the exceptional growth in the wound franchise continued.

Domestic equipment revenues were below expectations, with customers waiting for the Company’s next generation platform product, Nexus, while international revenues were above expectations with continued momentum in key markets. Nexus is expected to become available in mid-2019, subject to approval by the FDA of the Company’s 510(k) application.

The total product revenue increase is principally attributable to a 16.5% or $1.0 million increase in consumables revenue, in addition to a 6.2% or $0.2 million increase in equipment revenue.

Gross profit

Gross profit from product revenue in the third quarter of fiscal 2019 was 70.7% of revenue, compared with the gross profit margin of 68.8% in the third quarter of fiscal 2018. The increase is the result of product mix with a higher percentage of consumables revenue in the current year, along with the impact of routine manufacturing cost variances.

20

Selling expenses

Selling expenses for the third quarter of fiscal 2019 remained flat with those of the prior year quarter, at $4.4 million. While the Company continues to incur higher compensation costs and travel related expenses resulting from the continued buildout of the Company’s direct sales force, those costs are being offset by lower commissions to distributors in the US, whose contracts are being terminated as the new direct sales force takes over territories.

General and administrative expenses

General and administrative expenses were $2.5 million in the third quarter of fiscal 2019, an increase of 31% or $0.6 million over the third quarter of fiscal 2018. The increase is principally related to legal and professional fees including those associated with the Company’s ongoing litigation and the SolSys merger.

Research and development expenses

Research and development expenses increased by $0.2 million or 19% to $1.4 million in the third quarter of fiscal 2019 from $1.2 million in the prior year period. The Company is investing in the design and development of its next generation platform product, Nexus. During the third quarter of fiscal 2019 and fiscal 2018, approximately $0.7 million and $0.8 million, respectively, was charged to research and development expenses related to this product.

Other income (expense)

Other income was $9,003 in the third quarter of fiscal 2019 compared with $4,278 in the prior year period.

Income taxes

For the three months ended March 31, 2019 and 2018, the Company did not record tax expense, given that it was in a full valuation allowance position during those periods.

Income tax expense for the quarter ended March 31, 2019 includes a $509,000 valuation allowance against the Company’s deferred tax assets recorded in the quarter. In accordance with the guidance of ASC Topic 740, management concluded that in its judgment, the Company’s deferred tax assets at March 31, 2019 are not more likely-than-not realizable. The components of the tax provision are as follows:

	For the three months ended
	March 31,
	2019			2018
Income tax expense (benefit)	$	(509,000	)	$	411,405
Reduction of deferred tax assets  relating to Tax Legislation		—			—
Valuation allowance on deferred tax assets		509,000			(411,405	)
Net income tax expense	$	—		$	—

21

Nine months ended March 31, 2019 and 2018

The Company’s revenues by category for the nine months ended March 31, 2019 and 2018 are as follows:

	For the nine months ended
	March 31,				Net change
	2019		2018		$			%
Total
Consumables	$	20,785,446	$	17,404,539	$	3,380,907			19.4	%
Equipment		8,308,762		6,629,161		1,679,601			25.3	%
Total Product		29,094,208		24,033,700		5,060,508			21.1	%
License		—		4,010,000		(4,010,000	)		-100.0	%
Total	$	29,094,208	$	28,043,700	$	1,050,508			3.7	%
Domestic:
Consumables	$	15,170,476	$	13,063,171	$	2,107,305			16.1	%
Equipment		1,727,181		1,920,424		(193,243	)		-10.1	%
Total	$	16,897,657	$	14,983,595	$	1,914,062			12.8	%
International:
Consumables	$	5,614,970	$	4,341,368	$	1,273,602			29.3	%
Equipment		6,581,581		4,708,737		1,872,844			39.8	%
Total	$	12,196,551	$	9,050,105	$	3,146,446			34.8	%
License	$	—	$	4,010,000	$	(4,010,000	)		100.0	%

Revenues

Total revenue increased 3.7% during the first three quarters of fiscal 2019, with the growth rate impacted by the $4 million of license revenue being recorded in fiscal 2018, with no corresponding license revenue in fiscal 2019. Product revenue increased 21.1% or $5.0 million to $29.1 million during the first three quarters of fiscal 2019, from $24.0 million in the prior year period. The largest portion of the revenue increase was due to the continued growth of consumables in the domestic and international markets as expected. Domestic sales of BoneScalpel and SonicOne were strong, and the exceptional growth in the wound franchise continued.

Domestic equipment revenues were below expectations, with customers waiting for the Company’s next generation platform product, Nexus, while international revenues were above expectations with continued momentum in key markets. Nexus is expected to become available in mid-2019, subject to approval by the FDA of the Company’s 510(k) application.

The revenue increase is principally attributable to a 19.4% or $3.4 million increase in consumables revenue, in addition to a 25.3% or $1.7 million increase in equipment revenue.

Gross profit

Gross profit from product revenue in fiscal 2019 was 70.4% of revenue, compared with the gross profit margin of 69.7% in fiscal 2018. The increase is the result of product mix with a higher percentage of consumables revenue in the current year, along with the impact of routine manufacturing cost variances.

Selling expenses

Selling expenses increased by $2.0 million, or 16.9% to $14.0 million in the first three quarters of fiscal 2019 from $11.9 million in the prior year period. While the Company continues to incur higher compensation costs and travel related expenses resulting from the continued buildout of the Company’s direct sales force, those costs are being offset by lower commissions to distributors in the US, whose contracts are being terminated as the new direct sales force takes over territories. Higher costs were also incurred for marketing activities and depreciation expense on consigned equipment.

General and administrative expenses

General and administrative expenses increased by $1.2 million, or 16.9% to $8.0 million in the first three quarters of fiscal 2019 from $6.9 million in the prior year period. This increase is principally related to higher compensation and benefit expenses related to a larger staff, severance charges, and legal and professional fees associated with the Company’s ongoing litigation and the SolSys merger.

22

Research and development expenses

Research and development expenses increased by $0.5 million or 16.7% to $3.6 million in the first three quarters of fiscal 2019 from $3.1 million in the prior year period. The Company is investing in the design and development of its next generation platform product, Nexus, which is expected to be available in mid-2019, subject to approval by the FDA of the Company’s 510(k) application. During the first three quarters of fiscal 2019 and 2018, approximately $1.8 million and $1.9 million, respectively, was charged to research and development expenses related to this product.

Other income (expense)

Other income was $28,891 in fiscal 2019 compared with $519,095 in the prior year period. This decrease related to the royalty income from MMIT in the prior year. This royalty agreement expired in August 2018.

Income taxes

For the nine months ended March 31, 2019 and 2018, the Company recorded an income tax expense of $0 and $5,243,422, respectively. For the nine months ended March 31, 2019 and 2018, the effective rate of 0% and (892.7%), 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 three quarters of fiscal 2018 included a one-time charge of $1,764,039 to revalue the Company’s deferred tax assets 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 2018, enacted on December 22, 2017. Income tax expense also included a $3.6 million 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 March 31, 2019 are not more likely-than-not realizable.

Income tax expense for the nine months ended March 31, 2019 includes a $1,164,000 valuation allowance against the Company’s deferred tax assets recorded in the period. In accordance with the guidance of ASC Topic 740, management concluded that in its judgment, the Company’s deferred tax assets at March 31, 2019 are not more likely-than-not realizable. The components of the tax provision are as follows:

	For the nine months ended
	March 31,
	2019			2018
Income tax expense (benefit)	$	(1,164,000	)	$	(97,744	)
Reduction of deferred tax assets relating to Tax Legislation		—			1,764,039
Valuation allowance on deferred tax assets		1,164,000			3,577,127
Net income tax expense	$	—		$	5,243,422

Liquidity and Capital Resources

Working capital at March 31, 2019 was $15.7 million. For the nine months ended March 31, 2019, cash used in operations was $2.6 million, consisting of $5.0 million relating to the loss from operations for the period, offset by $3.1 million of non-cash charges, and $0.7 million for increased working capital.

Cash used in investing activities during the nine months ended March 31, 2019 was $0.7 million, primarily consisting of the purchase of property, plant and equipment along with filing for additional patents.

Cash provided by financing activities during the nine months ended March 31, 2019 was $1.4 million, resulting from stock option exercises.

As of March 31, 2019, the Company had cash and cash equivalents of approximately $9.0 million and believes it has sufficient cash to finance operations for at least the next 12 months.

Relating to the internal investigation described herein, the Company has incurred approximately $3.4 million in investigative costs through March 31, 2019. Further, the Company could be subject to fines or penalties related to potential violations of the FCPA.

23

The Company is investing in the design and development of its next generation platform product, Nexus, of which $1.8 million in development costs have been incurred during the nine months ended March 31, 2019.

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 The Company’s condensed 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.

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 March 31, 2019. Based on that evaluation, and having concluded that the material weakness in our internal control over financial reporting initially reported in our Annual Report on Form 10-K for the fiscal year ended June 30, 2018 and in our subsequent Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, has been remediated and our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were effective as of March 31, 2019.

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 March 31, 2019 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

24

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

See Note 10. Commitments and Contingencies to our condensed consolidated financial statements included herein.

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, 2018. There have been no material changes from the risk factors disclosed in that Form 10-K.

Item 6. Exhibits

Exhibit No.	Description
3.1	Articles of Amendment and Restated Certificate of Incorporation of Misonix, Inc.
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: May 8, 2019	By:	/s/ Stavros G. Vizirgianakis
		Stavros G. Vizirgianakis
		Chief Executive Officer
	By:	/s/ Joseph P. Dwyer
		Joseph P. Dwyer
		Chief Financial Officer

26 

EX-3.1

EXHIBIT 3.1

RESTATED CERTIFICATE OF INCORPORATION

OF

MISONIX, INC.

Under Section 807 of the Business Corporation Law

The undersigned, being the President and Secretary of MISONIX, INC., do hereby certify as follows:

(1) The name of the Corporation is MISONIX, INC. The name under which the Corporation was formed was HEAT SYSTEMS-ULTRASONICS, INC.

(2) The Certificate of Incorporation of the Corporation was filed by the Department of State of the State of New York on the 31^st day of July 1967.

(3) The Certificate of Incorporation, as heretofore amended, is hereby amended or changed to effect one or more of the amendments or changes authorized by the Business Corporation Law, to wit:

(a) To increase the aggregate number of shares of Common Stock which the Corporation shall have authority to issue from 10,000,000 shares of Common Stock of the par value of $.01 per share, to 20,000,000 shares of Common Stock of the par value of $.01 per share.

(b) To change the address to which the Secretary of State shall mail a copy of process in any action or proceeding against the Corporation which may be served upon him.

(4) To accomplish the foregoing amendments:

(a) Article Fourth relating to the capital stock of the Corporation and Article Fifth relating to designation of the Secretary of State as agent for service of process of the Corporation are amended to read as set forth in the same numbered Articles of the Certificate of Incorporation of the Corporation as hereinafter restated.

(5) The text of the Certificate of Incorporation of the Corporation is hereby restated as further amended or changed herein to read as follows:

“CERTIFICATE OF INCORPORATION

OF

MISONIX, INC.

FIRST: The name of the Corporation is:

MISONIX, INC.

SECOND: The purposes for which the Corporation is formed are as follows:

To engage in any lawful act or activity for which corporations may be organized under the New York Business Corporation Law, provided that the Corporation is not formed to engage in any act or activity requiring the consent or approval of any state official, department, board, agency or other body without such consent or approval first being obtained.

THIRD: The principal office of the Corporation shall be located in the City of Farmingdale, County of Suffolk and State of New York.

FOURTH: The aggregate number of shares which the Corporation is authorized to issue is 22,000,000 shares, consisting of 20,000,000 shares of Common Stock of the par value of $.01 per share and 2,000,000 shares of Preferred Stock of the par value of $1.00 per share.

The relative rights, preferences and limitations of the shares of each class of capital stock are as follows:

(a) Common Stock.

(1) Subject to the rights of any other class or series of stock, the holders of shares of Common Stock shall be entitled to receive, when and as declared by the Board of Directors, out of the assets of the Corporation legally available therefor, such dividends as may be declared from time to time by the Board of Directors.

(2) Subject to such rights of any other class or series of securities as may be granted from time to time, the holders of shares of Common Stock shall be entitled to receive all the assets of the Corporation available for distribution to shareholders in the event of the voluntary or involuntary liquidation, dissolution or winding up of the Corporation, ratably, in proportion to the number of shares of Common Stock held by them. Neither the merger or consolidation of the Corporation into or with any corporation nor the merger or consolidation of any other corporation into or with the Corporation nor the sale, lease, exchange or other disposition (for cash, shares of stock, securities or other consideration) of all or substantially all the assets of the Corporation shall be deemed to be a dissolution, liquidation or winding up, voluntary or involuntary, of the Corporation.

(3) Common Stock shall not be subject to redemption.

(4) Subject to such voting rights of any other class or series of securities as may be granted from time to time pursuant to this Certificate of Incorporation, any amendment thereto, or the provisions of the laws of the State of New York governing business corporations, voting rights shall be vested exclusively in the holders of Common Stock. Each holder of Common Stock shall have one vote in respect of each share of such stock held.

(b) Preferred Stock. The Board of Directors of the Corporation is authorized, subject to limitations prescribed by law and the provisions of this Certificate of Incorporation, to provide for the issuance of the Preferred Stock in series, and by filing a certificate pursuant to the New York Business Corporation Law, to establish the number of shares to be included in each such series, and to fix the designation, relative rights, preferences and limitations of the shares of each such series. The authority of the Board of Directors with respect to each series shall include, but not be limited to, determination of the following:

(1) the number of shares constituting that series and the distinctive designation of that series;

(2) whether the holders of shares of that series shall be entitled to receive dividends and, if so, the rates of such dividends, conditions under which and times such dividends may be declared or paid, any preference of any such dividends to, and the relation to, the dividends payable on any other class or classes of stock or any other series of the same class and whether dividends shall be cumulative or non-cumulative and, if cumulative, from which date or dates;

(3) whether the holders of shares of that series shall have voting rights in addition to the voting rights provided by law and, if so, the terms and conditions of exercise of such voting rights;

(4) whether shares of that series shall be convertible into or exchangeable for shares of any other class, or any series of the same or any other class, and, if so, the terms and conditions thereof, including the date or dates when such shares shall be convertible into or exchangeable for shares of any other class, or any series of the same or any other class, the price or prices of or the rate or rates at which shares of such series shall be so convertible or exchangeable, and any adjustments which shall be made, and the circumstances in which any such adjustments shall be made, in the conversion or exchange price or rates;

(5) whether the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates;

(6) whether the shares of that series shall be subject to the operation of a retirement or sinking fund and, if so subject, the extent to and the manner in which it shall be applied to the purchase or redemption of the shares of that series, and the terms and provisions relative to the operation thereof;

(7) the rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation and any presence of any such rights to, and the relation to, the rights in respect thereto of any class or classes of stock or any other series of the same class; and

(8) any other relative rights, preferences and limitations of that series;

provided, however, that if the stated dividends and amounts payable on liquidation with respect to shares of any series of the Preferred Stock are not paid in full, the shares of all series of the Preferred Stock shall share ratably in the payment of dividends including accumulations, if any, in accordance with the sums which would be payable on such shares if all dividends were declared and paid in full, and in any distribution of assets (other than by way of dividends) in accordance with the sums which would be payable on such distribution if all sums payable were discharged in full.

FIFTH: The Secretary of State of the State of New York is hereby designated as the agent of the Corporation upon whom any process in any action or proceeding against the Corporation may be served, and the address to which the Secretary of State shall mail a copy of process in any action or proceeding against the Corporation which may be served upon him is: MISONIX, INC., 1938 New Highway, Farmingdale, New York 11735, Attn: President.

SIXTH: No holder of any of the shares of any class, and no holder of any of the shares of any series of any class, of the Corporation shall have any preemptive rights and, as such, no holder of any of the shares of any class, and no holder of any of the shares of any series of any class, of the Corporation shall be entitled as of right to subscribe for, purchase or otherwise acquire any shares of any class, or shares of any series of any class, of the Corporation which the Corporation proposes to issue or any rights or options which the Corporation proposes to grant for the purchase of shares of any class, or shares of any series of any class, of the Corporation or for the purchase of any shares, bonds, securities or obligations of the Corporation which are convertible into or exchangeable for, or which carry any rights to subscribe for, purchase or otherwise acquire shares of any class, or shares of any series of any class, of the Corporation, and any and all such shares, bonds, securities or obligations of the Corporation, whether now or hereafter authorized or created, may be issued, or may be reissued or transferred if the same have been reacquired and have treasury status, and any and all of such rights and options may be granted by the Board of Directors to such persons, firms, corporations and associations, for such lawful consideration and on such terms as the Board of Directors in its discretion may determine, without first offering the same, or any thereof, to any said holder.

SEVENTH: (a) The Corporation shall be permitted to indemnify, and advance expenses to, any officer, director or other person to the fullest extent from time to time permitted by law, and, to the extent consistent therewith shall indemnify or advance expenses to any such officer, director or other person to the fullest extent required by or pursuant to any present or future by-law of the Corporation, agreement approved by the Board of Directors, or resolution of shareholders or directors; and the adoption of any such resolution or entering into of any such agreement approved by the Board of Directors is hereby authorized.

(b) A director of the Corporation shall not be personally liable to the Corporation or its shareholders for damages for any breach of duty as a director; provided that, except as hereinafter provided, this Section SEVENTH shall neither eliminate nor limit liability: (a) if a judgment or final adjudication adverse to the director establishes that (i) the director’s acts or omissions were in bad faith or involved intentional misconduct or a knowing violation of law, (ii) the director personally gained in fact a financial profit or other advantage to which the director was not legally entitled, or (iii) the director’s acts violated Section 719 of the New York Business Corporation Law; or (b) for any act or omission prior to the effectiveness of this Section SEVENTH. If the Corporation hereafter may by law be permitted to further eliminate or limit the personal liability of directors, then pursuant hereto the liability of a director of the Corporation shall, at such time, automatically be further eliminated or limited to the fullest extent permitted by law. Any repeal of or modification to the provisions of this Section SEVENTH shall not adversely affect any right or protection of a director or the Corporation existing pursuant to this Section SEVENTH immediately prior to such repeal or modification.

EIGHTH: (a) The Board of Directors of the Corporation shall consist of three (3) directors subject to increase or decrease within the limits of not less than three (3) nor more than seven (7) directors, the exact number of directors within the minimum and maximum limitations specified herein to be determined from time to time by resolution of a majority of the entire Board of Directors; provided, however, that the number of directors shall be increased beyond the foregoing limit, to the extent required, in the event that (and for so long as) the holders of any Preferred Stock of the Corporation, voting as a separate class or series under any provisions of the Certificate of Incorporation, shall be entitled to elect any directors.

(b) No director of the Corporation shall be removed from office as a director except (i) for cause by the vote of (A) the holders of at least a majority of the outstanding shares of capital stock of the Corporation entitled to vote at an election of directors (considered for this purpose as one class) or (B) a majority of the entire Board of Directors or (ii) without cause by the majority vote of the holders of the outstanding shares of capital stock of the Corporation entitled to vote at an election of directors (considered for this purpose as one class), provided that this provision shall not apply to any directors elected by holders of any Preferred Stock voting as a separate class or series under any provisions of the Certificate of Incorporation, which directors may be removed only as provided in the provisions of the Certificate of Incorporation relating to any such Preferred Stock.”

(6) The amendments to, and restatement of, the Certificate of Incorporation of the Corporation herein provided for were authorized by the unanimous written consent of the Board of Directors of the Corporation and by the affirmative vote of the holders of at least a majority of all outstanding shares of the Corporation’s Common Stock entitled to vote thereon at the Annual Meeting of Shareholders of the Corporation held December 11, 2008.

IN WITNESS WHEREOF, we have subscribed this document this 12^th day of December, 2008, and do hereby affirm, under penalty of perjury, that the statements contained therein have been examined by us and are true and correct.

MISONIX, INC.

/s/ Michael A. McManus, Jr.

Michael A. McManus, Jr.,

President

/s/ Richard Zaremba

Richard Zaremba, Secretary

CERTIFICATE OF AMENDMENT

OF THE

CERTIFICATE OF INCORPORATION

OF

MISONIX, INC.

Under Section 805 of the Business Corporation Law

The undersigned, being the President and Chief Executive Officer of MISONIX, INC., does hereby certify:

1. The name of the Corporation is MISONIX, INC. It was formed under the name HEAT SYSTEMS-ULTRASONICS, INC.

2. The Certificate of Incorporation of the corporation was filed by the Department of State of the State of New York on July 31, 1967.

3. The Certificate of Incorporation is hereby amended as authorized by Section 801 of the Business Corporation Law to increase the aggregate number of shares of the corporation’s authorized Common Stock, par value $.01 per share, from 20,000,000 shares to 40,000,000 shares. The 2,000,000 presently authorized shares of Preferred Stock, par value $1.00 per share, are remaining unchanged. The amendment effected by this certificate of amendment is as follows: the first sentence of Article FOURTH of the corporations Certificate of Incorporation is hereby amended to read as follows:

“FOURTH: The aggregate number of shares which the Corporation is authorized to issue is 42,000,000 shares, consisting of 40,000,000 shares of Common Stock of the par value of $.01 per share and 2,000,000 shares of Preferred Stock of the par value of $1.00 per share.”

4. The amendment of the corporation’s Certificate of Incorporation set forth herein was authorized by the vote of the members of the corporation’s Board of Directors taken at a duly authorized meeting of the Board of Directors, followed by the affirmative vote of the holders of a majority of the outstanding shares entitled to vote thereon at a meeting of the corporation’s shareholders.

IN WITNESS WHEREOF, I have hereunto executed this Certificate of Amendment this 7^th day of May. 2018.

MISONIX, INC.

/s/ Stavros G. Vizirgianakis.

Stavros G Vizirgianakis

President and Chief Executive Officer

EX-31.1

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(s) 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(s) 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: May 8, 2019	By:	/s/ Stavros G. Vizirgianakis
		Stavros G. Vizirgianakis
		Chief Executive Officer

27 

EX-31.2

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(s) 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(s) 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: May 8, 2019	By:	/s/ Joseph P. Dwyer
		Joseph P. Dwyer
		Chief Financial Officer

28 

EX-32.1

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 March 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stavros G. Vizirgianakis, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Dated: May 8, 2019	By:	/s/ Stavros G. Vizirgianakis
		Stavros G. Vizirgianakis Chief Executive Officer

29 

EX-32.2

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 March 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Joseph P. Dwyer, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Dated: May 8, 2019	By:	/s/ Joseph P. Dwyer
		Joseph P. Dwyer
		Chief Financial Officer

30

XML

Document and Entity Information - shares	9 Months Ended
	Mar. 31, 2019	Apr. 25, 2019
Document And Entity Information
Entity Registrant Name	MISONIX INC
Entity Central Index Key	0000880432
Document Type	10-Q
Trading Symbol	MSON
Document Period End Date	Mar. 31, 2019
Amendment Flag	false
Current Fiscal Year End Date	--06-30
Entity's Reporting Status Current	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Ex Transition Period	false
Entity Common Stock, Shares Outstanding		9,641,103
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2019

XML

Condensed Consolidated Balance Sheets (Unaudited) - USD ($)	Mar. 31, 2019	Jun. 30, 2018
Current assets:
Cash and cash equivalents	$ 9,012,220	$ 10,979,455
Accounts receivable, less allowance for doubtful accounts of $160,000 and $200,000, respectively	5,333,839	5,245,549
Inventories, net	6,332,586	5,019,886
Prepaid expenses and other current assets	864,452	611,647
Total current assets	21,543,097	21,856,537
Property, plant and equipment, net of accumulated amortization and depreciation of $10,097,703 and $9,023,235, respectively	4,394,548	4,188,378
Patents, net of accumulated amortization of $1,169,131 and $1,063,393, respectively	779,621	757,447
Goodwill	1,701,094	1,701,094
Contract assets	960,000
Intangible and other assets	433,842	517,295
Total assets	29,812,202	29,020,751
Current liabilities:
Accounts payable	3,521,657	1,794,098
Accrued expenses and other current liabilities	2,325,023	2,411,172
Deferred income	3,995	13,303
Total current liabilities	5,850,675	4,218,573
Non current liabilities	401,000	401,000
Total liabilities	6,251,675	4,619,573
Commitments and contingencies
Shareholders' equity:
Common stock, $.01 par value-shares authorized 40,000,000; 9,641,103 and 9,430,466 shares issued and outstanding in each period	96,411	94,305
Additional paid-in capital	43,011,214	39,772,973
Accumulated deficit	(19,547,098)	(15,466,100)
Total shareholders' equity	23,560,527	24,401,178
Total liabilities and shareholders' equity	$ 29,812,202	$ 29,020,751

XML

Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($)	Mar. 31, 2019	Jun. 30, 2018
Statement of Financial Position [Abstract]
Allowance for doubtful accounts	$ 160,000	$ 200,000
Accumulated amortization and depreciation	10,097,703	9,023,235
Patents, Accumulated amortization	$ 1,169,131	$ 1,063,393
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, authorized	40,000,000	40,000,000
Common stock, issued	9,641,103	9,430,466
Common stock, outstanding	9,641,103	9,430,466

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Mar. 31, 2019	Mar. 31, 2018
Revenues
Total revenue	$ 9,556,590	$ 12,439,132	$ 29,094,208	$ 28,043,700
Cost of goods sold	2,801,571	2,631,893	8,600,194	7,275,073
Gross profit	6,755,019	9,807,239	20,494,014	20,768,627
Operating expenses:
Selling expenses	4,414,710	4,447,421	13,950,357	11,937,649
General and administrative expenses	2,512,510	1,925,086	8,043,078	6,879,077
Research and development expenses	1,426,483	1,199,895	3,570,468	3,058,374
Total operating expenses	8,353,703	7,572,402	25,563,903	21,875,100
(Loss) income from operations	(1,598,684)	2,234,837	(5,069,889)	(1,106,473)
Other income (expense):
Interest income	22,653	9,074	59,708	9,131
Royalty income		916		525,438
Other	(13,650)	(5,712)	(30,817)	(15,474)
Total other income	9,003	4,278	28,891	519,095
(Loss) income from operations before income taxes	(1,589,681)	2,239,115	(5,040,998)	(587,378)
Income tax expense				5,243,422
Net (loss) income	$ (1,589,681)	$ 2,239,115	$ (5,040,998)	$ (5,830,800)
Net (loss) income per share:
Basic (in dollars per share)	$ (0.17)	$ 0.24	$ (0.55)	$ (0.65)
Diluted (in dollars per share)	$ (0.17)	$ 0.23	$ (0.55)	$ (0.65)
Product [Member]
Revenues
Total revenue	$ 9,556,590	$ 8,429,132	$ 29,094,208	$ 24,033,700
License [Member]
Revenues
Total revenue		$ 4,010,000		$ 4,010,000

XML

Condensed Consolidated Statement of Shareholders' Equity (Unaudited) - USD ($)	Common Stock [Member]	Additional Paid-in Capital [Member]	Accumulated Deficit [Member]	Total
Balance at beginning at Jun. 30, 2017	$ 93,572	$ 36,808,810	$ (8,762,540)	$ 28,139,842
Balance at beginning (in shares) at Jun. 30, 2017	9,357,166
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Implementation of new accounting standard			908,875	908,875
Proceeds from exercise of stock options	$ 85	56,117		56,202
Proceeds from exercise of stock options (in shares)	8,500
Stock-based compensation		625,293		625,293
Net loss			(1,212,224)	(1,212,224)
Balance at ending at Sep. 30, 2017	$ 93,657	37,490,220	(9,065,889)	28,517,988
Balance at ending (in shares) at Sep. 30, 2017	9,365,666
Balance at beginning at Jun. 30, 2017	$ 93,572	36,808,810	(8,762,540)	28,139,842
Balance at beginning (in shares) at Jun. 30, 2017	9,357,166
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss				(5,830,800)
Balance at ending at Mar. 31, 2018	$ 94,025	39,117,601	(13,684,465)	25,527,161
Balance at ending (in shares) at Mar. 31, 2018	9,402,466
Balance at beginning at Sep. 30, 2017	$ 93,657	37,490,220	(9,065,889)	28,517,988
Balance at beginning (in shares) at Sep. 30, 2017	9,365,666
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Proceeds from exercise of stock options	$ 350	168,000		168,350
Proceeds from exercise of stock options (in shares)	35,000
Stock-based compensation		844,601		844,601
Net loss			(6,856,774)	(6,856,774)
Balance at ending at Dec. 31, 2017	$ 94,007	38,502,821	(15,922,663)	22,674,165
Balance at ending (in shares) at Dec. 31, 2017	9,400,666
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Proceeds from exercise of stock options	$ 18	3,653		3,671
Proceeds from exercise of stock options (in shares)	1,800
Stock-based compensation		611,127		611,127
Net loss			2,238,198	2,239,115
Balance at ending at Mar. 31, 2018	$ 94,025	39,117,601	(13,684,465)	25,527,161
Balance at ending (in shares) at Mar. 31, 2018	9,402,466
Balance at beginning at Jun. 30, 2018	$ 94,305	39,772,973	(15,466,100)	24,401,178
Balance at beginning (in shares) at Jun. 30, 2018	9,430,466
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Cumulative effect of the adoption of ASC 606 - revenue recognition			960,000	960,000
Proceeds from exercise of stock options	$ 517	415,230		415,747
Proceeds from exercise of stock options (in shares)	51,660
Stock-based compensation		1,004,498		1,004,498
Net loss			(2,610,986)	(2,610,986)
Balance at ending at Sep. 30, 2018	$ 94,822	41,192,701	(17,117,086)	24,170,437
Balance at ending (in shares) at Sep. 30, 2018	9,482,126
Balance at beginning at Jun. 30, 2018	$ 94,305	39,772,973	(15,466,100)	$ 24,401,178
Balance at beginning (in shares) at Jun. 30, 2018	9,430,466
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Proceeds from exercise of stock options (in shares)				240,210
Net loss				$ (5,040,998)
Balance at ending at Mar. 31, 2019	$ 96,411	43,011,214	(19,547,098)	23,560,527
Balance at ending (in shares) at Mar. 31, 2019	9,641,103
Balance at beginning at Sep. 30, 2018	$ 94,822	41,192,701	(17,117,086)	24,170,437
Balance at beginning (in shares) at Sep. 30, 2018	9,482,126
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Proceeds from exercise of stock options	$ 1,020	450,570		451,590
Proceeds from exercise of stock options (in shares)	102,052
Stock-based compensation		500,088		500,088
Net loss			(840,331)	(840,331)
Balance at ending at Dec. 31, 2018	$ 95,842	42,143,359	(17,957,417)	24,281,784
Balance at ending (in shares) at Dec. 31, 2018	9,584,178
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Proceeds from exercise of stock options	$ 569	483,267		483,836
Proceeds from exercise of stock options (in shares)	56,925
Stock-based compensation		384,588		384,588
Net loss			(1,589,681)	(1,589,681)
Balance at ending at Mar. 31, 2019	$ 96,411	$ 43,011,214	$ (19,547,098)	$ 23,560,527
Balance at ending (in shares) at Mar. 31, 2019	9,641,103

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	9 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Operating activities
Net loss	$ (5,040,998)	$ (5,830,800)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization	1,180,206	1,046,511
Disposals of property, plant and equipment		138,972
Bad debt expense	69,613
Deferred income tax expense		5,243,422
Stock-based compensation	1,889,175	2,081,021
Deferred lease liability	(9,308)	(7,015)
Changes in operating assets and liabilities:
Accounts receivable	(157,903)	654,610
Inventories	(2,004,812)	(1,194,747)
Prepaid expenses and other current assets	(252,805)	(92,987)
Deferred income		5,514
Intangible and other assets	83,453
Accounts payable, accrued expenses and other current liabilities	1,641,410	(1,041,513)
Net cash (used in) / provided by operating activities	(2,601,969)	1,002,988
Investing activities
Acquisition of property, plant and equipment	(588,526)	(358,013)
Additional patents	(127,912)	(120,638)
Net cash used in investing activities	(716,438)	(478,651)
Financing activities
Proceeds from exercise of stock options	1,351,172	228,223
Net cash provided by financing activities	1,351,172	228,223
Net (decrease) increase in cash and cash equivalents	(1,967,235)	752,560
Cash and cash equivalents at beginning of period	10,979,455	11,557,071
Cash and cash equivalents at end of period	9,012,220	12,309,631
Cash paid for:
Income taxes	71,787	895
Transfer of inventory to property, plant and equipmment for consignment of product	692,112	1,022,680
Adoption of new accounting standard on deferred taxes		$ 908,875

XML

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

9 Months Ended

Mar. 31, 2019

Accounting Policies [Abstract]

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

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

Basis of Presentation

These condensed 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 condensed 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, 2018, 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 and markets minimally invasive therapeutic ultrasonic medical devices. These 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. In the United States, our products are marketed primarily through a hybrid sales approach. This includes direct sales representatives, managed by regional sales managers, along with independent distributors. Outside the United States, we sell BoneScalpel and SonaStar to specialty distributors who purchase products from us to resell to their clinical customer bases. We sell to all major markets in the Americas, Europe, Middle East, Asia Pacific and Africa. The Company operates as one business segment.

Pending Merger with Solsys Medical, LLC

On May 2, 2019, the Company announced that it has entered into a definitive agreement with Solsys Medical, LLC (“Solsys”), a privately held regenerative medical company, to acquire Solsys in an all-stock transaction valued at approximately $97 million. The planned acquisition of Solsys is expected to substantially broaden Misonix’s addressable market through wound care solutions that are complementary to its existing products. The transaction has been approved by both the Company’s Board of Directors and the Solsys Board of Managers. After the completion of the transaction, it is expected that Misonix shareholders immediately prior to the closing will own 64% of the combined entity, and Solsys unitholders will own 36%. The completion of the acquisition and the issuance of shares in connection with the proposed transaction is subject to the approval by Misonix shareholders and the completion of the transaction is subject to approval by 55% of Solsys’ Series E unitholders and a majority of its Common unitholders, Series A unitholders, Series B unitholders, Series C unitholders and Series D unitholders, voting as a single class, as well as the satisfaction of certain customary closing conditions. The Company will convene a special shareholder meeting to vote on the transaction. The Company anticipates that the transaction will close in the third quarter of calendar year 2019. Professional fees incurred during the quarter ended March 31, 2019 with respect to this matter were $98,000.

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 is obligated to 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. No payments were received for the nine months ended March 31, 2019 and 2018. Cumulative royalties paid to the Company through March 31, 2019 were $2,542,579.

Major Customers and Concentration of Credit Risk

Included in revenues are sales to the Company’s distributor of Bone Scalpel in China of approximately $4 million and $0, for the nine months ended March 31, 2019 and 2018, respectively. Accounts receivable from this customer were $1 million and $0 at March 31, 2019 and June 30, 2018, respectively.

Total royalties from Medtronic Minimally Invasive Therapies (“MMIT”) related to its 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 $0 and $524,000 for both the three and nine months ended March 31, 2019 and 2018, respectively. Accounts receivable from MMIT royalties were $0 at March 31, 2019 and June 30, 2018. The license agreement with MMIT expired in August 2018.

At March 31, 2019 and June 30, 2018, the Company’s accounts receivable with customers outside the United Sates were approximately $2,500,000 and $1,630,000, respectively, $152,000 of which is over 90 days at March 31, 2019.

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 of the Company is 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:

	For the three months ended				For the nine months ended
	March 31,				March 31,
	2019		2018		2019		2018
Basic weighted average shares outstanding		9,390,665		9,028,506		9,245,879		8,999,938
Dilutive effect of resticted stock awards
(participating securities)		—		373,200		—		—
Denominator for basic earnings per share		9,390,665		9,401,706		9,245,879		8,999,938
Dilutive effect of stock options		—		174,238		—		—
Diluted weighted average shares outstanding		9,390,665		9,575,944		9,245,879		8,999,938

Diluted EPS for the three and nine months ended March 31, 2019 and the nine months ended March 31, 2018 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 484,966 and 0 shares of common stock for the three months ended March 31, 2019 and 2018, respectively, and the dilutive effect of options to purchase 491,212 and 482,093 shares of common stock for the nine months ended March 31, 2019 and 2018, respectively. Also excluded from the calculation of earnings per share for the three and nine months ended March 31, 2019 and 2018 are the unvested restricted stock awards which were issued in December 2016.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued ASC Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), which was subsequently updated (“ASU 2014-09”). The purpose of the updated standard is to provide enhancements to the quality and consistency of revenue recognition between companies using U.S. GAAP and International Financial Reporting Standards. The new five-step recognition model introduces the core principle of recognizing revenue in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the promised goods or services, which includes additional footnote disclosures to describe the nature, amount, timing and uncertainty of revenue, certain costs and cash flow arising from customers.

As amended, ASU 2014-09 requires the Company to use either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients; or (ii) a modified retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption. This standard became effective for the Company on July 1, 2018 and the Company adopted the new pronouncement under the modified retrospective approach.

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, Accounting Standards Update (“ASU”) 2016-02 – Leases (Topic 842). 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 evaluating this guidance to determine the impact it will have on its consolidated 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) ASU 2016-15, Statement of Cash Flows (Topic 230) (“ASU 2016-150”). 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 became effective for the Company beginning in fiscal 2019. As this guidance only affects the classification within the statement of cash flows, ASU 2016-15 did not have a material impact on the Company’s consolidated financial statements.

In January 2018, the FASB issued ASU No. 2018-01, Business Combinations: Clarifying the Definition of a Business (“ASU 2018-01”). ASU 2018-01 clarifies the definition of a business for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2018-01 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2018, and early adoption is permitted. The Company’s adoption of ASU 2018-01 did not have a material effect on the Company’s consolidated financial statements.

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.

Critical Accounting Policies and Use of Estimates

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.

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Revenue Recognition

9 Months Ended

Mar. 31, 2019

Revenue Recognition [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 which were not completed as of the adoption date. The reported results for the nine months ended March 31, 2019 reflect the application of Topic 606 guidance while the reported results for fiscal year 2018 were prepared under the guidance of ASC Topic 605, “Revenue Recognition”. The 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 Exclusive Manufacturing Agreement described below, but the remainder of the adoption did not have a material impact on the timing or amount of revenue recognized.

The impacts of adopting ASC Topic 606 on the Company’s consolidated balance sheets as of July 1, 2018 were as follows:

					As
					Adjusted
	As		ASC 606		Under
	Reported		Adjustments		ASC 606
Contract assets	$	—	$	960,000	$	960,000
Total Shareholders’ equity	$	24,401,178	$	960,000	$	25,361,178

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.

The Company determines revenue recognition through the following steps:

● Identification of the contract, or contracts, with a customer

● Identification of the performance obligations in the contract

● Determination of the transaction price

● Allocation of the transaction price to the performance obligations in the contract

● Recognition of revenue when, or as, a performance obligation is satisfied

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. The Company historically has not made provisions for returns and allowances as they have not been material to the operations of the Company.

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 it’s 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 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.

Contract Specific Performance Obligations and Significant Judgements

Product Placement/Consignment Agreements

The Company’s product placement/consignment agreements provide for the placement of a generator at the customer’s place of business and set pricing related to the purchase of consumables for use in conjunction with the generator. 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.

License and Manufacturing Agreement

On October 19, 2018, the Company entered into a License and Exclusive Manufacturing Agreement (the “L&M 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 Licensee was obligated to make an initial payment of $5,000,000 for the transfer of functional intellectual property and initial stocking orders of product. In addition, the Licensee is required to make minimum royalty payments of $2,000,000 per calendar year for three years beginning in 2019, based upon the manufacture of products by the Licensee. The Company collected $5,000,000 of initial revenue for the quarter ended March 31, 2018 under ASC 605. Upon the adoption of ASC Topic 606, the Company evaluated this contract under the provisions of the new revenue standard. The Company determined that the satisfied performance obligations and allocation of the transaction price related to the $5,000,000 received prior to adoption was consistent with the provisions of ASC Topic 606 and also recorded a transitional adjustment to accumulated deficit in the amount of $960,000 as follows:

Minimum royalty revenue provided by the contract	$	6,000,000
Implicit price concession		(5,040,000	)
Adoption adjustment to accumulated deficit under ASC Topic 606	$	960,000

Although the contract includes minimum royalties, the Company concluded that a significant portion of those guaranteed minimums are actually variable consideration subject to the constraint because the Company has provided an implicit price concession. Specifically, the fact that production of the product in China is not assured and the Licensee must develop a manufacturing process, coupled with the fact that new technology related to the product is expected to be available for sale domestically, may result in the Licensee not earning sufficient revenue in order to pay the minimum royalties. Therefore, the Company has determined variable consideration through utilization of the most likely method based upon forecasts and projections of shipment of products.

The Company will monitor facts and circumstances over time and adjust management’s most likely estimate of variable consideration on a quarterly basis.

Disaggregation of Revenue

The Company generates revenue from the sale and leasing of medical equipment and from the sale of consumable products used with medical equipment in surgical procedures as well as through product licensing arrangements. In the United States, the Company’s products are marketed primarily through a hybrid sales approach which 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 which is recognized over time, but not stated separately because the amounts are immaterial.

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

	For the three months ended				For the nine months ended
	March 31,				March 31,
	2019		2018		2019		2018
Total
Consumables	$	6,870,398	$	5,898,937	$	20,785,446	$	17,404,539
Equipment		2,686,192		2,530,195		8,308,762		6,629,161
Total Product		9,556,590		8,429,132		29,094,208		24,033,700
License		—		4,010,000		—		4,010,000
Total	$	9,556,590	$	12,439,132	$	29,094,208	$	28,043,700
Domestic:
Consumables	$	4,862,308	$	4,340,759	$	15,170,476	$	13,063,171
Equipment		547,470		590,269		1,727,181		1,920,424
Total	$	5,409,778	$	4,931,028	$	16,897,657	$	14,983,595
International:
Consumables	$	2,008,090	$	1,558,178	$	5,614,970	$	4,341,368
Equipment		2,138,722		1,939,926		6,581,581		4,708,737
Total	$	4,146,812	$	3,498,104	$	12,196,551	$	9,050,105
License	$	—	$	4,010,000	$	—	$	4,010,000

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 March 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.

The Company has established a contract asset in conjunction with the Company’s L&M Agreement based upon its assessment of the most likely variable consideration to be received by the Company as a result of the royalty provisions in the contract. The asset is recorded as a long-term asset as the Company believes that payment will be made on this asset in a duration exceeding one year. Contract assets as of March 31, 2019 and June 30, 2018 were $960,000 and $0, respectively.

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 fulfillment 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.

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Fair Value of Financial Instruments

9 Months Ended

Mar. 31, 2019

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

3. Fair Value of Financial Instruments

The Company follows 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 March 31, 2019 and June 30, 2018, all of the Company’s cash and cash equivalents, trade accounts receivable and trade accounts payable were short term in nature, and their carrying amounts approximate fair value.

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Inventories

9 Months Ended

Mar. 31, 2019

Inventory Disclosure [Abstract]

Inventories

4. Inventories

Inventories are summarized as follows:

	March 31,			June 30,
	2019			2018
Raw material	$	3,698,319		$	3,540,205
Work-in-process		323,650			180,442
Finished goods		2,754,875			1,743,497
		6,776,844			5,464,144
Less valuation reserve		(444,258	)		(444,258	)
	$	6,332,586		$	5,019,886

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Property, Plant and Equipment

9 Months Ended

Mar. 31, 2019

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment

5. Property, Plant and Equipment

Depreciation and amortization of property, plant and equipment was $1,074,000 and $953,000 for the nine months ended March 31, 2019 and 2018, 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 is expensed over a 5-year period, and depreciation is charged to selling expenses.

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Goodwill

9 Months Ended

Mar. 31, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill

6. Goodwill

The excess of the cost over the fair value of net assets of acquired businesses is recorded as goodwill. Goodwill is not subject to amortization, but is reviewed for impairment at the reporting unit level annually, or more frequently if impairment indicators arise. The Company’s assessment of the recoverability of goodwill is based upon a comparison of the carrying value of goodwill with its estimated fair value and the value of the Company at the measurement date.

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’s market capitalization exceeds the value of the goodwill. The Company concluded that there was no impairment to goodwill at June 30, 2018 and June 30, 2017. There were no triggering events identified during the quarter ended March 31, 2019.

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Patents

9 Months Ended

Mar. 31, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Patents

7. 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, net of accumulated amortization, totaled $779,621 and $757,447 at March 31, 2019 and June 30, 2018, respectively. Amortization expense for the nine months ended March 31, 2019 and 2018 was $106,000 and $94,000, respectively. The following is a schedule of estimated future patent amortization expenses by fiscal year as of March 31, 2019:

2019	$	34,998
2020		117,217
2021		110,025
2022		72,364
2023		71,273
Thereafter		373,744
	$	779,621

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Accrued Expenses and Other Current Liabilities

9 Months Ended

Mar. 31, 2019

Payables and Accruals [Abstract]

Accrued Expenses and Other Current Liabilities

8. Accrued Expenses and Other Current Liabilities

The following summarizes accrued expenses and other current liabilities:

	March 31,		June 30,
	2019		2018
Accrued payroll, payroll taxes and vacation	$	443,623	$	351,435
Accrued bonus		450,144		552,988
Accrued commissions		698,534		742,807
Professional fees		167,240		102,065
Vendor, tax and other accruals		565,482		661,877
	$	2,325,023	$	2,411,172

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Stock-Based Compensation Plans

9 Months Ended

Mar. 31, 2019

Share-based Payment Arrangement [Abstract]

Stock-Based Compensation Plans

9. Stock-Based Compensation Plans

Stock Option Awards

For the nine months ended March 31, 2019 and 2018, the compensation cost relating to stock option awards that has been charged against income for the Company’s stock option plans was $896,730 and $1,405,152, respectively. As of March 31, 2019, there was $2,965,772 of total unrecognized compensation cost related to non-vested share-based compensation arrangements to be recognized over a weighted-average period of 2.9 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 per share at date of grant for options granted during the nine months ended March 31, 2019 was $9.22. There were options to purchase 255,000 and 305,500 shares granted during the nine months ended March 31, 2019 and 2018, respectively. The fair value was estimated based on the weighted average assumptions of:

	For nine months ended
	March 31, 2019
	2019			2018
Risk-free interest rates		2.80	%		1.98	%
Expected option life in years		6.25			5.95
Expected stock price volatility		56.01	%		57.42	%
Expected dividend yield		0	%		0	%

A summary of option activity under the Company’s equity plans as of March 31, 2019, and changes during the nine months ended March 31, 2019 is presented below:

	Outstanding Shares			Average Exercise Price		Aggregate Intrinsic Value
Outstanding at June 30, 2018		1,330,193		$	8.47	$	5,369,557
Granted		255,000			16.64
Exercised		(240,210	)		7.97
Forfeited		(159,252	)		10.18
Expired		(15,000	)		2.66
Outstanding as of March 31, 2019		1,170,731		$	10.27	$	10,530,733
Vested and exercisable at March 31, 2019		642,355		$	8.28	$	7,034,104

The total fair value of stock options vested during the nine months ended March 31, 2019 was $1,101,971. The number and weighted-average grant-date fair value of non-vested stock options at the beginning of fiscal 2018 was 648,877 and $5.08, respectively. The number and weighted-average grant-date fair value of stock options which vested during the nine months ended March 31, 2019 was 220,624 and $4.99, 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. Compensation expense recorded in the nine months ended March 31, 2019 and 2018 related to these awards was $992,445 and $675,869 respectively. As of March 31, 2019, there was approximately $1,256,204 of total unrecognized compensation cost related to non-vested restricted stock awards to be recognized over a weighted-average period of 2.82 years. The awards contain a combination of vesting terms which include time vesting, performance vesting relating to revenue achievement, and market vesting related to obtaining certain levels of Company stock prices. At March 31, 2019, the Company has estimated that it is probable that the performance conditions will be met. The awards were valued using a Monte Carlo valuation model using a stock price at the date of grant of $9.60, a term of 3 to 5 years, a risk free interest rate of 1.6% to 2.1% and a volatility factor of 66.5%. As of March 31, 2019, 186,600 shares from this set of awards have vested.

During the nine months ended March 31, 2019, the performance conditions of one of these restricted stock awards were met, resulting in the full amortization of this award during the period, totaling $475,286 of additional amortization during the first quarter of the current fiscal year. The number of restricted stock awards which vested was 133,333.

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Commitments and Contingencies

9 Months Ended

Mar. 31, 2019

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

10. 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 $28,000.

Class Action Securities Litigation

On September 19, 2016, Richard Scalfani, an individual shareholder of Misonix, filed a lawsuit against the Company and its former chief executive officer and chief financial officer 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 the Company’s products in China and the Company’s knowledge of those business practices, which may have had implications under the FCPA, as well as into various internal controls issues identified during the investigation (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 information to the SEC and the DOJ, if requested, and is cooperating fully with these agencies in their 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, including costs of litigation relating to the Company’s former Chinese distributor as described below, are approximately $3.7 million, of which approximately $0.2 million and $0.6 million was charged to general and administrative expenses during the three and nine months ended March 31, 2019, respectively, compared with $0.1 million and $0.3 million for the three and nine months ended March 31, 2018.

Former Chinese Distributor - Litigation

On April 5, 2018, 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, 2018, 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 currently remaining in the case is for breach of contract against the Company; the plaintiff has moved to amend its complaint to add tort claims, which the Company intends to oppose. The Company believes it has various legal and factual defenses to the allegations in the complaint, and intends to vigorously defend the action. Fact discovery in the case is currently scheduled to end on May 31, 2019, and there is no trial date currently set.  

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 chief executive officer and chief financial officer, 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. On July 16, 2018, counsel for the Company and counsel for Mr. Feldbaum and Mr. Rubin informed the District Court that the parties had reached a settlement in principle. On May 7, counsel for Mr. Feldbaum and Mr. Rubin filed a motion for preliminary approval of the settlement, to which the executed settlement agreement is an exhibit.  The Company has agreed to certain corporate governance reforms in resolving the case and to pay counsel for Mr. Feldbaum and Mr. Rubin an attorneys fee of $500,000 which is expected to be covered by Misonix’s insurance carrier.  If the court preliminarily approves the settlement, the settlement will remain subject to the district court's final approval.

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Related Party Transactions

9 Months Ended

Mar. 31, 2019

Related Party Transactions [Abstract]

Related Party Transactions

11. 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 Company’s chief executive officer.

Sales to OrthoXact for the nine months ended March 31, 2019 and 2018 were $996,631 and $675,943, respectively. Accounts receivable at March 31, 2019 and June 30, 2019 were $286,852 and $120,376, respectively.

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Income Taxes

9 Months Ended

Mar. 31, 2019

Income Tax Disclosure [Abstract]

Income Taxes

12. Income Taxes

For the three and nine months ended March 31, 2019 and 2018, the Company recorded income tax expense (benefit), as follows:

	For the three months ended						For the nine months ended
	March 31,						March 31,
	2019			2018			2019			2018
Income tax expense (benefit)	$	(509,000	)	$	411,405		$	(1,164,000	)	$	(97,744	)
Reduction of deferred tax assets relating to Tax Legislation		—						—			1,764,039
Valuation allowance on deferred tax assets		509,000			(411,405	)		1,164,000			3,577,127
Net income tax expense	$	—		$	—		$	—		$	5,243,422

For the nine months ended March 31, 2019 and 2018, the effective rate of 0% and (892.7%), 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 2018.

Tax Cuts and Jobs Act of 2017

The Tax Cuts and Jobs Act of 2017, 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.

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.

he Company regularly assesses its ability to realize its deferred tax assets. While the Company had positive cumulative pretax income as of June 30, 2018, based on actual results for fiscal 2018 and the Company’s current forecast for fiscal 2019 the Company is in a three-year cumulative loss position at March 31, 2019, and it expects to be in a cumulative pretax loss position as of June 30, 2019. Management evaluated available positive evidence, including the continued growth of the Company’s revenues and gross profit margins, its recent SonaStar technology license to its Chinese partner and the reduction in investigative and professional fees recognized in fiscal 2018, 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 against its deferred tax assets. 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.

As of March 31, 2019 and June 30, 2018, the Company had no material unrecognized tax benefits or accrued interest and penalties.

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Segment Reporting

9 Months Ended

Mar. 31, 2019

Segment Reporting [Abstract]

Segment Reporting

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 and license revenue is categorized as follows:

	For the three months ended				For the nine months ended
	March 31,				March 31,
	2019		2018		2019		2018
Product revenue:
Domestic	$	5,409,778	$	4,931,028	$	16,897,657	$	14,983,595
International		4,146,812		3,498,104		12,196,551		9,050,105
Total		9,556,590		8,429,132		29,094,208		24,033,700
License revenue		—		4,010,000		—		4,010,000
Total revenue	$	9,556,590	$	12,439,132	$	29,094,208	$	28,043,700

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

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Basis of Presentation, Organization and Business and Summary of Significant Accounting Policies (Policies)

9 Months Ended

Mar. 31, 2019

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

These condensed 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 condensed 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, 2018, 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

Organization and Business

Misonix designs, manufactures and markets minimally invasive therapeutic ultrasonic medical devices. These 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. In the United States, our products are marketed primarily through a hybrid sales approach. This includes direct sales representatives, managed by regional sales managers, along with independent distributors. Outside the United States, we sell BoneScalpel and SonaStar to specialty distributors who purchase products from us to resell to their clinical customer bases. We sell to all major markets in the Americas, Europe, Middle East, Asia Pacific and Africa. The Company operates as one business segment.

Pending Merger with Solsys Medical, LLC

Pending Merger with Solsys Medical, LLC

On May 2, 2019, the Company announced that it has entered into a definitive agreement with Solsys Medical, LLC (“Solsys”), a privately held regenerative medical company, to acquire Solsys in an all-stock transaction valued at approximately $97 million. The planned acquisition of Solsys is expected to substantially broaden Misonix’s addressable market through wound care solutions that are complementary to its existing products. The transaction has been approved by both the Company’s Board of Directors and the Solsys Board of Managers. After the completion of the transaction, it is expected that Misonix shareholders immediately prior to the closing will own 64% of the combined entity, and Solsys unitholders will own 36%. The completion of the acquisition and the issuance of shares in connection with the proposed transaction is subject to the approval by Misonix shareholders and the completion of the transaction is subject to approval by 55% of Solsys’ Series E unitholders and a majority of its Common unitholders, Series A unitholders, Series B unitholders, Series C unitholders and Series D unitholders, voting as a single class, as well as the satisfaction of certain customary closing conditions. The Company will convene a special shareholder meeting to vote on the transaction. The Company anticipates that the transaction will close in the third quarter of calendar year 2019. Professional fees incurred during the quarter ended March 31, 2019 with respect to this matter were $98,000.

High Intensity Focused Ultrasound Technology

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 is obligated to 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. No payments were received for the nine months ended March 31, 2019 and 2018. Cumulative royalties paid to the Company through March 31, 2019 were $2,542,579.

Major Customers and Concentration of Credit Risk

Major Customers and Concentration of Credit Risk

Included in revenues are sales to the Company’s distributor of Bone Scalpel in China of approximately $4 million and $0, for the nine months ended March 31, 2019 and 2018, respectively. Accounts receivable from this customer were $1 million and $0 at March 31, 2019 and June 30, 2018, respectively.

Total royalties from Medtronic Minimally Invasive Therapies (“MMIT”) related to its 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 $0 and $524,000 for both the three and nine months ended March 31, 2019 and 2018, respectively. Accounts receivable from MMIT royalties were $0 at March 31, 2019 and June 30, 2018. The license agreement with MMIT expired in August 2018.

At March 31, 2019 and June 30, 2018, the Company’s accounts receivable with customers outside the United Sates were approximately $2,500,000 and $1,630,000, respectively, $152,000 of which is over 90 days at March 31, 2019.

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 of the Company is 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:

	For the three months ended				For the nine months ended
	March 31,				March 31,
	2019		2018		2019		2018
Basic weighted average shares outstanding		9,390,665		9,028,506		9,245,879		8,999,938
Dilutive effect of resticted stock awards
(participating securities)		—		373,200		—		—
Denominator for basic earnings per share		9,390,665		9,401,706		9,245,879		8,999,938
Dilutive effect of stock options		—		174,238		—		—
Diluted weighted average shares outstanding		9,390,665		9,575,944		9,245,879		8,999,938

Diluted EPS for the three and nine months ended March 31, 2019 and the nine months ended March 31, 2018 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 484,966 and 0 shares of common stock for the three months ended March 31, 2019 and 2018, respectively, and the dilutive effect of options to purchase 491,212 and 482,093 shares of common stock for the nine months ended March 31, 2019 and 2018, respectively. Also excluded from the calculation of earnings per share for the three and nine months ended March 31, 2019 and 2018 are the unvested restricted stock awards which were issued in December 2016.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued ASC Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), which was subsequently updated (“ASU 2014-09”). The purpose of the updated standard is to provide enhancements to the quality and consistency of revenue recognition between companies using U.S. GAAP and International Financial Reporting Standards. The new five-step recognition model introduces the core principle of recognizing revenue in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the promised goods or services, which includes additional footnote disclosures to describe the nature, amount, timing and uncertainty of revenue, certain costs and cash flow arising from customers.

As amended, ASU 2014-09 requires the Company to use either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients; or (ii) a modified retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption. This standard became effective for the Company on July 1, 2018 and the Company adopted the new pronouncement under the modified retrospective approach.

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, Accounting Standards Update (“ASU”) 2016-02 – Leases (Topic 842). 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 evaluating this guidance to determine the impact it will have on its consolidated 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) ASU 2016-15, Statement of Cash Flows (Topic 230) (“ASU 2016-150”). 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 became effective for the Company beginning in fiscal 2019. As this guidance only affects the classification within the statement of cash flows, ASU 2016-15 did not have a material impact on the Company’s consolidated financial statements.

In January 2018, the FASB issued ASU No. 2018-01, Business Combinations: Clarifying the Definition of a Business (“ASU 2018-01”). ASU 2018-01 clarifies the definition of a business for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2018-01 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2018, and early adoption is permitted. The Company’s adoption of ASU 2018-01 did not have a material effect on the Company’s consolidated financial statements.

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.

Critical Accounting Policies and Use of Estimates

Critical Accounting Policies and Use of Estimates

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.

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Basis of Presentation, Organization and Business and Summary of Significant Accounting Policies (Tables)

9 Months Ended

Mar. 31, 2019

Accounting Policies [Abstract]

Schedule of number of weighted average common shares used in the calculation of Basic EPS and Diluted EPS

The following table sets forth the reconciliation of weighted average shares outstanding and diluted weighted average shares outstanding:

	For the three months ended				For the nine months ended
	March 31,				March 31,
	2019		2018		2019		2018
Basic weighted average shares outstanding		9,390,665		9,028,506		9,245,879		8,999,938
Dilutive effect of resticted stock awards
(participating securities)		—		373,200		—		—
Denominator for basic earnings per share		9,390,665		9,401,706		9,245,879		8,999,938
Dilutive effect of stock options		—		174,238		—		—
Diluted weighted average shares outstanding		9,390,665		9,575,944		9,245,879		8,999,938

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Revenue Recognition (Tables)

9 Months Ended

Mar. 31, 2019

Revenue Recognition [Abstract]

Schedule of impacts of adopting ASC Topic 606

The impacts of adopting ASC Topic 606 on the Company’s consolidated balance sheets as of July 1, 2018 were as follows:

					As
					Adjusted
	As		ASC 606		Under
	Reported		Adjustments		ASC 606
Contract assets	$	—	$	960,000	$	960,000
Total Shareholders’ equity	$	24,401,178	$	960,000	$	25,361,178

Schedule of provisions of ASC 606

The Company determined that the satisfied performance obligations and allocation of the transaction price related to the $5,000,000 received prior to adoption was consistent with the provisions of ASC Topic 606 and also recorded a transitional adjustment to accumulated deficit in the amount of $960,000 as follows:

Minimum royalty revenue provided by the contract	$	6,000,000
Implicit price concession		(5,040,000	)
Adoption adjustment to accumulated deficit under ASC Topic 606	$	960,000

Schedule of product revenue by classification and location

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

	For the three months ended				For the nine months ended
	March 31,				March 31,
	2019		2018		2019		2018
Total
Consumables	$	6,870,398	$	5,898,937	$	20,785,446	$	17,404,539
Equipment		2,686,192		2,530,195		8,308,762		6,629,161
Total Product		9,556,590		8,429,132		29,094,208		24,033,700
License		—		4,010,000		—		4,010,000
Total	$	9,556,590	$	12,439,132	$	29,094,208	$	28,043,700
Domestic:
Consumables	$	4,862,308	$	4,340,759	$	15,170,476	$	13,063,171
Equipment		547,470		590,269		1,727,181		1,920,424
Total	$	5,409,778	$	4,931,028	$	16,897,657	$	14,983,595
International:
Consumables	$	2,008,090	$	1,558,178	$	5,614,970	$	4,341,368
Equipment		2,138,722		1,939,926		6,581,581		4,708,737
Total	$	4,146,812	$	3,498,104	$	12,196,551	$	9,050,105
License	$	—	$	4,010,000	$	—	$	4,010,000

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Inventories (Tables)

9 Months Ended

Mar. 31, 2019

Inventory Disclosure [Abstract]

Schedule of inventories

Inventories are summarized as follows:

	March 31,			June 30,
	2019			2018
Raw material	$	3,698,319		$	3,540,205
Work-in-process		323,650			180,442
Finished goods		2,754,875			1,743,497
		6,776,844			5,464,144
Less valuation reserve		(444,258	)		(444,258	)
	$	6,332,586		$	5,019,886

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Patents (Tables)

9 Months Ended

Mar. 31, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of patents

The following is a schedule of estimated future patent amortization expenses by fiscal year as of March 31, 2019:

2019	$	34,998
2020		117,217
2021		110,025
2022		72,364
2023		71,273
Thereafter		373,744
	$	779,621

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Accrued Expenses and Other Current Liabilities (Tables)

9 Months Ended

Mar. 31, 2019

Payables and Accruals [Abstract]

Schedule of accrued expenses and other current liabilities

The following summarizes accrued expenses and other current liabilities:

	March 31,		June 30,
	2019		2018
Accrued payroll, payroll taxes and vacation	$	443,623	$	351,435
Accrued bonus		450,144		552,988
Accrued commissions		698,534		742,807
Professional fees		167,240		102,065
Vendor, tax and other accruals		565,482		661,877
	$	2,325,023	$	2,411,172

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Stock-Based Compensation Plans (Tables)

9 Months Ended

Mar. 31, 2019

Share-based Payment Arrangement [Abstract]

Schedule of weighted average fair value at date of grant for options

The fair value was estimated based on the weighted average assumptions of:

	For nine months ended
	March 31, 2019
	2019			2018
Risk-free interest rates		2.80	%		1.98	%
Expected option life in years		6.25			5.95
Expected stock price volatility		56.01	%		57.42	%
Expected dividend yield		0	%		0	%

Schedule of summary of option activity

A summary of option activity under the Company’s equity plans as of March 31, 2019, and changes during the nine months ended March 31, 2019 is presented below:

	Outstanding Shares			Average Exercise Price		Aggregate Intrinsic Value
Outstanding at June 30, 2018		1,330,193		$	8.47	$	5,369,557
Granted		255,000			16.64
Exercised		(240,210	)		7.97
Forfeited		(159,252	)		10.18
Expired		(15,000	)		2.66
Outstanding as of March 31, 2019		1,170,731		$	10.27	$	10,530,733
Vested and exercisable at March 31, 2019		642,355		$	8.28	$	7,034,104

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Income Taxes (Tables)

9 Months Ended

Mar. 31, 2019

Income Tax Disclosure [Abstract]

Schedule of reconciliation of income tax expense (benefit)

For the three and nine months ended March 31, 2019 and 2018, the Company recorded income tax expense (benefit), as follows:

	For the three months ended						For the nine months ended
	March 31,						March 31,
	2019			2018			2019			2018
Income tax expense (benefit)	$	(509,000	)	$	411,405		$	(1,164,000	)	$	(97,744	)
Reduction of deferred tax assets relating to Tax Legislation		—						—			1,764,039
Valuation allowance on deferred tax assets		509,000			(411,405	)		1,164,000			3,577,127
Net income tax expense	$	—		$	—		$	—		$	5,243,422

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Segment Reporting (Tables)

9 Months Ended

Mar. 31, 2019

Segment Reporting [Abstract]

Schedule of revenue

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

	For the three months ended				For the nine months ended
	March 31,				March 31,
	2019		2018		2019		2018
Product revenue:
Domestic	$	5,409,778	$	4,931,028	$	16,897,657	$	14,983,595
International		4,146,812		3,498,104		12,196,551		9,050,105
Total		9,556,590		8,429,132		29,094,208		24,033,700
License revenue		—		4,010,000		—		4,010,000
Total revenue	$	9,556,590	$	12,439,132	$	29,094,208	$	28,043,700

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Basis of Presentation, Organization and Business and Summary of Significant Accounting Policies (Details 1) - shares	3 Months Ended		9 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Mar. 31, 2019	Mar. 31, 2018
Accounting Policies [Abstract]
Basic weighted average shares outstanding	9,390,665	9,028,506	9,245,879	8,999,938
Dilutive effect of resticted stock awards (participating securities)		373,200
Denominator for basic earnings per share	9,390,665	9,401,706	9,245,879	8,999,938
Dilutive effect of stock options		174,238
Diluted weighted average shares outstanding	9,390,665	9,575,944	9,245,879	8,999,938

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Basis of Presentation, Organization and Business and Summary of Significant Accounting Policies (Details Narrative)			3 Months Ended		9 Months Ended
	May 02, 2019 USD ($)	May 10, 2010 USD ($)	Mar. 31, 2019 USD ($) shares	Mar. 31, 2018 USD ($) shares	Mar. 31, 2019 USD ($) Segment shares	Mar. 31, 2018 USD ($) shares	Jun. 30, 2018 USD ($)
Ownership percentage			100.00%		100.00%
Number of operating segment | Segment					1
Revenues			$ 9,556,590	$ 12,439,132	$ 29,094,208	$ 28,043,700
Subsequent Event [Member]
Percentage of Ownership before Transaction	64.00%
Bone Scapel Generators [Member[ | Distribution Rights [Member]
Revenues					4,000,000	$ 0
Accounts receivable			$ 1,000,000		$ 1,000,000		$ 0
Stock Options [Member]
Excluded from the calculation of Diluted EPS (in shares) | shares			484,966	0	491,212	482,093
International [Member]
Revenues			$ 4,146,812	$ 3,498,104	$ 12,196,551	$ 9,050,105
Accounts receivable			2,500,000		2,500,000		1,630,000
International [Member] | Over 90 Days [Member]
Accounts receivable			152,000		152,000
Solsys Medical, LLC [Member] | Subsequent Event [Member]
Percentage of Ownership before Transaction	36.00%
Solsys Medical, LLC [Member] | Definitive Agreement [Member] | Subsequent Event [Member]
Percentage of ownership after trasaction	55.00%
Stock transaction value	$ 97,000,000
SonaCare Medical, LLC ("SonaCare") [Member]
Proceeds from sale of intangible assets		$ 5,800,000			2,542,579
Earn-out percentage		7.00%
Proceeds from sale of intangible assets		$ 3,000,000
Earn-out percentage		5.00%
Proceeds from sale of intangible assets		$ 5,800,000
Annual Royalty		$ 250,000
Medtronic Minimally Invasive Therapies ("MMIT") [Member] | License Agreement [Member] | Royalty [Member]
Revenues			0	$ 524,000	0	$ 524,000
Accounts receivable			$ 0		$ 0		$ 0

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Revenue Recognition (Details) - USD ($)	Mar. 31, 2019	Dec. 31, 2018	Sep. 30, 2018	Jul. 02, 2018	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017
Contract assets	$ 960,000				$ 0
Total Shareholders' equity	$ 23,560,527	$ 24,281,784	$ 24,170,437		$ 24,401,178	$ 25,527,161	$ 22,674,165	$ 28,517,988	$ 28,139,842
As Reported [Member]
Contract assets
Total Shareholders' equity				24,401,178
ASC 606 Adjustments [Member]
Contract assets				960,000
Total Shareholders' equity				960,000
As Adjusted Under ASC 606 [Member]
Contract assets				960,000
Total Shareholders' equity				$ 25,361,178

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Revenue Recognition (Details 1)	9 Months Ended
	Mar. 31, 2019 USD ($)
Revenue Recognition [Abstract]
Minimum royalty revenue provided by the contract	$ 6,000,000
Implicit price concession	(5,040,000)
Adoption adjustment to accumulated deficit under ASC Topic 606	$ 960,000

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Revenue Recognition (Details 2) - USD ($)	3 Months Ended		9 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Mar. 31, 2019	Mar. 31, 2018
Total	$ 9,556,590	$ 12,439,132	$ 29,094,208	$ 28,043,700
Consumables [Member]
Total	6,870,398	5,898,937	20,785,446	17,404,539
Equipment [Member]
Total	2,686,192	2,530,195	8,308,762	6,629,161
License [Member]
Total		4,010,000		4,010,000
Total Product [Member]
Total	9,556,590	8,429,132	29,094,208	24,033,700
US [Member]
Total	5,409,778	4,931,028	16,897,657	14,983,595
US [Member] | Consumables [Member]
Total	4,862,308	4,340,759	15,170,476	13,063,171
US [Member] | Equipment [Member]
Total	547,470	590,269	1,727,181	1,920,424
International [Member]
Total	4,146,812	3,498,104	12,196,551	9,050,105
International [Member] | Consumables [Member]
Total	2,008,090	1,558,178	5,614,970	4,341,368
International [Member] | Equipment [Member]
Total	$ 2,138,722	$ 1,939,926	$ 6,581,581	$ 4,708,737

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Revenue Recognition (Details Narrative) - USD ($)			3 Months Ended		9 Months Ended
	Oct. 19, 2018	Jul. 02, 2018	Mar. 31, 2019	Mar. 31, 2018	Mar. 31, 2019	Mar. 31, 2018	Jun. 30, 2018
Revenues			$ 9,556,590	$ 12,439,132	$ 29,094,208	$ 28,043,700
Adoption adjustment to accumulated deficit under ASC 606					960,000
Contract assets			$ 960,000		960,000		$ 0
Accounting Standards Codification 605 [Member]
Adoption adjustment to accumulated deficit under ASC 606					$ 960,000
License And Exclusive Manufacturing Agreement [Member]
Cumulative prior period adjustment		$ 960,000
License And Exclusive Manufacturing Agreement [Member] | Hunan Xing Hang Rui Kang Bio-technologies Co Ltd [Member]
Transfer initial payments of functional intellectual property	$ 5,000,000
Minimum royalty payments	$ 2,000,000
Beginning year of minimum royalty payments	2019

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Inventories (Details) - USD ($)	Mar. 31, 2019	Jun. 30, 2018
Inventory Disclosure [Abstract]
Raw material	$ 3,698,319	$ 3,540,205
Work-in-process	323,650	180,442
Finished goods	2,754,875	1,743,497
Inventory, gross	6,776,844	5,464,144
Less valuation reserve	(444,258)	(444,258)
Inventory, net	$ 6,332,586	$ 5,019,886

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Property, Plant and Equipment (Details Narrative) - USD ($)	9 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Depreciation and amortization	$ 1,074,000	$ 953,000
Inventory [Member]
Estimated useful life		5 years
Inventory [Member] | Minimum [Member]
Estimated useful life	3 years
Inventory [Member] | Maximum [Member]
Estimated useful life	5 years

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Patents (Details) - USD ($)	Mar. 31, 2019	Jun. 30, 2018
Finite-Lived Intangible Assets [Line Items]
Total	$ 779,621	$ 757,447
Patents [Member]
Finite-Lived Intangible Assets [Line Items]
2019	34,998
2020	117,217
2021	110,025
2022	72,364
2023	71,273
Thereafter	373,744
Total	$ 779,621	$ 757,447

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Patents (Details Narrative) - USD ($)	9 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Jun. 30, 2018
Patents totaled	$ 779,621		$ 757,447
Patents [Member]
Intangible assets estimated useful lives	17 years
Patents totaled	$ 779,621		$ 757,447
Amortization expense	$ 106,000	$ 94,000

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Accrued Expenses and Other Current Liabilities (Details) - USD ($)	Mar. 31, 2019	Jun. 30, 2018
Payables and Accruals [Abstract]
Accrued payroll, payroll taxes and vacation	$ 443,623	$ 351,435
Accrued bonus	450,144	552,988
Accrued commissions	698,534	742,807
Professional fees	167,240	102,065
Vendor, tax and other accruals	565,482	661,877
Accrued expenses and other current liabilities	$ 2,325,023	$ 2,411,172

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Stock-Based Compensation Plans (Details)	9 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Share-based Payment Arrangement [Abstract]
Risk-free interest rates	2.80%	1.98%
Expected option life in years	6 years 3 months	5 years 11 months 12 days
Expected stock price volatility	56.01%	57.42%
Expected dividend yield	0.00%	0.00%

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Stock-Based Compensation Plans (Details 1) - USD ($)	9 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Outstanding Shares [Roll Forward]
Outstanding at beginning	1,330,193
Granted	255,000	305,500
Excercised	(240,210)
Forfeited	(159,252)
Expired	(15,000)
Outstanding at ending	1,170,731
Vested and exercisable at ending	642,355
Weighted Average Exercise Price [Roll Forward]
Outstanding at beginning	$ 8.47
Granted	16.64
Excercised	7.97
Forfeited	10.18
Expired	2.66
Outstanding at ending	10.27
Vested and exercisable at ending	$ 8.28
Aggregate Intrinsic Value [Roll Forward]
Outstanding at beginning	$ 5,369,557
Outstanding at ending	10,530,733
Vested and exercisable at ending	$ 7,034,104

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Stock-Based Compensation Plans (Details Narrative) - USD ($)		9 Months Ended		12 Months Ended
	Dec. 15, 2016	Mar. 31, 2019	Mar. 31, 2018	Jun. 30, 2018
Compensation cost		$ 1,889,175	$ 2,081,021
Unrecognized compensation cost		2,965,772
Unrecognized compensation cost related to non-vested restricted stock awards		$ 1,256,204
Period of recognition		2 years 10 months 24 days
Unrecognized compensation weighted-average period		2 years 9 months 25 days
Weighted average fair value at date of grant (in dollars per share)		$ 9.22
Number of shares granted		255,000	305,500
Fair value of shares vested		$ 1,101,971
Number of non-vested stock options		220,624		648,877
Weighted-average grant-date fair value of non-vested stock options (in dollars per share)		$ 4.99		$ 5.08
Number of shares vested		186,600
Expected term		6 years 3 months	5 years 11 months 12 days
Expected volatility rate		56.01%	57.42%
Additional amortization of award		$ 475,286
Restricted Stock [Member]
Fair value of shares vested		$ 133,333
Stock price		$ 9.60
Risk free interest rate, minimum		1.60%
Risk free interest rate, maximum		2.10%
Expected volatility rate		66.50%
Restricted Stock [Member] | Chief Executive Officer [Member]
Compensation cost		$ 992,445	$ 675,869
Option vesting period	5 years
Fair value of shares vested	$ 3,600,000
Number of stock issued	400,000
Restricted Stock [Member] | Minimum [Member]
Expected term		3 years
Restricted Stock [Member] | Maximum [Member]
Expected term		5 years
Stock Options [Member]
Compensation cost		$ 896,730	$ 1,405,152
Option Expiration period		10 years
Option vesting period		4 years

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Commitments and Contingencies (Details Narrative) - USD ($)	3 Months Ended		9 Months Ended		72 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Mar. 31, 2019	Mar. 31, 2018	Jun. 30, 2016	May 07, 2018
Revenues	$ 9,556,590	$ 12,439,132	$ 29,094,208	$ 28,043,700
Insurance retention paid	250,000		250,000
Former Chinese Distributor - FCPA [Member]
Investigative costs			3,700,000
Revenues					$ 8,000,000
Former Chinese Distributor - FCPA [Member] | General and Administrative Expense [Member]
Investigative costs	$ 200,000	$ 100,000	600,000	$ 300,000
Mr. Feldbaum and Mr. Rubin [Member]
Insurance retention paid						$ 500,000
Building [Member]
Rent expense			$ 28,000
Frequency of rent expense			Monthly

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Related Party Transactions (Details) - USD ($)	9 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Jun. 30, 2019
Sales	$ 996,631	$ 675,943
Mr. Stavros G. Vizirgianakis [Member] | Applied BioSurgical [Member]
Accounts receivable	$ 286,852
Mr. Stavros G. Vizirgianakis [Member] | Applied BioSurgical [Member] | Subsequent Event [Member]
Accounts receivable			$ 120,376

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Income Taxes (Details) - USD ($)	3 Months Ended		9 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Mar. 31, 2019	Mar. 31, 2018
Income Tax Disclosure [Abstract]
Income tax expense (benefit)	$ (509,000)	$ 411,405	$ (1,164,000)	$ (97,744)
Reduction of deferred tax assets relating to Tax Legislation				1,764,039
Valuation allowance on deferred tax assets	509,000	(411,405)	1,164,000	3,577,127
Net income tax expense				$ 5,243,422

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Income Taxes (Details Narrative)		9 Months Ended
	Dec. 22, 2017	Mar. 31, 2019	Mar. 31, 2018
Income Tax Disclosure [Abstract]
U.S. federal statutory effective rate	21.00%	0.00%	(892.70%)

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Segment Reporting (Details) - USD ($)	3 Months Ended		9 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Mar. 31, 2019	Mar. 31, 2018
Product revenue:
Total	$ 9,556,590	$ 12,439,132	$ 29,094,208	$ 28,043,700
Product [Member]
Product revenue:
Total	9,556,590	8,429,132	29,094,208	24,033,700
License [Member]
Product revenue:
Total		4,010,000		4,010,000
US [Member] | Product [Member]
Product revenue:
Total	5,409,778	4,931,028	16,897,657	14,983,595
International [Member] | Product [Member]
Product revenue:
Total	$ 4,146,812	$ 3,498,104	$ 12,196,551	$ 9,050,105

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Segment Reporting (Details Narrative)	9 Months Ended
	Mar. 31, 2019 Segment
Segment Reporting [Abstract]
Number of operating segment	1