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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.