Overview





We design, manufacture and market minimally invasive surgical 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,
orthopaedic surgery, plastic surgery, wound care and maxillo-facial surgery. We
also exclusively market, sell and distribute skin allografts and wound care
products used to support healing of wounds, and which complement our ultrasonic
medical devices.




We strive to have our proprietary procedural solutions become the standard of
care and enhance patient outcomes throughout the world. We intend to accomplish
this, in part, by utilizing our best-in-class surgical ultrasonic technology to
improve patient outcomes in spinal surgery, neurosurgery and wound care. Our
neXus generator combines the capabilities of our three legacy ultrasonic
products, namely BoneScalpel® Surgical System, SonaStar® Surgical Aspirator, and
SonicOne® Wound Cleansing and Debridement System, into a single system that can
be used to perform soft and hard tissue resections.



In the United States, we sell our products through our direct sales force, in
addition to a network of commissioned agents assisted by Misonix personnel.
Outside of the United States, we sell BoneScalpel and SonaStar through
distributors who then resell the products to hospitals. We sell to all major
markets in the Americas, Europe, Middle East, Asia Pacific, and Africa.



We manufacture and sell our products in two global reportable business segments:
the Surgical segment and the Wound segment. Our sales force also operates as two
segments, Surgical and Wound Care.

Acquisition of Solsys Medical, LLC





On September 27, 2019, we completed our acquisition of Solsys, a medical
technology company focused on the regeneration and healing of soft-tissue
associated with chronic wounds and surgical procedures. Solsys' primary product
is TheraSkin, a living cell wound therapy indicated to treat all external wounds
from head-to-toe. The purchase price was approximately $108.6 million,
representing 5,703,082 shares of Misonix common stock, valued at $19.05 per
share. In addition, business transaction costs incurred in connection with the
acquisition were $4.5 million. Of these transaction costs, $3.1 million were
charged to general and administrative expenses on our Consolidated Statement of
Operations and $1.4 million of the transaction costs were capitalized to
additional paid in capital, in connection with the registration of the
underlying stock issued in the transaction. The results of operations of Solsys
are included in our Consolidated Statement of Operations beginning on September
27, 2019.



Impact of COVID-19 Pandemic



In March of 2020, the World Health Organization designated the novel coronavirus
disease (COVID-19) as a global pandemic. In March of 2020, the impact of
COVID-19 and related actions to attempt to control its spread began to impact
our consolidated operating results. Principally beginning in March 2020,
year-over-year consolidated revenue trends began to weaken rapidly and
materially. This trend continued through the end of our fiscal year ended June
30, 2020. While we have seen some gradual improvements in consolidated operating
results during the fiscal year ended June 30, 2021, in part, due to elective
surgical procedure volumes returning to pre-COVID-19 levels in some
jurisdictions, several jurisdictions are experiencing new increases in the rate
of infection by COVID-19 and have begun to divert resources to treat COVID-19
patients and re-defer elective surgical procedures.



We continue to execute on our business continuity plans and our crisis
management response to address the challenges related to the COVID-19 pandemic.
During the course of the pandemic, our headquarters have generally remained
open, with certain essential employees continuing to work in our facilities. We
are generally following the requirements and protocols published by the U.S.
Centers for Disease Control and the World Health Organization, and state and
local governments and we continue to monitor the latest public health and
government guidance related to COVID-19, including vaccine availability to our
employees and protocols for social distancing and wearing of masks within our
facilities. As a result of this guidance, we have begun to lift the actions put
in place as part of our business continuity plans, including work from home
requirements and travel restrictions. We cannot be certain, however, that we
will not be required or encouraged to implement additional restrictions as new
variants of the virus arise, any of which may have an adverse effect on our
business. As of the date of this filing, we do not believe our work from home
protocol has adversely affected our internal controls, financial reporting
systems or our operations.

Our sales teams are focused on how to meet changing needs of our customers in this environment.





As a result of the COVID-19 pandemic, we experienced a disruption to our global
supply chain of our products and a decrease in sales due to a decrease in
elective surgical procedures, as described in more detail below. While this
disruption began to alleviate during the quarter ended December 31, 2020 and
continues to gradually improve, we could experience further variable impacts on
our business if a resurgence of the virus or variants thereof emerge, elective
procedures continue to be deferred or disruptions in the global supply chain
worsen. The ultimate effect of these disruptions, including the extent of their
adverse effect on our financial and operational results, will be impacted by the
length of time that such disruptions continue, which will, in turn, depend on
the currently unknown duration of the COVID-19 pandemic, including as variants
of the virus arise and put stress on the healthcare system, the efficacy of any
vaccines and related distributions, the number of cases presenting in the
jurisdictions in which we operate, and the effect of governmental regulations
and other restrictions that might be imposed in response to the pandemic.



Due to these effects and measures, we have experienced and may continue to
experience significant and unpredictable reductions in the demand for our
products as healthcare customers diverted medical resources and priorities
towards the treatment of that disease. In addition, our customers may delay,
cancel, or redirect planned capital expenditures in order to focus resources on
COVID-19 or in response to economic disruption related to COVID-19. For example,
as mentioned above, we have experienced and may continue to experience a
significant decline in procedure volume in the U.S., as healthcare systems
diverted resources to meet the increasing demands of managing COVID-19. As
mentioned above, while many countries are past their initial peak with COVID-19,
many regions are now experiencing new increases in the rate of infection by
COVID-19. To the extent individuals and hospital systems further de-prioritize,
delay or cancel elective medical procedures, our business, cash flows, financial
condition and results of operations will further be negatively affected.



Capital markets and worldwide economies have also been significantly impacted by
the COVID-19 pandemic, and it is possible that it could cause a local and/or
global economic recession. Such economic recession could have a material adverse
effect on our long-term business as hospitals and surgical centers curtail and
reduce capital and overall spending. The COVID-19 pandemic and local actions,
such as "shelter-in-place" orders and restrictions on our salesforce's ability
to travel and access our customers or temporary closures of our facilities or
the facilities of our suppliers and their contract manufacturers, could further
significantly reduce our sales and our ability to ship our products and supply
our customers. We are continuing to monitor closely indications that several
jurisdictions are experiencing new increases in the rate of infection by
COVID-19, which could result in further mitigation efforts, the impact of these
new increases on all aspects of our business and geographies, including its
impact on our customers, employees, suppliers, business partners, and
distribution channels. Any of these events could negatively impact the number of
surgical procedures performed using our products and have a material adverse
effect on our business, financial condition, results of operations, or cash
flows. There are certain limitations on our ability to mitigate the adverse
financial impact of these items, including the fixed costs of our businesses.
COVID-19 also makes it more challenging for us to estimate the future
performance of our businesses, particularly over the near to medium term.



The extent to which the COVID-19 global pandemic impacts our business, results
of operations, and financial condition will depend on future developments, which
are highly uncertain and are difficult to predict; these developments include,
but are not limited to, the duration and spread of the outbreak, its severity,
the actions taken to contain the virus or address its impact including vaccine
distribution and efficacy, U.S. and foreign government actions to respond to the
reduction in global economic activity, and how quickly and to what extent normal
economic and operating conditions can resume. Even after the COVID-19 outbreak
has subsided, we may continue to experience materially adverse impacts on our
financial condition and results of operations. The duration and severity of the
resulting economic downturn and the broader impact that COVID-19 could have on
our business, financial condition and operating results remains highly
uncertain.



16

For more information, see "Item 1. Business- Impact of Covid-19 Pandemic" and "Item 1A. Risk Factors.

High Intensity Focused Ultrasound Technology





In May 2010, we sold our rights to our former high intensity focused ultrasound
technology to SonaCare Medical, LLC, or SonaCare. Under the terms of the sale,
SonaCare is required to pay us 7% of the gross revenues received from its sales
of the (i) prostate product in Europe and (ii) kidney and liver products
worldwide, until we have received payments of $3.0 million, and thereafter 5% of
the foregoing gross revenues, until we have received payments of $5.8 million.
Until we have received payments of $5.8 million, the minimum annual amount that
SonaCare is required to pay, however, is $250,000. SonaCare was in default of
its obligations to make payments to us on March 31, 2020 and March 31, 2021and
as of June 30, 2021, we had received cumulative payments of approximately $2.8
million from SonaCare. Due to SonaCare's default and inability to pay, we
entered into an amended agreement with SonaCare on April 30, 2021 and SonaCare
made a payment to us of $300,000 on May 28, 2021. The amended agreement with
SonaCare requires that SonaCare make minimum annual payments of $300,000 through
March 2031. We cannot assure you that SonaCare will make all payments due on a
timely basis, or at all. We recorded the $300,000 payment received as other
income on our Consolidated Statement of Operations during the fourth quarter of
fiscal year 2021, and will record any future payments on a cash basis only when
received due to the uncertainty of payment receipt.



Results of Operations



The following discussion and analysis provides information that our management
believes is relevant to an assessment and understanding of our 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 our continuing operations

Fiscal years ended June 30, 2021 and 2020





Our revenues by segment for the two years ended June 30, 2021 are as follows:



                      For the years ended
                           June 30,                      Net change
                     2021             2020              $             %
Total
Surgical         $ 40,379,693     $ 34,457,631     $  5,922,062       17.2 %
Wound              33,644,380       28,026,020        5,618,360       20.0 %
Total            $ 74,024,073     $ 62,483,651     $ 11,540,422       18.5 %

Domestic:
Surgical         $ 27,384,277     $ 20,874,419     $  6,509,858       31.2 %
Wound              33,272,947       27,678,534        5,594,413       20.2 %
Total            $ 60,657,224     $ 48,552,953     $ 12,104,271       24.9 %

International:
Surgical         $ 12,995,416     $ 13,583,212     $   (587,796 )     -4.3 %
Wound                 371,433          347,486           23,947        6.9 %
Total            $ 13,366,849     $ 13,930,698     $   (563,849 )     -4.0 %




17






Revenues

Revenues increased 18.5% or $11.5 million to $74.0 million in fiscal 2021 from $62.5 million in fiscal 2020.





The revenue increase is principally attributable to growth of domestic surgical
revenues by 31.2%, fueled by the introduction of our new platform, neXus.
Domestic wound revenue increased by 20.2% primarily from the addition of
TheraSkin as a result of the Solsys acquisition, which was only included in 9
months of fiscal 2020 and the full year fiscal 2021. TheraSkin revenue increased
from $23.4 million in fiscal 2020 to $26.4 million in fiscal 2021.



International revenue, which is principally from the Surgical segment, decreased
4.0% in part due to weakness in sales of surgical products resulting from the
COVID-19 virus, which had an impact on sales throughout fiscal 2021 and only on
the second half of fiscal 2020.



Gross profit



The gross profit percentage on product sales was 71.1% in fiscal 2021, compared
with 70.0% in fiscal 2020. The increase was in part attributable to a higher mix
of domestic revenue compared with international revenue for fiscal 2021.



Selling expenses



Selling expenses increased by $1.9 million, or 4.6% to $42.1 million in fiscal
2021 from $40.2 million in fiscal 2020. The increase is primarily due to our
acquisition of Solsys on September 27, 2019. Additional factors impacting
selling expenses include higher compensation and commission costs, consulting
costs, neXus product launch costs, higher freight expense on higher sales, and
costs resulting from the continued build out of our direct sales force. These
cost increases were offset by lower travel related expenses and trade show costs
relating to the pandemic lockdown.

General and administrative expenses


General and administrative expenses decreased $1.4 million to $16.6 million in
fiscal 2021 from $18.0 million in fiscal 2020. The decrease was in part due to
$1.8 million of transaction expenses incurred in fiscal 2020 related to our
acquisition of Solsys, along with a $1.0 million contract asset reserve taken in
fiscal 2020. These decreases were offset by higher compensation and non-cash
compensation incurred in fiscal 2021.

Research and development expenses





Research and development expenses increased by $0.1 million, or 2.3% to $5.0
million in fiscal 2021 from $4.9 million in the prior year period, primarily due
to increased expense associated with the development of new handpieces and tips
to expand our neXus product portfolio.



Other expense



Other expense increased to $3.3 million in fiscal 2021 from other expense of
$2.5 million in fiscal 2020. The increase of $0.8 million is related primarily
to interest expense from the debt we acquired relating to our acquisition of
Solsys on September 27, 2019.



Income taxes



For the fiscal years ended June 30, 2021 and 2020, we recorded an income tax
expense (benefit) of $0.1 million and $(4.5) million, respectively. We purchased
Solsys Medical, LLC on September 27, 2019. The acquisition of Solsys resulted in
the recognition of deferred tax liabilities of approximately $4.6 million, which
related primarily to intangible assets. Prior to the Solsys acquisition, we had
a full valuation allowance on our deferred tax assets. The deferred tax
liabilities generated from the Solsys acquisition is netted against our
pre-existing deferred tax assets. Consequently, this resulted in a release of
$4.6 million of the pre-existing valuation allowance against the deferred tax
assets and corresponding deferred tax benefit.

The components of the tax provision are as follows:





                                                  Year ended June 30,
                                                 2021             2020
Tax at federal statutory rates               $ (3,011,456 )   $ (4,600,276 )
State income taxes, net of federal benefit       (244,712 )       (482,344 )
Research credit                                  (105,659 )       (112,468 )
Permanent differences                              37,260           76,341
Stock-based compensation                          276,770           68,766
Transaction Costs                                       -          120,401
Valuation allowance                             3,162,279        5,006,509
Solsys acquisition                                      -       (4,575,507 )
True up and rate change                            17,626                -
                                             $    132,071     $ (4,498,578 )




18

Liquidity and Capital Resources





General

Our liquidity position and capital requirements may be impacted by a number of factors, including the following:

? our ability to generate revenue, including a potential decline in revenue


    resulting from COVID-19;

  ? fluctuations in gross margins, operating expenses and net loss; and

  ? fluctuations in working capital.

Our primary short-term capital needs, which are subject to change, include expenditures related to:





  ? expansion of our sales, marketing and distribution activities;

  ? expansion of our research and development activities; and

  ? maintaining sufficient inventory to supply our sales volume.




Fiscal 2021



Working capital at June 30, 2021 was $36.6 million. For fiscal 2021, cash used
in operations was $9.0 million, mainly due to our net loss of $14.5 million, an
increase in inventory of $6.4 million, an increase in accounts receivable of
$0.4, offset by a decrease in accounts payable and accrued expenses of $3.8
million, and $8.6 million of non-cash expenses.



Cash used by investing activities for fiscal 2021 was $0.3 million, consisting
of cash used to purchase property, plant and equipment of $0.1 million and cash
outflows to file for additional patents of $0.2 million.

Cash provided by financing activities was $2.3 million for fiscal 2021, primarily consisting of net long-term debt borrowings of $2.1 million.


As of June 30, 2021, we had a cash balance of approximately $31.0 million.
Management currently believes that we have sufficient cash to finance operations
for at least the next 12 months following the issuance date of the consolidated
financial statements included herein.



Fiscal 2020

As of June 30, 2020, we had a cash balance of approximately $38.0 million.





Working capital at June 30, 2020 was $47.4 million. For fiscal 2020, cash used
in operations was $26.7 million, mainly due to our net loss of $17.4 million, an
increase in inventory of $10.9 million, an increase in accounts receivable of
$1.8 million, and a decrease in accounts payable and accrued expenses of $1.0
million, offset by $4.7 million of non-cash expenses.



Cash provided by investing activities was $5.1 million, primarily consisting of
cash provided by the acquisition of Solsys of $5.5 million, offset by the
purchase of property, plant and equipment of $0.3 million and cash outflows to
file for additional patents of $0.1 million.



Cash provided by financing activities was $51.7 million for fiscal 2020,
primarily consisting of net cash of $32 million from an offering of our equity
securities, $1.4 million of transaction fees relating to the Solsys acquisition,
and net long-term debt borrowings of $19.8 million, in addition to $1.2 million
in proceeds received from the exercise of stock options.



Financing Transactions



On September 27, 2019, we entered into an amended and restated credit agreement,
or (as amended and supplemented from time to time) the SWK Credit Agreement,
with SWK Holdings Corporation, or SWK, pursuant to a commitment letter whereby
SWK (a) consented to the acquisition of Solsys and (b) agreed to provide
financing to us. Through the acquisition of Solsys, we became party to a $20.2
million note payable to SWK. The SWK credit facility originally provided an
additional $5.0 million in financing, totaling approximately $25.1 million and a
maturity date of June 30, 2023. On December 23, 2019, the parties amended the
SWK Credit Agreement to, among other things, provide an additional $5 million of
term loans, for total aggregate borrowings of up to approximately $30.1 million.
The maturity date of the Amended SWK Credit Agreement remains June 30, 2023. On
June 30, 2020, the parties amended the SWK Credit Agreement, (as so amended, the
"Amended SWK Credit Agreement") to modify the minimum aggregate revenue and
minimum EBITDA financial covenants thereunder. The modified terms under the
Amended SWK Credit Agreement reduce the minimum aggregate revenue requirements
through December 31, 2021 and reduce the minimum EBITDA requirements through
June 30, 2021. As of June 30, 2021, the outstanding principal balance of the
term loans under the Amended SWK Credit Agreement is approximately $30.1
million.



Through the acquisition of Solsys, we also became party to a $5.0 million
revolving line of credit loan agreement with Silicon Valley Bank, originally
effective January 22, 2019, or (as amended and supplemented from time to time)
the Prior Solsys Credit Agreement. The line of credit had an original maturity
date of January 22, 2021. On December 26, 2019, we entered into a Loan and
Security Agreement, or (as amended and supplemented from time to time) the New
Loan and Security Agreement, among us and our wholly-owned subsidiaries, Misonix
OpCo, Inc. and Solsys, as borrowers, and Silicon Valley Bank. The New Loan and
Security Agreement provides for a revolving credit facility, or the New Credit
Facility, in an aggregate principal amount of up to $20.0 million, including
borrowings and letters of credit. The New Loan and Security Agreement replaces
the $5.0 million Prior Solsys Credit Agreement. We did not incur any early
termination penalties in connection with the termination of the Prior Solsys
Credit Agreement.



On June 30, 2020, the parties amended the New Loan and Security Agreement (as so
amended, the "Amended SVB Loan Agreement") to modify the minimum aggregate
revenue and minimum EBITDA financial covenants thereunder. The Second SVB
Modification reduces the minimum aggregate revenue requirements through December
31, 2021 and reduces the minimum EBITDA requirements through June 30, 2021.

The Company is in compliance with all covenants in its financing agreements as of June 30, 2021.





19






Borrowings under the New Credit Facility were used in part to repay the amount
of $3.75 million outstanding under the Prior Solsys Credit Agreement, and the
balance may be used by us for general corporate purposes and working capital.
The New Credit Facility matures on December 26, 2022. As of June 30, 2021, the
outstanding principal balance of the New Credit Facility is $8.4 million.



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



On April 5, 2020, we applied for an unsecured $5.2 million loan under the
Paycheck Protection Program, or the PPP Loan. The Paycheck Protection Program,
or PPP, was established under the recently congressionally approved Coronavirus
Aid, Relief, and Economic Security Act, or the CARES Act, and is administered by
the U.S. Small Business Administration. On April 10, 2020, the PPP loan was
approved and funded. We entered into a promissory note with J.P. Morgan Chase
evidencing the unsecured $5.2 million loan. The promissory note has a maturity
date of April 4, 2022 and accrues interest at an annual rate of 0.98%. The
promissory note evidencing the PPP Loan contains customary events of default
relating to, among other things, payment defaults and provisions of the
promissory note. In accordance with the requirements of the CARES Act, we used
the proceeds from the PPP Loan primarily for payroll costs.



Commitments



We have commitments under operating leases that we plan to fund from operating
sources. At June 30, 2021, our contractual cash obligations and commitments
relating to debt repayment, operating leases and other purchase commitments

are
as follows:



                            Less than                                            After
Commitment                    1 year         1-3 years        4-5 years         5 years          Total
Long-term debt             $  6,449,487     $ 20,500,000     $ 18,845,761     $         -     $ 45,795,248
Operating and financing
leases                          597,392        1,015,916            7,698               -        1,621,006
Purchase commitments         19,430,995                -                -  

            -       19,430,995
                           $ 26,477,874     $ 21,515,916     $ 18,853,459     $         -     $ 66,847,249

Off-Balance Sheet Arrangements





We have no off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that are material to us.



Other

In the opinion of our management, inflation has not had a material effect on our operations.

Critical Accounting Policies and Use of Estimates





Our discussion and analysis of financial condition and results of operations is
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these consolidated financial statements requires us
to make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent liabilities, and the reported amounts
of revenues and expenses. Significant estimates affecting amounts reported or
disclosed in the consolidated financial statements include net realizable value
of inventories, valuation of intangible assets including amortization periods
for acquired intangible assets, estimates of projected cash flows and discount
rates used to value intangible assets and test goodwill and intangible assets
for impairment, computation of valuation allowances recorded against deferred
tax assets, and valuation of stock-based compensation. These estimates are based
on historical experience and on various other assumptions that are believed to
be reasonable under the current circumstances. Actual results could differ

from
these estimates.

We believe that the following accounting policies, which form the basis for developing these estimates, are those that are most critical to the presentation of our consolidated financial statements and require the more difficult subjective and complex judgments.





Revenue Recognition

We satisfy performance obligations either over time, or at a point in time, upon which control transfers to the customer.





Revenue derived from the shipping and billing of product is recorded upon
shipment, when transfer of control occurs for products shipped freight on board
("F.O.B.") shipping. Products shipped F.O.B. destination are recorded as revenue
when received at the point of destination when the transfer of control is
completed. Shipments under agreements with distributors are not subject to
return, and payment for these shipments is not contingent on sales by the
distributor. Accordingly, we recognize 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.





20






Revenue derived from consignment agreements is earned as consumables product
orders are fulfilled. Therefore, revenue is recognized as control passes to the
customer, which is typically when shipments are made F.O.B shipping or F.O.B
destination.

Revenue derived from service and maintenance contracts is recognized evenly over the life of the service agreement as the services are performed.





Inventories



Inventories, consisting of purchased materials, direct labor and manufacturing
overhead, are stated at the lower of cost (determined by the first-in, first-out
method) or net realizable value. At each balance sheet date, we evaluate ending
inventories for excess quantities and obsolescence. Our evaluation includes an
analysis of historical sales levels by product, projections of future demand by
product, the risk of technological or competitive obsolescence for our products,
general market conditions, and the feasibility of reworking or using excess or
obsolete products or components in the production or assembly of other products
that are not obsolete or for which we do not have excess quantities in
inventory. To the extent that we determine there are excess or obsolete
quantities or quantities on hand, we adjust their carrying value to estimated
net realizable value. If future demand or market conditions are lower than our
projections, or if we are unable to rework excess or obsolete quantities into
other products, we may record further adjustments to the carrying value of
inventory through a charge to cost of product revenues in the period the
revision is made.



Purchase Price Accounting



The allocation of the purchase price for business combinations requires
management estimates and judgment as to expectations for future cash flows of
the acquired business and the allocation of those cash flows to identifiable
intangible assets in determining the estimated fair value for purchase price
allocation purposes. If the actual results differ from the estimates and
judgments used in these estimates, the amounts recorded in the consolidated
financial statements could result in a possible impairment of the intangible
assets and goodwill or require acceleration of the amortization expense of
finite-lived intangible assets. In addition, accounting guidance requires that
goodwill and other indefinite-lived intangible assets be tested at least
annually for impairment. If circumstances or events prior to the date of the
required annual assessment indicate that, in management's judgment, it is more
likely than not that there has been a reduction of fair value of a reporting
unit below its carrying value, we perform an impairment analysis at the time of
such circumstance or event. Changes in management's estimates or judgments could
result in an impairment charge, and such a charge could have an adverse effect
on our financial condition and results of operations.



Goodwill



The excess of the cost over the fair value of net assets of acquired businesses
is recorded as goodwill. In connection with the acquisition of Solsys, the
Company has $106.5 million of goodwill recorded on its Consolidated Balance
Sheet as of June 30, 2021, $12.7 million of which is expected to be deductible
for tax purposes. The goodwill recognized from the Solsys acquisition represents
the excess of the purchase price over aggregate fair value of net assets
acquired and is related to the benefits expected as a result of the acquisition,
including sales, and a stronger portfolio of Wound solutions that will drive
growth in the wound care market. Our goodwill balance as of each reporting

period by segment, includes:



                                         Surgical           Wound             Total

Balance as of June 30, 2019             $ 1,701,094     $           -     $   1,701,094

Acquisition of Solsys                             -       108,833,165       108,833,165

Purchase price accounting adjustments             -        (2,223,909 )    

 (2,223,909 )
Goodwill (gross)                          1,701,094       106,609,256       108,310,350
Accumulated impairment losses                     -                 -                 -

Balance as of June 30, 2020             $ 1,701,094     $ 106,269,256     $ 108,310,350

Balance as of June 30, 2020             $ 1,701,094     $ 106,609,256     $ 108,310,350
Purchase price accounting adjustments                         (75,686 )    

    (75,686 )
Goodwill (gross)                          1,701,094       106,533,570       108,234,664

Accumulated impairment losses                     -                 -                 -

Balance as of June 30, 2021             $ 1,701,094     $ 106,533,570     $ 108,234,664




Goodwill is not subject to amortization but is reviewed for impairment at the
reporting unit level annually, or more frequently if impairment indicators
arise. Our 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 Misonix at the measurement date.



We performed our annual impairment test as of March 31 and concluded there was
no impairment to goodwill. As of March 31, 2021, the fair value of the Wound and
Surgical reporting units exceeded their carrying values by more than 10%. The
fair values of our reporting units were estimated considering both the market
approach and the income approach. The market approach provides an indication of
value based on a comparison to recent sales. The income approach is based upon
the estimated future income streams associated with each reporting unit.
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 our businesses, the useful lives over which
cash flows will occur and determination of our weighted average cost of capital.
If actual results are not consistent with management's estimate and assumptions,
a material impairment charge of goodwill could occur, which would have a
material adverse effect on our consolidated financial statements.



21

There were no triggering events in the fourth quarter 2021 that would cause us to re-evaluate our impairment analysis.





Income Taxes



We assess whether a valuation allowance should be established against our
deferred tax assets based on consideration of all available evidence, both
positive and negative, using a more likely than not standard. This assessment
considers, among other matters, the nature, frequency and severity of recent
losses; a forecast of future profitability; the duration of statutory carryback
and carryforward periods; our experience with tax attributes expiring unused;
and tax planning alternatives. The likelihood that the deferred tax asset
balance will be recovered from future taxable income is assessed at least
quarterly, and the valuation allowance, if any, is adjusted accordingly.



Loss Contingencies



We are subject to claims and lawsuits in the ordinary course of our business,
including claims by employees or former employees, with respect to our products
and involving commercial disputes, or shareholder actions. We accrue for loss
contingencies when it is deemed probable that a loss has been incurred and that
loss is estimable. The amounts accrued are based on the full amount of the
estimated loss before considering insurance proceeds, if applicable, and do not
include an estimate for legal fees expected to be incurred in connection with
the loss contingency. Our consolidated financial statements do not reflect any
material amounts related to possible unfavorable outcomes of claims and lawsuits
to which we are currently a party because we currently believe that such claims
and lawsuits are not expected to result in a material adverse effect on our
financial condition. However, it is possible that these contingencies could
materially affect our results of operations, financial position and cash flows
in a particular period if we change our assessment of the likely outcome of

these matters.



Stock-Based Compensation



We recognize compensation expense associated with the issuance of equity
instruments to employees for their services. Based on the type of equity
instrument, the fair value is estimated on the date of grant using the
Black-Scholes option valuation model, is expensed in the consolidated financial
statements over the service period and is recorded in general and administrative
expenses. The input assumptions used in determining fair value are the expected
life, expected volatility, risk-free rate and expected dividend yield.



On December 15, 2016, we issued 400,000 shares of restricted stock to our Chief
Executive Officer. These awards vest over a period of up to five years, subject
to meeting certain service, performance, and market conditions. We valued these
awards using a Monte Carlo valuation model, which required the use of various
estimates in arriving at the valuation of the awards. The valuation included the
estimate of the probability of achieving the performance criteria, which
included minimum levels of our stock price and revenue. If the stock price and
performance conditions are not met, some or all of these awards will not vest
and compensation cost recorded, if any, could be reversed.

Recently Issued Accounting Pronouncements





In June 2016, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit
Losses (Topic 326): Measurement of Credit Losses on Financial Instrument ("ASU
2016-13"). ASU 2016-13 replaces the incurred loss impairment methodology in
current U.S. GAAP with a methodology that reflects expected credit losses and
requires consideration of a broader range of reasonable and supportable
information to inform credit loss estimates. ASU 2016-13 is effective for SEC
small business filers for fiscal years beginning after December 15, 2022.
Management is currently assessing the impact that ASU 2016-13 will have on us.



There are no other recently issued accounting pronouncements that are expected
to have a material effect on our financial position, results of operations

or
cash flows.

Recently Adopted Accounting Pronouncements


In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), and has since
issued amendments thereto, related to the accounting for leases (collectively
referred to as "ASC 842"). ASC 842 establishes a right-of-use ("ROU") model that
requires a lessee to record a ROU asset and a lease liability on the
consolidated balance sheet for all long-term leases. Leases will be classified
as either financing or operating, with classification affecting the pattern of
expense recognition and classification in our Consolidated Statement of
Operations. We adopted ASC 842 on July 1, 2019. A modified retrospective
transition approach is required for lessees for capital and operating leases
existing at, or entered into after, the beginning of the earliest comparative
period presented in the consolidated financial statements, with certain
practical expedients available. Entities have the option to continue to apply
historical accounting under Topic 840, including its disclosure requirements, in
comparative periods presented in the year of adoption. An entity that elects
this option recognizes a cumulative effect adjustment to the opening balance of
accumulated deficit in the period of adoption instead of the earliest period
presented. We adopted the optional ASC 842 transition provisions beginning on
July 1, 2019. Accordingly, we will continue to apply Topic 840 prior to July 1,
2019, including Topic 840 disclosure requirements, in the comparative periods
presented. We elected the package of practical expedients for all its leases
that commenced before July 1, 2019. We have evaluated our real estate lease,
copier leases and generator rental agreements. The adoption of ASC 842 did not
materially affect our consolidated balance sheet and had an immaterial impact on
our results of operations. Based on our current agreements, upon the adoption of
ASC 842 on July 1, 2019, we recorded an operating lease liability of
approximately $0.4 million and corresponding ROU assets based on the present
value of the remaining minimum rental payments associated with our leases. As
our leases do not provide an implicit rate, nor is one readily available, we
used our incremental borrowing rate of 10.5% based on information available at
July 1, 2019 to determine the present value of its future minimum rental
payments.



22

© Edgar Online, source Glimpses