The following information should be read together with the consolidated financial statements and the notes thereto and other information included elsewhere in this quarterly report on Form 10-Q.

Forward-Looking Statements

This quarterly report on Form 10-Q, including the sections entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations", contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements regarding AngioDynamics' expected future financial position, results of operations, cash flows, business strategy, budgets, projected costs, capital expenditures, products, competitive positions, growth opportunities, plans and objectives of management for future operations, as well as statements that include the words such as "expects," "reaffirms" "intends," "anticipates," "plans," "believes," "seeks," "estimates," or variations of such words and similar expressions, are forward-looking statements. These forward looking statements are not guarantees of future performance and are subject to risks and uncertainties. Investors are cautioned that actual events or results may differ from our expectations. Factors that may affect our actual results achieved include, without limitation, our ability to develop existing and new products, future actions by FDA or other regulatory agencies, results of pending or future clinical trials, the results of ongoing litigation, overall economic conditions, general market conditions, market acceptance, foreign currency exchange rate fluctuations, the effects on pricing from group purchasing organizations and competition, as well as our ability to integrate purchased businesses. Other risks and uncertainties include, but are not limited to, the factors described from time to time in our reports filed with the SEC, including our Form 10-K for the fiscal year ended May 31, 2012.

Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this quarterly report on Form 10-Q will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved. Any forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made. AngioDynamics disclaims any obligation to update the forward-looking statements. Investors are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date stated, or if no date is stated, as of the date of this document.

Overview

We design, manufacture and sell a wide range of medical, surgical and diagnostic devices used by professional healthcare providers for vascular access, for the treatment of peripheral vascular disease and for use in oncology and surgical settings. Our devices are generally used in minimally invasive, image-guided procedures. Most of our products are intended to be used once and then discarded, or they may be temporarily implanted for short- or long-term use.

We sell our products in the United States through a direct sales force and outside the U.S. through a combination of direct sales and distributor relationships. For the three and six months ended November 30, 2012, approximately 20% and 19% of our net sales were from markets outside the United States compared with 15% and 14% in the three and six months ended November 30, 2011.

Our growth depends, in part, on the introduction of new and innovative products, together with ongoing enhancements to our existing products, through internal product development, technology licensing and strategic alliances. We recognize the importance of, and intend to continue to make investments in, research and development. For the three and six months ended November 30, 2012, our research and development ("R&D") expenditures were $7.0 million and $14.1 million, which represented 8% of net sales for both periods. Comparable prior year expenditures were $5.1 million, or 9% of net sales for the quarter and $10.7 million or 10% of net sales for the year to date period. We expect to continue to spend considerable amounts on R&D activities in the future; however, downturns in our business could cause us to reduce our R&D spending.

Except to the extent we can further use our cash and short term investments or our equity securities as acquisition capital, we will require additional equity or debt financing to fund any future significant acquisitions.

Our ability to further increase our profitability will depend in part on improving gross profit margins. Factors such as changes in our product mix, new technologies and price pressures may cause our margins to grow at a slower rate than we have anticipated, or to decline. We are currently operating our manufacturing facilities at less than full capacity.

Recent Developments

See Note A to our consolidated financial statements in this Quarterly Report on Form 10-Q for recent developments.

New Accounting Pronouncements

Information regarding new accounting pronouncements is included in Note M to our consolidated financial statements in this Quarterly Report on Form 10-Q.

Medical Device Excise Tax

A Medical Device Excise Tax (MDET) was enacted into law as part of the Health Care Education Reconciliation Act of 2010 and imposes an excise tax on medical device manufacturers on their sales in the U.S of certain devices after December 31, 2012. The tax is 2.3% of the taxable base which is generally defined as 75% of the selling price of the taxable product. We estimate approximately 60-65% of our worldwide sales will be subject to the MDET beginning on January 1, 2013.

Results of Operations

Three Months ended November 30, 2012 and November 30, 2011

For the second quarter of fiscal 2013, we reported net income of $2.0 million, or $0.06 per share, on net sales of $87.0 million, compared with net income of $2.3 million, or $0.09 per share, on net sales of $58.1 million in the second quarter of the prior year.

The following table sets forth certain operating data as a percentage of net sales:

                                                          Three Months Ended
                                                        Nov 30,        Nov 30,
                                                         2012            2011
     Net sales                                             100.0 %        100.0 %
     Gross profit                                           50.7 %         57.2 %
     Research and development                                8.1 %          8.8 %
     Sales and marketing                                    21.5 %         27.3 %
     General and administrative                              7.9 %          8.0 %
     Amortization of intangibles                             4.7 %          4.0 %
     Acquisition, restructuring and other items, net         2.6 %          2.4 %
     Operating income                                        5.9 %          6.8 %
     Other income(expenses)                                 (2.3 %)        (0.6 %)
     Income taxes                                            1.3 %          2.1 %
     Net income                                              2.3 %          4.0 %

Net sales. Net sales are derived from the sale of our products and related freight charges, less discounts and returns. Net sales of $87.0 million increased $28.9 million from the $58.1 million reported in the second quarter of fiscal 2012. This increase was primarily attributable to sales of products acquired in the Navilyst acquisition, microwave product sales from the Microsulis strategic relationship and increased EVLT product sales, partially offset by the absence of LC Beads sales following the end of distribution rights on December 31, 2011. Sales of LC Beads were $9.1 million in the second quarter of fiscal 2012.

From a product line perspective, Peripheral Vascular sales increased $22.7 million or 98% from the prior year period to $45.8 million. This increase was primarily attributable to sales of Navilyst fluid management products and increased EVLT product sales. Vascular Access sales were $26.7 million, an increase of $11.5 million from the prior year period. This increase is attributable to sales of Navilyst PICCs and port products. Oncology/Surgery sales were $12.0 million, a decrease of 39% from prior year sales of $19.8 million, primarily due to the decrease in LC Beads sales described earlier. Nanoknife sales totaled $3.3 million in the second quarter of fiscal 2013 and fiscal 2012.

From a geographic perspective, U.S. sales increased $20.0 million or 40% in the second quarter of fiscal 2013 to $69.7 million from $49.7 million a year ago. The increase in net sales was primarily attributable to sales of Navilyst products, increased EVLT product sales and increased Nanoknife product sales, partially offset by the $9.1 million decline in sales of LC Beads, described earlier. International sales were $17.4 million in the fiscal second quarter of 2013, an increase of 105% from $8.4 million in the comparable prior year period. The increase is attributable to sales of Navilyst products and microwave product sales from the Microsulis strategic relationship.

Gross profit. Gross profit consists of net sales less the cost of goods sold, which includes the costs of materials, products purchased from third parties and sold by us, manufacturing personnel, royalties, freight, business insurance, depreciation of property and equipment and other manufacturing overhead. Our gross profit as a percentage of sales decreased to 50.7% in the second quarter of 2013 from 57.2% a year ago. The decrease in gross profit is primarily attributable to the inclusion of the products acquired from Navilyst.

Research and development expenses. Research and development ("R&D") expenses include costs to develop new products, enhance existing products, validate new and enhanced products, manage clinical, regulatory and medical affairs and our intellectual property. R&D expenses increased by $1.9 million, or 37%, to $7.0 million in the second quarter of fiscal 2013 compared to the same prior year period. The increase is primarily due to increased R&D personnel and project costs following the Navilyst acquisition. As a percentage of net sales, R&D expenses declined to 8.1% for the fiscal second quarter of 2013, from 8.8% for the same prior year period.

Sales and marketing expenses. Sales and marketing ("S&M") expenses consist primarily of salaries, commissions, travel and related business expenses, attendance at medical society meetings, product promotions and marketing activities. S&M expenses increased $2.8 million or 18% to $18.7 million in the second quarter of fiscal 2013 from a year ago, with the increase primarily attributable to the addition of Navilyst sales and marketing personnel. As a percentage of net sales, S&M expenses declined to 21.5% in the fiscal second quarter of 2013, from 27.3% for the same prior year period.

General and administrative expenses. General and administrative ("G&A") expenses include executive management, finance and accounting, information technology, human resources, business development, legal, and the administrative and professional costs associated with those activities. G&A expenses increased $2.3 million, or 49%, to $6.9 million in the second quarter of fiscal 2013 compared to the prior year period, primarily due to the addition of Navilyst personnel. G&A expenses decreased to 7.9% of net from 8.0% in the prior year period.

Amortization of intangibles. Amortization of intangibles was $4.1 million in the second quarter of fiscal 2013, an increase of $1.8 million from the second fiscal quarter of 2012, with the increase primarily related to amortization of intangibles acquired in the Navilyst acquisition.

Acquisition, restructuring and other items, net. The second quarter of fiscal 2013 included Acquisition, restructuring and other items, net expenses of $2.3 million which primarily consisted of $1.7 million of transaction and severance expenses related to the acquisition of Navilyst, $325 thousand of transaction costs related to the acquisition of Vortex, $425 thousand of litigation costs and approximately $279 thousand for expenses related to the closure of our manufacturing facility in the UK, partially offset by the $770 thousand net gain on the sale of our PDT laser product line. The prior year second quarter expense of $1.4 million was primarily comprised of $636 thousand of CEO and executive transition costs and $587 thousand of expenses related to the closure of our manufacturing facility in the UK.

Operating income. The second fiscal quarter of 2013 resulted in operating income of $5.1 million compared to $3.9 million for the second quarter of fiscal 2012. As a percentage of sales, operating income was 5.9% for the second quarter of 2013 compared to 6.8% in the same prior year period.

Other income (expenses). Other income and expenses for the second quarter of fiscal 2013 was $2.0 million of net expense compared with $357 thousand of net expense in the same period a year ago, representing (2.3)% and (0.6)% of net sales in the respective periods. Interest on the debt incurred to finance the Navilyst acquisition is the primary cause of the increase.

Income taxes. Our effective tax rate was 37% for the second fiscal quarter of 2013 compared with 35% expense for the prior year period. The current quarter is affected by a reduction in the Domestic Production Activities Deduction caused by reduced taxable income, the tax impact of non-deductible costs related to the acquisition of Vortex and a tax benefit related to the use of fully reserved capital loss carryforwards made possible by the gain on sale of our PDT laser product line. The prior year quarter reflects a benefit from the R&D tax credit which expired December 31, 2011.

Net income. For the second quarter of 2013, we reported net income of $2.0 million, a decrease of $360 thousand from net income of $2.3 million for the prior year quarter.

Six Months ended November 30, 2012 and November 30, 2011

For the first six months of fiscal 2013, we reported net income of $1.2 million, or $0.04 per share, on net sales of $170.4 million, compared with net income of $3.7 million, or $0.15 per share, on net sales of $112.5 million in the first six months of the prior year.

The following table sets forth certain operating data as a percentage of net sales:

                                                          Six Months Ended
                                                  Nov 30, 2012        Nov 30, 2011
Net sales                                                 100.0 %             100.0 %
Gross profit                                               49.0 %              58.1 %
Research and development                                    8.3 %               9.5 %
Sales and marketing                                        21.8 %              28.6 %
General and administrative                                  8.1 %               7.9 %
Amortization of intangibles                                 4.6 %               4.1 %
Acquisition, restructuring and other items, net             2.8 %               2.1 %
Operating income                                            3.4 %               5.9 %
Other income(expenses)                                     (2.2 %)             (0.9 %)
Income taxes                                                0.4 %               1.8 %
Net income                                                  0.7 %               3.3 %

Net sales. Net sales of $170.4 million increased $57.9 million from the $112.5 million reported in the first six months of fiscal 2012. The increase was primarily attributable to sales of products acquired in the Navilyst acquisition, microwave product sales from the Microsulis strategic relationship and increased EVLT product sales, partially offset by the absence of LC Beads sales following the end of distribution rights on December 31, 2011. Sales of LC Beads were $17.1 million in the first six months of fiscal 2012.

From a product line perspective, Peripheral Vascular sales increased $45.0 million or 102% from the prior year period to $89.1 million. This increase was primarily attributable to sales of Navilyst fluid management products and increased EVLT product sales. Vascular Access sales were $53.3 million, an increase of $22.5 million from the prior year period. This increase is attributable to sales of Navilyst PICCs and port products. Oncology/Surgery sales were $23.2 million, a decrease of 38% from prior year sales of $37.7 million, primarily due to the decrease in LC Beads sales previously described. Nanoknife sales totaled $6.4 million in the first six months of fiscal 2013 and $5.5 million in the prior year period.

From a geographic perspective, U.S. sales increased $40.7 million or 42% in the first six months of fiscal 2013 to $137.7 million from $97.0 million a year ago. This increase was primarily attributable to sales of Navilyst products, increased EVLT product sales and increased Nanoknife product sales, partially offset by the $17.1 million decline in sales of LC Beads, described earlier. International sales were $32.7 million in the first six months of fiscal 2013, an increase of 110% from $15.6 million in the comparable prior year period. The increase is attributable to sales of Navilyst products and microwave product sales from the Microsulis strategic relationship.

Gross profit. Our gross profit as a percentage of sales decreased to 49.0% in the first six months of fiscal 2013 from 58.1% in the same period a year ago. The decrease in gross profit is primarily attributable to the inclusion of the products acquired from Navilyst. In addition, the gross profit was reduced by the $3.4 million amortization of the step-up in basis of the acquired Navilyst inventory and $793 thousand of expenses for our Quality Call To Action program to review and augment our Quality Management Systems.

Research and development expenses. R&D expenses increased by $3.4 million, or 31%, to $14.1 million in the first six months of fiscal 2013 compared to the same prior year period. The increase is primarily due to increased R&D personnel and project costs following the Navilyst acquisition. As a percentage of net sales, R&D expenses declined to 8.3% for the fiscal first six months of 2013 from 9.5% for the same period a year ago.

Sales and marketing expenses. S&M expenses increased $5.1 million or 16% to $37.2 million in the first six months of fiscal 2013 from a year ago with the increase primarily attributable to the addition of Navilyst sales and marketing personnel. As a percentage of net sales, S&M expenses declined to 21.8% for the fiscal first six months of 2013, from 28.6% for the same period a year ago.

General and administrative expenses. G&A expenses increased $4.9 million, or 55%, to $13.8 million in the first six months of fiscal 2013 compared to the prior year period, primarily due to the addition of Navilyst personnel. G&A expenses increased to 8.1% of net sales from 7.9% in the prior year period.

Amortization of intangibles. Amortization of intangibles was $7.8 million in the 2013 fiscal first six months, an increase of $3.3 million from the prior year period with the increase primarily related to amortization of intangibles acquired in the Navilyst acquisition.

Acquisition, restructuring and other items, net. The first six months of fiscal 2013 included Acquisition, restructuring and other items, net expenses of $4.8 million which primarily consisted of $3.9 million of transaction and severance costs related to the acquisition of Navilyst, $616 thousand for expenses related to the closure of our manufacturing facility in the UK, $325 thousand of transaction costs related to the acquisition of Vortex, $425 thousand of litigation costs, partially offset by the $770 thousand net gain on the sale of our PDT laser product line. The prior year period expense of $2.3 million was primarily comprised of $1.7 million of CEO and executive transition costs and $883 thousand of expenses related to the closure of our manufacturing facility in the UK.

Operating income. The first six months of fiscal 2013 resulted in operating income of $5.8 million compared to $6.6 million for the same period of fiscal 2012. As a percentage of sales, operating income was 3.4% for the 2013 fiscal first six months compared to 5.9% in the same prior year period.

Other income (expenses). Other income and expenses for the first six months of fiscal 2013 was $3.8 million of net expense compared with $1.0 million net expense in the same period a year ago, representing (2.2)% and (0.9)% of net sales in the respective periods. Interest on the debt incurred to finance the Navilyst acquisition is the primary cause of the increase.

Income taxes. Our effective tax rate was 37% for the first six months of fiscal 2013 compared with 35% expense for the prior year period. The current period is affected by a reduction in the Domestic Production Activities Deduction caused by reduced taxable income, the tax impact of non-deductible costs related to the acquisition of Vortex and a tax benefit related to the use of fully reserved capital loss carryforwards made possible by the gain on sale of our PDT laser product line. The prior year period reflects a benefit from the R&D tax credit which expired December 31, 2011.

Net income. For the first six months of fiscal 2013, we reported net income of $1.2 million, a decrease of $2.5 million from net income of $3.7 million for the prior year period.

Liquidity and Capital Resources

Our cash, cash equivalents and marketable securities totaled $24.0 million at November 30, 2012 compared with $40.1 million at May 31, 2012. Marketable securities consist of U.S. government issued or guaranteed securities, corporate bonds and auction rate securities. At November 30, 2012, total debt was $146.3 million primarily comprised of short and long-term bank debt that financed our acquisition of Navilyst in May 2012. In accounting for the Vortex acquisition, the fair value of contingent milestone payments was remeasured as of November 30, 2012. As a result, $52.4 million was reflected in "Contingent consideration, net of current portion" and $8.1 million was reflected in "Current portion of contingent consideration" on the condensed consolidated balance sheet.

Summary of cash flows (in thousands):

                                                                      Six Months ended
                                                                  Nov 30,          Nov 30,
                                                                    2012             2011
Cash provided by (used in):
Operating activities                                              $  5,515         $  5,713
Investing activities                                                (6,439 )         (8,735 )
Financing activities                                                (3,274 )             11
Effect of exchange rate changes on cash and cash equivalents            12              (18 )

Net change in cash and cash equivalents                           $ (4,186 )       $ (3,029 )

Net cash provided by operating activities in the first half of fiscal 2013 was $5.5 million compared with $5.7 million a year ago. Cash provided by operating activities during the first six months of fiscal year 2013 was primarily the result of non-cash expense items, such as amortization, depreciation and stock-based compensation, and the utilization of tax loss carryforwards and other tax attributes gained through acquisitions, partially offset by increased inventories and other changes in working capital balances. The prior year period consisted of similar components with higher net income, lower depreciation and amortization and lower net changes in working capital balances.

Net cash used in investing activities was $6.4 million for the six months ended November 30, 2012, compared with $8.7 million for the same prior year period. The net cash used in investing activities for the current year period consisted primarily of the Vortex acquisition offset by net proceeds from the sale of marketable securities and the sale of our PDT laser product line. The prior year period use of cash consisted primarily of net purchases of marketable securities.

Net cash used in financing activities was $3.3 million for the six months ended November 30, 2012 compared to net cash provided by financing activities of $11 thousand for the comparable prior year period. The current year period consisted primarily of repayment of long-term debt while the prior year period benefitted from increased exercise of stock options, partially offset by the repurchase and retirement of shares.

Our contractual obligations and their effect on liquidity and cash flows have not changed substantially from that disclosed in our Annual Report on Form 10-K for our fiscal year ended May 31, 2012.

We believe that our current cash and investment balances, together with cash generated from operations and our $50 million revolving credit facility, will provide sufficient liquidity to meet our anticipated needs for capital for at least the next 12 months. If we seek to make significant acquisitions of other businesses or technologies in the future for cash, we may require external financing.