This Management's Discussion and Analysis of Financial Condition and Results of Operations of Misonix and its subsidiaries, in which we refer to the Company as "Misonix", "we", "our", and "us", should be read in conjunction with the accompanying unaudited financial statements included in "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 20, 2012, for the fiscal year ended June 30, 2012 ("2012 Form 10-K"). Item 7 of the 2012 Form 10-K describes the application of our critical accounting policies, for which there have been no significant changes as of December 31, 2012.

Forward Looking Statements

This Report contains certain forward looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which are intended to be covered by the safe harbors created thereby. Although the Company believes 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 contained in this Report will prove to be accurate. Factors that could cause actual results to differ from the results specifically discussed in the forward looking statements include, but are not limited to, the absence of anticipated contracts, higher than historical costs incurred in the performance of contracts or in conducting other activities, product mix in sales, future economic, competitive and market conditions, and the outcome of legal proceedings as well as management business decisions.

Six months ended December 31, 2012 and 2011.

Net sales: Net sales increased $1,277,022 to $8,044,756 for the six months ended December 31, 2012 from $6,767,734 for the six months ended December 31, 2011. The increase in sales was primarily attributable to sales of the Company's BoneScalpel™ products of $1,847,310, partially offset by lower Autosonix revenue of $624,713.

Set forth below are tables showing the Company's net sales by (i) product category and (ii) geographic region for the six months ended December 31, 2012 and 2011:

                                     Six months ended December 31,
                                 2012            2011           Variance
                BoneScalpel   $ 3,704,921     $ 1,857,611     $  1,847,310
                SonicOne        1,029,135         564,199          464,936
                SonaStar        2,626,096       2,627,332           (1,236 )
                Other             684,604       1,718,592       (1,033,988 )
                              $ 8,044,756     $ 6,767,734     $  1,277,022




                                      Six months ended December 31,
                                         2012                 2011
                United States       $     4,085,160       $  3,750,051
                Australia                   281,674             80,826
                Europe                    1,720,299          1,474,003
                Asia                        783,783            483,686
                Canada and Mexico           255,982            290,942
                South America               406,388            279,739
                South Africa                312,267            141,715
                Middle East                 199,203            266,772
                                    $     8,044,756       $  6,767,734

Gross profit: Gross profit decreased to 56.9% for the six months ended December 31, 2012 from 59.6% for the six months ended December 31, 2011. The decrease is related to an unfavorable mix of high and low margin product deliveries in addition to the increase in minimum gross profit contribution requirement cost related to the Soma product, as a result of the settlement with Puricore International Limited ("PuriCore") dated July 22, 2011.

Selling expenses: Selling expenses increased $629,852 to $3,004,149 for the six months ended December 31, 2012 from $2,374,297 for the six months ended December 31, 2011. Selling expenses increased due to higher personnel costs of $444,348, primarily from an increase in headcount for customer service and support, higher commission expense of $95,969, higher auto expense of $28,757, higher training costs of $26,658 and higher depreciation and freight costs of $35,139.

General and administrative expenses: General and administrative expenses decreased $115,147 to $2,135,058 for the six months ended December 31, 2012 from $2,250,205 for the six months ended December 31, 2011. The decrease in expenses is primarily related to lower personnel costs of $118,982.

Research and development expenses: Research and development expenses increased $149,712 to $763,388 for the six months ended December 31, 2012 from $613,676 for the six months ended December 31, 2011. The increase is due to higher salary expenses of $99,055 and higher non-personnel product development costs of $54,002.

Other income (expense): Other income for the six months ended December 31, 2012 was $713,804 as compared to $427,099 for the six months ended December 31, 2011. The increase in other income is related to higher royalty income of $419,342, partially offset by higher royalty expense of $126,389. The increased royalty expense is due to the reversal of $182,000 of BoneScalpel royalty expense for non-performance of obligations in the second quarter of fiscal 2012.

Income taxes: For the six months ending December 31, 2012, the Company's continuing operations effective tax rate was (1%) as compared to a benefit of 26% for the six months ended December 31, 2011. The Company estimates its financial statement effective tax rate for the full year to be approximately 1%. The actual effective rate for continuing operations may vary materially based on several factors including the realization of earn-outs recorded in discontinued operations and the related intraperiod tax allocation, the ratio of permanent differences to pretax income (loss), and a change in the valuation allowances as well as other factors.

Three months ended December 31, 2012 and 2011.

Net sales: Net sales decreased $76,304 to $3,474,231 for the three months ended December 31, 2012 from $3,550,535 for the three months ended December 31, 2011. The decrease in sales is primarily related to lower Neuroaspirator revenue of $277,073, lower Autosonix revenue of $255,467 and lower Lysonix revenue of $198,118, partially offset by higher BoneScalpel revenue of $401,835, higher SonicOne™ revenue of $218,437 and higher Lithotripsy and service revenue of $32,841.

Set forth below are tables showing the Company's net sales by (i) product category and (ii) geographic region for the three months ended December 31, 2012 and 2011:

                                    Three months ended December 31,
                                  2012            2011          Variance
                 BoneScalpel   $ 1,603,760     $ 1,201,925     $  401,835
                 SonicOne          528,249         309,812        218,437
                 SonaStar        1,053,417       1,330,490       (277,073 )
                 Other             288,805         708,308       (419,503 )
                               $ 3,474,231     $ 3,550,535     $  (76,304 )




                                     Three months ended December 31,
                                       2012                   2011
             United States       $      1,635,550       $      1,872,338
             Australia                    141,774                 62,641
             Europe                       958,388                645,914
             Asia                         361,556                445,080
             Canada and Mexico             29,922                102,801
             South America                108,462                204,944
             South Africa                 105,584                 81,330
             Middle East                  132,995                135,487
                                 $      3,474,231       $      3,550,535

Gross profit: Gross profit decreased to 53.2% for the three months ended December 31, 2012 from 63.9% for the three months ended December 31, 2011. The decrease in sales is related to unabsorbed factory costs due to lower sales volume, along with an unfavorable mix of low and high margin product deliveries in addition to the minimum gross profit margins requirement cost related to the Soma product as a result of the settlement with PuriCore dated July 22, 2011.

Selling expenses: Selling expenses increased $351,540 to $1,545,585 for the three months ended December 31, 2012 from $1,194,045 for the three months ended December 31, 2011. Selling expenses increased due to higher personnel costs of $236,245, primarily from an increase in headcount for customer service and support, higher travel expenses of $28,885, higher advertising expenses of $23,035, higher training expenses of $20,940, higher freight expenses of $17,306, higher research clinical expenses of $13,134 and higher commissions of $9,500.

General and administrative expenses: General and administrative increased $10,341 to $1,092,726 for the three months ended December 31, 2012 from $1,082,385 for the three months ended December 31, 2011.

Research and development expenses: Research and development expenses increased $62,555 to $366,257 for the three months ended December 31, 2012 from $303,702 for the three months ended December 31, 2011. The increase is due to higher salary expenses of $47,273, higher non-personnel product development costs of $9,790 and higher maintenance and repair expenses of $6,252.

Other income (expense): Other income for the three months ended December 31, 2012 was $502,387 as compared to $331,871 for the three months ended December 31, 2011. The increase in other income is related to higher royalty income of $334,798, partially offset by higher royalty expense of $151,261 due to the reversal of $182,000 of royalties relating to the BoneScalpel for the non-performance of obligations in the second quarter of fiscal 2012.

Income taxes: For the three months ended December 31, 2012, the Company recorded an effective tax rate of 0% as compared to a benefit of $207,233, or 100%, for the three months ending December 31, 2011. The Company estimates its financial statement effective tax rate for the full year to be approximately 1%. The actual effective rate for continuing operations may vary materially based on several factors including the realization of earn-outs recorded in discontinued operations and the related intraperiod tax allocation, the ratio of permanent differences to pretax income (loss), and a change in the valuation allowances as well as other factors.

Discontinued Operations



See Note 1 of the notes to consolidated financial statements included in Part 1,
Item 1 for a description of the discontinued operations. The following
summarizes the results of the discontinued operations:



                                          For the three months ended            For the six months ended
                                                 December 31,                         December 31,
                                         2012                 2011              2012               2011
Revenues                              $     4,975       $        905,245     $     9,950       $  1,427,202
Income/(loss) from discontinued
operations, before tax                $     3,475       $       (256,742 )   $     9,793       $   (336,698 )
Gain on sale of discontinued
operations                                      -              1,450,626               -          1,450,626
Income tax expense                              -               (401,751 )             -           (401,751 )
Net income from discontinued
operations net of tax                 $     3,475       $        792,133     $     9,793       $    712,177

Liquidity and Capital Resources

We regularly review our cash funding requirements and attempt to meet those requirements through a combination of cash on hand, cash provided by operations and possible future public or private debt and/or equity offerings. At times, we evaluate possible acquisitions of, or investments in, businesses that are complementary to ours, which may require the use of cash. We believe that our cash, other liquid assets and access to equity capital markets, taken together, provide adequate resources to fund ongoing operating expenditures. In the event that they do not, we may require additional funds in the future to support our working capital requirements or for other purposes and may seek to raise such additional funds through the sale of public or private equity and/or debt financings, and divestiture of current business lines as well as from other sources. No assurance can be given that additional financing will be available in the future or that if available, such financing will be obtainable on favorable terms when required.

Working capital at December 31, 2012 and June 30, 2012 was $11,608,000 and $11,734,000, respectively. For the six months ended December 31, 2012, cash provided by operations totaled $706,000, primarily due to accounts receivable of $800,000. For the six months ended December 31, 2012, cash used in investing activities totaled $178,000, primarily due to the acquisition of fixed assets. For the six months ended December 31, 2012, cash provided by financing activities was $44,000.

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.

New Accounting Pronouncements

We are required to adopt certain new accounting pronouncements. See note 11 to our consolidated financial statements included herein.