**FORM
            10-Q**
 
 **SECURITIES
            AND EXCHANGE COMMISSION**
 
 Washington,
            D.C. 20549
 
 (Mark
            One)
  x
                  QUARTERLY
                      REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
                    EXCHANGE
                      ACT OF 1934
 
 For
            the
            quarterly period ended December
            31, 2006
 
 OR
 
 o
                  TRANSITION
                      REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                    SECURITIES
                      EXCHANGE ACT OF 1934
  For
            the
            transition period from _______ to ________.
 
 Commission
            file number:  1-10986
  MISONIX,
            INC.
 (Exact
            name of registrant as specified in its charter)
  New
                      York
                  11-2148932(State
                      or other jurisdiction of
                  (I.R.S.
                      Employerincorporation
                      or organization)
                  Identification
                      No.)
  1938
                      New Highway, Farmingdale, NY
                  11735(Address
                      of principal executive offices)
                  (Zip
                      Code)
  (631)
            694-9555
 (Registrant’s
            telephone number, including area code)
 
 Indicate
            by check mark whether the registrant (1) has filed all reports required
            to be
            filed by Section
            13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
            12
            months ( or
            for
            such shorter period that the registrant was required to file such reports),
            and
            (2) has been subject
            to such filing requirements for the past 90 days.
  Yes x  No o
  Indicate
            by check mark whether the registrant is a large accelerated filer, an
            accelerated filer, or a non-accelerated filer. See definition of accelerated
            filer and large accelerated filer in Rule 12b-2 of the Exchange Act.
            (Check
            one):
 
 Large
            accelerated filer o  Accelerated
            filer o Non-accelerated
            filer x
 
 Indicate
            by check mark whether the registrant is a shell company (as defined in
            Rule
            12b-2 of the Exchange
            Act).
 
 Yes o  No x
 
 Indicate
            the number of shares outstanding of each of the issuer’s classes of common
            stock, as of
            the
            latest practical date:
 Class
                          of Common Stock
                    Outstanding
                        at
                        February
                          5, 2007Common
                        Stock, $.01 par value
                    6,920,369
 
 
 
 **MISONIX,
            INC.**
 
 **INDEX**
 
 **Page****Part
                      I -**
                  **FINANCIAL INFORMATION****Item
                      1.**
                  **Financial
                    Statements**Consolidated
                      Balance Sheets as ofDecember
                      31, 2006 (Unaudited) and June 30, 2006
                  3Consolidated
                        Statements of OperationsSix
                      months ended December 31, 2006and
                      2005 (Unaudited)
                  4Consolidated
                        Statements of OperationsThree
                      months ended December 31, 2006and
                      2005 (Unaudited)
                  5Consolidated
                        Statement of Stockholders’ EquitySix
                      months ended December 31, 2006 (Unaudited)
                  6Consolidated
                      Statements of Cash FlowsSix
                      months ended December 31, 2006and
                      2005 (Unaudited)
                  7Notes
                      to Consolidated Financial Statements
                  8Item
                      2.
                  Management’s
                      Discussion and Analysis of Financial Conditionand
                      Results of Operations
                  17Item
                      3.
                  Quantitative
                    and
                    Qualitative Disclosures About Market Risk
                  23Item
                      4.
                  Controls
                    and
                    Procedures
                  23**Part
                      II -**
                  **OTHER
                    INFORMATION**Item
                      1A.
                  Risk
                    Factors
                  24Item
                      4.
                  Submission
                    of Matters
                    to a Vote of Security Holders
                  24Item
                      6.
                  Exhibits
                  24Signatures
                  25
  2
  PART
            I -
            FINANCIAL INFORMATION
 Item
            1.
            Financial Statements.
  **MISONIX,
            INC.**
 **CONSOLIDATED
            BALANCE SHEETS**
 
 **December
                      31,**
                    **2006**
                  
                  June
                      30,
                    2006**Assets**
                  
                  **(unaudited)**
                  
                  (Derived
                      from audited Financial Statements)Current
                      assets:Cash
                  
                  **$**
                  **1,238,021**
                  
                  $
                  675,400Accounts
                      receivable, less allowance for doubtful accounts of
                    $282,051
                      and $256,309, respectively
                  
                  
                  **7,809,065**
                  
                  
                  6,530,598Inventories,
                      net
                  
                  
                  **11,386,002**
                  
                  
                  11,307,226Income
                      tax receivable
                  
                  
                  **784,993**
                  
                  
                  786,654Deferred
                      income taxes
                  
                  
                  **1,700,129**
                  
                  
                  1,419,949Prepaid
                      expenses and other current assets
                  
                  
                  **822,246**
                  
                  
                  1,070,903Total
                      current assets
                  
                  
                  **23,740,456**
                  
                  
                  21,790,730Property,
                      plant and equipment, net
                  
                  
                  **6,187,035**
                  
                  
                  6,495,854Deferred
                      income taxes
                  
                  
                  **1,229,811**
                  
                  
                  1,039,824Goodwill
                  
                  
                  **4,710,446**
                  
                  
                  4,673,713Other
                      assets
                  
                  
                  **1,181,137**
                  
                  
                  512,444Total
                      assets
                  
                  **$**
                  **37,048,885**
                  
                  $
                  34,512,565**Liabilities
                      and stockholders’ equity**Current
                      liabilities:Revolving
                      credit facilities and note payable
                  
                  
                  **4,521,709**
                  
                  
                  1,572,042Accounts
                      payable
                  
                  
                  **4,256,326**
                  
                  
                  4,784,102Accrued
                      expenses and other current liabilities
                  
                  
                  **3,116,544**
                  
                  
                  2,963,762Foreign
                      income taxes payable
                  
                  
                  **122,493**
                  
                  
                  —Current
                      maturities of long-term debt and capital lease obligations
                  
                  
                  **351,432**
                  
                  
                  367,823Total
                      current liabilities
                  
                  
                  **12,368,504**
                  
                  
                  9,687,729Long-term
                      debt and capital lease obligations
                  
                  
                  **1,119,406**
                  
                  
                  1,145,279Deferred
                      lease liability
                  
                  
                  **389,892**
                  
                  
                  378,031Deferred
                      income taxes
                  
                  
                  **225,471**
                  
                  
                  282,455Deferred
                      income
                  
                  
                  **389,998**
                  
                  
                  422,634Total
                      liabilities
                  
                  
                  **14,493,271**
                  
                  
                  11,916,128Commitments
                      and contingenciesMinority
                      interest
                  
                  
                  **371,060**
                  
                  
                  341,631Stockholders’
                      equity:Common
                      stock, $.01 par value—shares authorized 10,000,000; 6,998,169 and
                      6,978,169 issued,and
                      6,920,369 and 6,900,369outstanding,
                      respectively
                  
                  
                  **69,982**
                  
                  
                  69,782Additional
                      paid-in capital
                  
                  
                  **24,709,906**
                  
                  
                  24,548,536Accumulated
                      deficit
                  
                  
                  **(2,677,133**
                  **)**
                  
                  (2,158,271
                  )Accumulated
                      other comprehensive income
                  
                  
                  **494,223**
                  
                  
                  207,183Treasury
                      stock, 77,800 shares
                  
                  
                  **(412,424**
                  **)**
                  
                  (412,424
                  )Total
                      stockholders’ equity
                  
                  
                  **22,184,554**
                  
                  
                  22,254,806Total
                      liabilities and stockholders’ equity
                  
                  **$**
                  **37,048,885**
                  
                  $
                  34,512,565
  *See
            Accompanying Notes to Consolidated Financial Statements.*
  3
 **MISONIX,
          INC.**
 **CONSOLIDATED
          STATEMENTS OF OPERATIONS**
 **(UNAUDITED)**
  **For
                    the six months ended**
                  **December
                    31,****2006**
                
                2005Net
                    sales
                
                **$**
                **20,281,964**
                
                $
                19,379,958Cost
                    of goods sold
                
                
                **11,563,343**
                
                
                12,079,906Gross
                    profit
                
                
                **8,718,621**
                
                
                7,300,052Operating
                    expenses:Selling
                    expenses
                
                
                **3,521,356**
                
                
                3,248,471General
                    and administrative expenses
                
                
                **4,707,431**
                
                
                5,025,542Research
                    and development expenses
                
                
                **1,648,385**
                
                
                1,763,736Total
                    operating expenses
                
                
                **9,877,172**
                
                
                10,037,749Loss
                    from operations
                
                
                **(1,158,551**
                **)**
                
                (2,737,697
                )Other
                    income (expense):Interest
                    income
                
                
                **42,114**
                
                
                48,115Interest
                    expense
                
                
                **(226,493**
                **)**
                
                (114,610
                )Royalty
                    income and license fees net of royalty expenseof
                    $11,351 and $37,399, respectively
                
                
                **447,124**
                
                
                394,067Other
                
                
                **12,330**
                
                
                (13,381
                )Total
                    other income
                
                
                **275,075**
                
                
                314,191Loss
                    before minority interest and income taxes
                
                
                **(883,476**
                **)**
                
                (2,423,506
                )Minority
                    interest in net income of consolidated
                  subsidiaries
                
                
                **25,499**
                
                
                19,124Loss
                    before income taxes
                
                
                **(908,975**
                **)**
                
                (2,442,630
                )Income
                    tax benefit
                
                
                **(390,113**
                **)**
                
                (630,162
                )Net
                    loss
                
                
                **($518,862**
                **)**
                
                ($1,812,468
                )Net
                    loss per share - Basic
                
                
                **($.08**
                **)**
                
                ($
                    .26
                )Net
                    loss per share - Diluted
                
                
                **($.08**
                **)**
                
                ($
                    .26
                )Weighted
                    average common shares outstanding - Basic
                
                
                **6,903,165**
                
                
                6,844,802Weighted
                    average common shares outstanding - Diluted
                
                
                **6,903,165**
                
                
                6,844,802
 
 *See
          Accompanying Notes to Consolidated Financial Statements* .
  4
 
 **MISONIX,
          INC.**
 **CONSOLIDATED
          STATEMENTS OF OPERATIONS**
 **(UNAUDITED)**
 ****
 **For
                      the three months ended**
                    **December
                      31,****2006**
                
                2005Net
                    sales
                
                **$**
                **10,639,086**
                
                $
                10,268,386Cost
                    of goods sold
                
                
                **5,852,331**
                
                
                6,404,865Gross
                    profit
                
                
                **4,786,755**
                
                
                3,863,521Operating
                    expenses:Selling
                    expenses
                
                
                **1,924,117**
                
                
                1,686,837General
                    and administrative expenses
                
                
                **2,303,148**
                
                
                2,290,680Research
                    and development expenses
                
                
                **828,168**
                
                
                846,996Total
                    operating expenses
                
                
                **5,055,433**
                
                
                4,824,513Loss
                    from operations
                
                
                **(268,678**
                **)**
                
                (960,992
                )Other
                    income (expense):Interest
                    income
                
                
                **20,304**
                
                
                24,006Interest
                    expense
                
                
                **(159,831**
                **)**
                
                (59,276
                )Royalty
                    income and license fees net of royalty
                  expense
                    of $5,504 and $37,399, respectively
                
                
                **266,269**
                
                
                178,369Other
                
                
                **14,675**
                
                
                (3,767
                )Total
                    other income
                
                
                **141,417**
                
                
                139,332Loss
                    before minority interest and income taxes
                
                
                **(127,261**
                **)**
                
                (821,660
                )Minority
                    interest in net (loss) income of consolidated
                  subsidiaries
                
                
                **(5,840**
                **)**
                
                2,785Loss
                    before income taxes
                
                
                **(121,421**
                **)**
                
                (824,445
                )Income
                    tax benefit
                
                
                **(144,975**
                **)**
                
                (317,340
                )Net
                    income (loss)
                
                **$**
                **23,554**
                
                
                ($507,105
                )Net
                    income (loss) per share - Basic
                
                **$**
                **—**
                
                
                ($.07
                )Net
                    income (loss) per share - Diluted
                
                **$**
                **—**
                
                
                ($.07
                )Weighted
                    average common shares outstanding - Basic
                
                
                **6,905,960**
                
                
                6,856,981Weighted
                    average common shares outstanding - Diluted
                
                
                **6,962,811**
                
                
                6,856,981
 
 *See
          Accompanying Notes to Consolidated Financial Statements* .
 
 5
  **MISONIX,
          INC.**
 **CONSOLIDATED
          STATEMENT OF STOCKHOLDERS’ EQUITY**
 **(UNAUDITED)**
  Common
                    Stock,
                  $.01
                    Par Value
                
                Treasury
                    SharesNumber
                    of Shares
                
                Amount
                
                Number
                    of Shares
                
                Amount
                
                Additional
                    Paid-In Capital
                
                Accumulated
                    Deficit
                
                Accumulated
                    Other Comprehensive Income
                
                Total
                    Stockholders’ EquityBalance,
                    June 30, 2006
                
                
                6,978,169
                
                $
                69,782
                
                
                (77,800
                )
                
                ($412,424
                )
                $
                24,548,536
                
                
                ($2,158,271
                )
                $
                207,183
                
                $
                22,254,806Net
                    Loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (518,862
                )
                
                
                
                
                (518,862
                )Foreign
                    currency translation adjustment
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                287,040
                
                
                287,040Comprehensive
                    loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (231,822
                )Exercise
                    of employee stock options
                
                
                20,000
                
                
                200
                
                
                
                
                
                
                
                
                61,200
                
                
                
                
                
                
                
                
                61,400Stock-based
                    compensation
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                100,170
                
                
                
                
                
                
                
                
                100,170Balance,
                    December 31, 2006
                
                
                6,998,169
                
                $
                69,982
                
                
                (77,800
                )
                
                ($412,424
                )
                $
                24,709,906
                
                
                ($2,677,133
                )
                $
                494,223
                
                $
                22,184,554
  *See
          Accompanying Notes to Consolidated Financial Statements* .
 
 6
 
 **MISONIX,
          INC.**
 **CONSOLIDATED
          STATEMENTS OF CASH FLOWS**
 **(UNAUDITED)**
  **For
                      the six months ended**
                    **December
                      31,****2006**
                
                2005**Operating
                    activities**
                
                
                **($518,862**
                **)**
                
                ($1,812,468
                )Net
                    lossAdjustments
                    to reconcile net loss to net cash (used in) provided by operating
                    activities:Depreciation
                    and amortization and other non cash items
                
                
                **1,002,464**
                
                
                732,282Bad
                    debt expense
                
                
                **69,477**
                
                
                157,068Deferred
                    income tax benefit
                
                
                **(521,568**
                **)**
                
                (159,401
                )Loss
                    on disposal of equipment
                
                
                **82,427**
                
                
                67,538Minority
                    interest in net income of subsidiaries
                
                
                **25,499**
                
                
                19,124Stock-based
                    compensation
                
                
                **100,170**
                
                
                373,746Deferred
                    income
                
                
                **(32,636**
                **)**
                
                (52,082
                )Deferred
                    leasehold costs
                
                
                **11,861**
                
                
                —Other
                
                
                **—**
                
                
                6,131Changes
                    in operating assets and liabilities:Accounts
                    receivable
                
                
                **(1,107,145**
                **)**
                
                3,986,484Inventories
                
                
                **34,472**
                
                
                (1,753,034
                )Income
                    tax receivable
                
                
                **36,596**
                
                
                (529,297
                )Prepaid
                    expenses and other current assets
                
                
                **332,230**
                
                
                577,576Other
                    assets
                
                
                **(758,003**
                **)**
                
                (35,342
                )Accounts
                    payable and accrued expenses
                
                
                **(724,061**
                **)**
                
                (1,003,612
                )Foreign
                    income taxes payable
                
                
                **82,050**
                
                
                —Net
                    cash (used in) provided by operating activities
                
                
                **(1,885,029**
                **)**
                
                574,713**Investing
                    activities**Acquisition
                    of property, plant and equipment
                
                
                **(217,208**
                **)**
                
                (477,623
                )Net
                    cash used in investing activities
                
                
                **(217,208**
                **)**
                
                (477,623
                )**Financing
                    activities**Proceeds
                    from short-term borrowings
                
                
                **5,070,569**
                
                
                674,631Payments
                    of short-term borrowings
                
                
                **(2,238,708**
                **)**
                
                (475,704
                )Principal
                    payments on capital lease obligations
                
                
                **(185,412**
                **)**
                
                (198,708
                )Proceeds
                    from exercise of stock options
                
                
                **61,400**
                
                
                166,145Payments
                    of long-term debt
                
                
                **(27,626**
                **)**
                
                (28,976
                )Net
                    cash provided by financing activities
                
                
                **2,680,223**
                
                
                137,388Effect
                    of exchange rate changes on cash
                
                
                **(15,365**
                **)**
                
                (577
                )Net
                    increase in cash
                
                
                **562,621**
                
                
                233,901Cash
                    at beginning of period
                
                
                **675,400**
                
                
                2,484,534Cash
                    at end of period
                
                **$**
                **1,238,021**
                
                $
                2,718,435**Supplemental
                    disclosure of cash flow information:**Cash
                    paid for:Interest
                
                **$**
                **211,458**
                
                $
                114,610Income
                    taxes
                
                **$**
                **13,900**
                
                $
                39,726**Supplemental
                    disclosure of non cash investing and financing
                    activities:**Capital
                    lease additions
                
                **$**
                **57,062**
                
                $
                213,751
  *See
          Accompanying Notes to Consolidated Financial Statements* .
  7
 
 **MISONIX,
          INC.**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 (Information
          with respect to interim periods is unaudited)
 
 1.  Basis
          of Presentation
 
 The
          accompanying unaudited consolidated financial statements have been prepared
          in
          accordance with generally accepted accounting principles for interim financial
          information and with the instructions to Form 10-Q and Article 10 of Regulation
          S-X. Accordingly, they do not include all of the information and footnotes
          required by accounting principles generally accepted in the United States
          for
          complete financial statements. In the opinion of management, all adjustments
          (consisting of normal recurring accruals) considered necessary for a fair
          presentation have been included. Operating results for the six and three
          months
          ended December 31, 2006 are not necessarily indicative of the results that
          may
          be expected for the year ending June 30, 2007 or any interim period
          therein.
 
 For
          further information, refer to the consolidated financial statements and
          footnotes thereto included in the Company’s Annual Report on Form 10-K for the
          year ended June 30, 2006.
 
 2. Net
          Income (loss) Per Share
 
 Basic
          loss per share excludes any dilution. It is based on the weighted average
          number
          of shares outstanding during the period. Dilutive income per share reflects
          the
          potential dilution that would occur if options to purchase common stock
          were
          exercised. For the six month period ended December 2006 and the six and
          three
          month periods ended December 31, 2005, dilutive weighted average common
          shares
          outstanding of 69,552, 238,644 and 136,828, respectively, were excluded
          from the
          diluted loss per share calculation, since the effect of including these
          options
          would be anti-dilutive. The following table sets forth the reconciliation
          of
          weighted average shares outstanding and diluted weighted average shares
          outstanding:
 
 For
                    the six months ended
                  December
                    31,
                
                For
                    the three months ended
                  December
                    31,**2006**
                
                2005
                
                **2006**
                
                2005Weighted
                    average common shares outstanding
                
                
                **6,903,165**
                
                
                6,844,802
                
                
                **6,905,960**
                
                
                6,856,981Dilutive
                    effect of stock options
                
                
                **—**
                
                
                —
                
                
                **56,851**
                
                
                —**6,903,165**
                
                
                6,844,802
                
                
                **6,962,811**
                
                
                6,856,981
 
 3.  Comprehensive
          (Loss) Income
 
 Total
          comprehensive (loss) income was ($231,822) and $175,102 for the six and
          three
          months ended December 31, 2006 and ($1,900,797) and ($546,719) for the
          six and
          three months ended December 31, 2005, respectively. The components of
          comprehensive (loss) income are net (loss) income and foreign currency
          translation adjustments.
 
 4.  Stock-Based
          Compensation
 
 The
          Company adopted the fair-value recognition provisions of Statement of Financial
          Accounting Standards No. 123R “Share-Based Payment” (“SFAS 123R”) effective
          July 1, 2005. Compensation cost recognized in the six and three month periods
          ended December 31, 2006 and 2005 include compensation cost for all stock-based
          compensation granted prior to, but not yet vested as of, July 1, 2005,
          based on
          the grant date fair value estimated in accordance with the original provisions
          of SFAS No. 123, and compensation cost for all stock-based compensation
          granted
          subsequent to July 1, 2005, based on the grant date fair value estimated
          in
          accordance with the provisions of SFAS No. 123R.
 8
  **MISONIX,
          INC.**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 (Information
          with respect to interim periods is unaudited)
 
 Stock
          options are granted with exercise prices not less than the fair market
          value of
          our common stock at the time of the grant, with an exercise term (as determined
          by the Committee administering the applicable option plan (the “Committee”)) not
          to exceed 10 years. The Committee determines the vesting period for the
          Company’s stock options. Generally, such stock options have vesting periods of
          immediate to four years. Certain option awards provide for accelerated
          vesting
          upon meeting specific retirement, death or disability criteria, and upon
          change
          of control. During the six month periods ended December 31, 2006 and 2005,
          the
          Company granted options to purchase 52,400 and 69,000 shares of the Company’s
          common stock, respectively.
 
 As
          a
          result of adopting SFAS No. 123R, the Company recorded stock-based compensation
          expense for the six month periods ended December 31, 2006 and 2005 of
          approximately $100,000 and $374,000, respectively. Stock-based compensation
          for
          the three month periods ended December 31, 2006 and 2005 was $50,000 and
          $287,000, respectively. Compensation expense is recognized in the general
          and
          administrative expenses line item of the Company’s statements of operations on a
          straight-line basis over the vesting periods. As of December 31, 2006,
          there was
          $249,000 of total unrecognized compensation cost related to non-vested
          share-based compensation arrangements to be recognized over a weighted-average
          period of 2.5 years.
 
 The
          total
          cash received from the exercise of stock options was $61,400 and $166,145
          for
          the six month periods ended December 31, 2006 and 2005, respectively, and
          are
          classified as financing cash flows. SFAS No. 123R requires that cash flows
          from
          tax benefits attributable to tax deductions in excess of the compensation
          cost
          recognized for those options (excess tax benefits) be classified as financing
          cash flows.
 
 The
          fair
          values of the options granted during the six month periods ended December
          31,
          2006 and 2005 were estimated on the date of the grant using the Black-Scholes
          option-pricing model on the basis of the following weighted average
          assumptions:
 
 December
                    31,2006
                
                2005Risk-free
                    interest rate
                
                
                4.78
                %
                
                4.22
                %Expected
                    life
                
                
                6
                    years
                
                
                5
                    yearsExpected
                    volatility
                
                
                55.2
                %
                
                53.5
                %Expected
                    dividend yield
                
                
                0
                %
                
                0
                %Weighted-average
                    fair value of
                  options
                    granted
                
                $
                1.97
                
                $
                3.85
 
 The
          expected life was based on historical exercises and terminations. The expected
          volatility for the periods with the expected life of the options is determined
          using historical volatilities based on historical stock prices. The expected
          dividend yield is 0% as the Company has historically not declared dividends
          and
          does not expect to declare any in the future.
 
 9
  **MISONIX,
          INC.**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 (Information
          with respect to interim periods is unaudited)
 
 Changes
          in outstanding options during the six months ended December 31, 2006 were
          as
          follows:
 
 Options
                
                Weighted
                    Average
                  Exercise
                    Price
                
                Weighted
                    Average Remaining ContractualTerm
                    (yrs.)
                
                AggregateIntrinsic
                    ValueOutstanding
                    at June 30, 2006
                
                
                1,837,973
                
                $
                5.72
                
                
                5.7Granted
                
                
                52,400
                
                
                3.45Exercised
                
                
                (20,000
                )
                
                3.07Forfeited
                
                
                (5,261
                )
                
                7.35Expired
                
                
                (7,500
                )
                
                4.00Outstanding
                    at December 31, 2006
                
                
                1,857,612
                
                $
                5.69
                
                
                5.8
                
                $
                315,778Options
                    vested and exercisable at December 31, 2006
                
                
                1,730,456
                
                $
                5.69
                
                
                5.0
                
                $
                291,150Options
                    available for grant at December 31, 2006
                
                
                724,807
  5.  Inventories
  Inventories
          are summarized as follows:
 
 **December
                    31,**
                  **2006**
                
                June
                    30,
                  2006Raw
                    material
                
                **$**
                **5,430,554**
                
                $
                5,702,171Work-in-process
                
                
                **2,764,483**
                
                
                2,250,826Finished
                    goods
                
                
                **5,380,983**
                
                
                5,456,684**13,576,020**
                
                
                13,409,681Less
                    valuation reserve
                
                
                **2,190,018**
                
                
                2,102,455**$**
                **11,386,002**
                
                $
                11,307,226
  6. Accrued
          Expenses and Other Current Liabilities
 
 The
          following summarizes accrued expenses and other current
          liabilities:
  **December
                    31,**
                  **2006**
                
                June
                    30,
                  2006Customer
                    deposits and current deferred contracts
                
                **$**
                **769,565**
                
                $
                870,760Accrued
                    payroll and vacation
                
                
                **571,120**
                
                
                549,933Accrued
                    VAT and sales tax
                
                
                **209,778**
                
                
                94,813Accrued
                    commissions and bonuses
                
                
                **560,565**
                
                
                446,165Accrued
                    professional and legal fees
                
                
                **65,696**
                
                
                208,650Litigation
                    expense
                
                
                **419,000**
                
                
                419,000Other
                
                
                **520,820**
                
                
                374,441**$**
                **3,116,544**
                
                $
                2,963,762
 
 10
  **MISONIX,
          INC.**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 (Information
          with respect to interim periods is unaudited)
 
 7.   Revolving
          Credit Facilities
 
 On
          December 29, 2006, the Company and its subsidiaries, Acoustic Marketing
          Research, Inc. d/b/a Sonora Medical Systems (“Sonora”) and Hearing Innovations
          Incorporated (collectively referred to as the “Borrowers”) and Wells Fargo Bank,
          entered into a (i) Credit and Security Agreement and a (ii) Credit and
          Security
          Agreement Export-Import Subfacility (collectively referred to as the “Credit
          Agreements”). The aggregate credit limit under the Credit Agreements is
          $8,000,000 consisting of a revolving facility in the amount of up to $8,000,000.
          Up to $1,000,000 of the revolving facility is available under the Export-Import
          Agreement as a subfacility for Export-Import working capital financing.
          All
          credit facilities under the Credit Agreements mature on December 29, 2009.
          Payment of amounts outstanding under the Credit Agreements may be accelerated
          upon the occurrence of an Event of Default (as defined in the Credit
          Agreements). All loans and advances under the Credit Agreements are secured
          by a
          first priority security interest in all of the Borrowers’ accounts receivable,
          deposit accounts, property, plant and equipment, general intangibles,
          intellectual property, inventory, letter-of-credit rights, and all other
          business assets. The Borrowers have the right to terminate or reduce the
          credit
          facility prior to December 29, 2009 by paying a fee based on the aggregate
          credit limit (or reduction, as the case may be) as follows: (i) during
          year one
          of the Credit Agreements, 3%; (ii) during year two of the Credit Agreements,
          2%;
          and (iii) during year three of the Credit Agreements, 1%.
 
 The
          Credit Agreements contain financial covenants requiring that the Borrowers
          (i)
          on a consolidated basis not have a Net Loss (as defined in the Credit
          Agreements) of more than (a) $700,000 for the fiscal quarter ended December
          31,
          2006, (b) $340,000 for the fiscal quarter ending March 31, 2007 and (c)
          $150,000
          for the fiscal quarter ending June 30, 2007; and (ii) not incur or contract
          to
          incur Capital Expenditures (as defined in the Credit Agreements) of more
          than
          $1,000,000 in the aggregate in any fiscal year or more than $1,000,000
          in any
          one transaction.
 
 The
          available amount under the Credit Agreements is the lesser of $8,000,000
          or the
          amount calculated under the Borrowing Base (as defined in the Credit
          Agreements). The Borrowers must maintain a minimum outstanding amount of
          $1,250,000 under the Credit Agreements at all times and pay a fee equal
          to the
          interest rate set forth on any such shortfall. Interest on amounts borrowed
          under the Credit Agreements is payable at Wells Fargo’s prime rate of interest
          plus 1% per annum floating, payable monthly in arrears. The default rate
          of
          interest is 3% higher than the rate otherwise payable. A fee of 1/2 % per
          annum
          on the Unused Amount (as defined in the Credit Agreements) is payable monthly
          in
          arrears. At December 31, 2006, the balance outstanding under the Credit
          Agreements is $2,685,000 and the Company is not in violation of financial
          covenants.
 
 Approximately
          $2,006,000 of the proceeds from the Credit Agreements was used to pay off
          the
          Company’s outstanding revolving credit facility with the Bank of America and
          $629,000 was deposited with Bank of America to collateralize the Company’s
          obligation with respect to an outstanding letter of credit. As of December
          31,
          2006, the Company no longer has a credit facility with the Bank of
          America.
 
 Labcaire
          has a debt purchase agreement with Lloyds TSB Commercial Finance (“Lloyds”). The
          amount of this facility bears interest at the bank’s base rate (4.5% and 5.25%
          at December 31, 2006 and December 31, 2005, respectively) plus 1.75% and
          a
          service charge of .15% of sales invoice value and fluctuates based upon
          the
          outstanding United Kingdom and European receivables. The agreement expired
          September 30, 2006 and was extended until March 2007. The agreement covers
          all
          United Kingdom and European sales. At December 31, 2006, the balance outstanding
          under this credit facility was $1,221,000 and Labcaire is not in violation
          of
          financial covenants.
  11
 
 Labcaire
          has an overdraft facility with Lloyds. The amount of this facility bears
          interest at Lloyds’ base rate of 4.5% at December 31, 2006 plus 3%. The
          agreement expired September 30, 2006 and is currently being extended on
          a month
          to month basis while the Company and Lloyds are working on a longer extension.
          At December 31, 2006, the balance outstanding under this overdraft facility
          was
          $615,000 and Labcaire is not in violation of financial covenants.
 
 12
  **MISONIX,
          INC.**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 (Information
          with respect to interim periods is unaudited)
 
 8.  Commitments
          and Contingencies
 
 A
          jury in
          the District Court of Boulder County, Colorado has returned a verdict against
          Sonora in the amount of $419,000 which was recorded by the Company during
          the
          fourth quarter of fiscal 2005. The case involved royalties claimed on recoating
          of transesophogeal probes, which is a process performed by Sonora. Approximately
          80% of the judgment was based on the jury’s estimate of royalties for potential
          sales of the product in the future. Sonora has moved for judgment
          notwithstanding the verdict based on, among other things, the award of
          damages
          for future royalties. Sonora has also moved for a new trial in the
          case.
 
 The
          Company is a defendant in claims and lawsuits arising in the ordinary course
          of
          business. The Company believes that it has meritorious defenses to such
          claims
          and lawsuits and is vigorously contesting them. Although the outcome of
          litigation cannot be predicted with certainty, the Company believes that
          these
          actions will not have a material adverse effect on the Company’s consolidated
          financial position or results of operations.
 
 9.  Business
          Segments
 
 The
          Company operates in two business segments which are organized by product
          types:
          medical device products and laboratory and scientific products. Medical
          device
          products include the Auto Sonix ultrasonic cutting and coagulatory system,
          the
          Sonoblate 500® (used to treat prostate cancer), refurbishing of high-performance
          ultrasound systems and replacement transducers for the medical diagnostic
          ultrasound industry, ultrasonic lithotriptor, ultrasonic neuroaspirator
          (used
          for neurosurgery) and soft tissue aspirator (used primarily for the cosmetic
          surgery market). Laboratory and scientific products include the Sonicator
          Ultrasonic liquid processor, Aura ductless fume enclosure, the Labcaire
          Isis and
          Guardian endoscope disinfectant systems and the Mystaire wet scrubber.
          The
          Company evaluates the performance of the segments based upon income from
          operations before general and administrative expenses. Certain items are
          maintained at the corporate headquarters (corporate) and are not allocated
          to
          the segments. They primarily include general and administrative expenses.
          General and administrative expenses at the Company’s Sonora, Labcaire, UKHIFU
          and Misonix Ltd. subsidiaries are included in corporate and unallocated
          amounts
          in the tables below. The Company does not allocate assets by segment. Summarized
          financial information for each of the segments is as follows:
 
 For
          the
          six months ended December 31, 2006:
  **Medical
                    Device Products**
                
                **Laboratory
                    and Scientific Products**
                
                **Corporate
                    and Unallocated**
                
                **Total**Net
                    sales
                
                $
                11,051,464
                
                $
                9,230,500
                
                $
                —
                
                $
                20,281,964Cost
                    of goods sold
                
                
                6,180,576
                
                
                5,382,767
                
                
                —
                
                
                11,563,343Gross
                    profit
                
                
                4,870,888
                
                
                3,847,733
                
                
                —
                
                
                8,718,621Selling
                    expenses
                
                
                2,343,822
                
                
                1,177,534
                
                
                —
                
                
                3,521,356Research
                    and development expenses
                
                
                1,049,026
                
                
                599,359
                
                
                —
                
                
                1,648,385General
                    and administrative
                
                
                —
                
                
                —
                
                
                4,707,431
                
                
                4,707,431Total
                    operating expenses
                
                
                3,392,848
                
                
                1,776,893
                
                
                4,707,431
                
                
                9,877,172Income
                    (loss) from operations
                
                $
                1,478,040
                
                $
                2,070,840
                
                
                ($4,707,431
                )
                
                ($1,158,551
                )
  13
 
 **MISONIX,
          INC.**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 (Information
          with respect to interim periods is unaudited)
 
 For
          the
          three months ended December 31, 2006:
  **Medical** **Device
                    Products**
                
                **Laboratory
                    and Scientific Products**
                
                **Corporate
                    and Unallocated**
                
                **Total**Net
                    sales
                
                $
                6,221,009
                
                $
                4,418,077
                
                $
                —
                
                $
                10,639,086Cost
                    of goods sold
                
                
                3,204,488
                
                
                2,647,843
                
                
                —
                
                
                5,852,331Gross
                    profit
                
                
                3,016,521
                
                
                1,770,234
                
                
                —
                
                
                4,786,755Selling
                    expenses
                
                
                1,272,400
                
                
                651,717
                
                
                —
                
                
                1,924,117Research
                    and development expenses
                
                
                525,342
                
                
                302,826
                
                
                —
                
                
                828,168General
                    and administrative
                
                
                —
                
                
                —
                
                
                2,303,148
                
                
                2,303,148Total
                    operating expenses
                
                
                1,797,742
                
                
                954,543
                
                
                2,303,148
                
                
                5,055,433Income
                    (loss) from operations
                
                $
                1,218,779
                
                $
                815,691
                
                
                ($2,303,148
                )
                
                ($268,678
                )
 
 For
          the
          six months ended December 31, 2005:
  **Medical** **Device
                    Products**
                
                **Laboratory
                    and** **Scientific
                    Products**
                
                **Corporate
                    and** **Unallocated**
                
                **Total**Net
                    sales
                
                $
                10,444,816
                
                $
                8,935,142
                
                $
                —
                
                $
                19,379,958Cost
                    of goods sold
                
                
                6,111,109
                
                
                5,968,797
                
                
                —
                
                
                12,079,906Gross
                    profit
                
                
                4,333,707
                
                
                2,966,345
                
                
                —
                
                
                7,300,052Selling
                    expenses
                
                
                1,890,609
                
                
                1,357,862
                
                
                —
                
                
                3,248,471Research
                    and development expenses
                
                
                1,098,998
                
                
                664,738
                
                
                —
                
                
                1,763,736General
                    and administrative
                
                
                —
                
                
                —
                
                
                5,025,542
                
                
                5,025,542Total
                    operating expenses
                
                
                2,989,607
                
                
                2,022,600
                
                
                5,025,542
                
                
                10,037,749Income
                    (loss) from operations
                
                $
                1,344,100
                
                $
                943,745
                
                
                ($5,025,542
                )
                
                ($2,737,697
                )
 
 For
          the
          three months ended December 31, 2005:
  **Medical** **Device
                    Products**
                
                **Laboratory
                    and** **Scientific Products**
                
                **Corporate
                    and Unallocated**
                
                **Total**Net
                    sales
                
                $
                5,470,480
                
                $
                4,797,906
                
                $
                —
                
                $
                10,268,386Cost
                    of goods sold
                
                
                3,016,912
                
                
                3,387,953
                
                
                —
                
                
                6,404,865Gross
                    profit
                
                
                2,453,568
                
                
                1,409,953
                
                
                —
                
                
                3,863,521Selling
                    expenses
                
                
                983,565
                
                
                703,272
                
                
                —
                
                
                1,686,837Research
                    and development expenses
                
                
                507,207
                
                
                339,789
                
                
                —
                
                
                846,996General
                    and administrative
                
                
                —
                
                
                —
                
                
                2,290,680
                
                
                2,290,680Total
                    operating expenses
                
                
                1,490,772
                
                
                1,043,061
                
                
                2,290,680
                
                
                4,824,513Income
                    (loss) from operations
                
                $
                962,796
                
                $
                366,892
                
                
                ($2,290,680
                )
                
                ($960,992
                )
 
 14
  **MISONIX,
          INC.**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 (Information
          with respect to interim periods is unaudited)
 
 The
          Company’s sales are generated from various geographic regions. The following is
          an analysis of net sales for the six months and three months ended December
          31,
          2006 and 2005:
  Six
                    Months
                
                Three
                    Months**2006**
                
                2005
                
                **2006**
                
                2005United
                    States
                
                **$**
                **11,924,858**
                
                $
                12,650,811
                
                **$**
                **5,915,357**
                
                $
                6,489,051United
                    Kingdom
                
                
                **5,440,671**
                
                
                4,303,706
                
                
                **2,719,336**
                
                
                2,408,806Europe
                
                
                **1,692,694**
                
                
                1,139,940
                
                
                **1,318,741**
                
                
                667,673Asia
                
                
                **753,335**
                
                
                598,391
                
                
                **445,825**
                
                
                275,575Canada
                    and Mexico
                
                
                **182,133**
                
                
                235,765
                
                
                **116,570**
                
                
                103,749Middle
                    East
                
                
                **56,237**
                
                
                130,555
                
                
                **10,669**
                
                
                99,662Other
                
                
                **232,036**
                
                
                320,790
                
                
                **112,588**
                
                
                223,870**$**
                **20,281,964**
                
                $
                19,379,958
                
                **$**
                **10,639,086**
                
                $
                10,268,386
 
 10.  Recent
          Accounting Standards
 
 In
          March
          2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 156,
“Accounting for Servicing of Financial Assets” (“SFAS 156”), an amendment of
          SFAS 140, “Accounting for Transfers and Servicing of Financial Assets and
          Extinguishment of Liabilities”. SFAS 156 requires all separately recognized
          servicing assets and servicing liabilities to be initially measured at
          fair
          value, if practicable, and permits an entity to subsequently measure those
          servicing assets and servicing liabilities at fair value. SFAS 156 is effective
          for fiscal years beginning after September 15, 2006. The Company does not
          expect
          the adoption of SFAS 156 to have a material effect on the Company’s consolidated
          financial position or results of operations.
 
 In
          July
          2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
          Income Taxes - an interpretation of FASB Statement No. 109” (“FIN 48”). This
          interpretation clarifies the accounting for uncertainty in income taxes
          recognized in an entity’s financial statements in accordance with SFAS No. 109,
“Accounting for Income Taxes”. It prescribes a recognition threshold and
          measurement methodology for financial statement reporting purposes and
          promulgates a series of new disclosures of tax positions taken or expected
          to be
          taken on a tax return for which less than all of the resulting tax benefits
          are
          expected to be realized. This interpretation is effective for fiscal years
          beginning after December 15, 2006. The Company will adopt this interpretation
          in
          the first quarter of its 2008 fiscal year, which will begin July 1, 2007.
          The
          Company is currently evaluating the requirements of FIN 48 and has not
          yet
          determined the impact of such requirements on the Company’s consolidated
          financial position or results of operations.
 
 In
          September 2006, the Securities and Exchange Commission (the “SEC”) staff issued
          Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year
          Misstatements when Quantifying Misstatements in Current Year Financial
          Statements” (“SAB 108”). SAB 108 was issued to provide consistency between how
          registrants quantify financial statement misstatements.
 
 Historically,
          there have been two widely-used methods for quantifying the effects of
          financial
          statement misstatements. These methods are referred to as the “roll-over” and
“iron curtain” method. The roll-over method quantifies the amount by which the
          current year income statement is misstated. Exclusive reliance on an income
          statement approach can result in the accumulation of errors on the balance
          sheet
          that may not have been material to any individual income statement, but
          which
          may misstate one or more balance sheet accounts. The iron curtain method
          quantifies the error as the cumulative amount by which the current year
          balance
          sheet is misstated. Exclusive reliance on a balance sheet approach can
          result in
          disregarding the effect of errors in the current year income statement
          that
          results from the correction of an error existing in previously issued financial
          statements. We currently use the iron curtain method for quantifying identified
          financial statement misstatements.
 
 15
  **MISONIX,
          INC.**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 (Information
          with respect to interim periods is unaudited)
 
 SAB
          108
          established an approach that requires quantification of financial statement
          misstatements based on the effects of the misstatement on each of the Company’s
          financial statements and the related financial statement disclosures. This
          approach is commonly referred to as the “dual approach” because it requires
          quantification of errors under both the roll-over and iron curtain methods.
          SAB
          108 allows registrants to initially apply the dual approach either by (1)
          retroactively adjusting prior financial statements as if the dual approach
          had
          always been used or by (2) recording the cumulative effect of initially
          applying
          the dual approach as adjustments to the carrying values of assets and
          liabilities as of January 2, 2006 with an offsetting adjustment recorded
          to the
          opening balance of retained earnings. Use of this “cumulative effect” transition
          method requires detailed disclosure of the nature and amount of each individual
          error being corrected through the cumulative adjustment and how and when
          it
          arose.
 
 We
          will
          initially apply SAB 108 using the cumulative effect transition method in
          connection with the preparation of our annual financial statements for
          the year
          ending June 30, 2007. The Company does not expect the provisions of SAB
          108 to
          have a material effect on the Company’s consolidated financial position or
          results of operations.
 
 In
          September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
          No. 157”) to eliminate the diversity in practice that exists due to the
          different definitions of fair value. SFAS No. 157 retains the exchange
          price
          notion in earlier definitions of fair value, but clarifies that the exchange
          price is the price in an orderly transaction between market participants
          to sell
          an asset or liability in the principal or most advantageous market for
          the asset
          or liability. SFAS No. 157 states that the transaction is hypothetical
          at the
          measurement date, considered from the perspective of the market participant
          who
          holds the asset or liability. As such, fair value is defined as the price
          that
          would be received to sell an asset or paid to transfer a liability in an
          orderly
          transaction between market participants at the measurement date (an exit
          price),
          as opposed to the price that would be paid to acquire the asset or received
          to
          assume the liability at the measurement date (an entry price).
 
 SFAS
          No.
          157 also stipulates that, as a market-based measurement, fair value measurement
          should be determined based on the assumptions that market participants
          would use
          in pricing the asset or liability, and establishes a fair value hierarchy
          that
          distinguishes between (a) market participant assumptions developed based
          on
          market data obtained from sources independent of the reporting entity
          (observable outputs) and (b) the reporting entity’s own assumptions about market
          participant assumptions developed based on the best information available
          in the
          circumstances (unobservable inputs). SFAS No. 157 expands disclosures about
          the
          use of fair value to measure assets and liabilities in interim and annual
          periods subsequent to initial recognition.
 
 SFAS
          No.
          157 is effective for financial statements issued for fiscal years beginning
          after November 15, 2007, and interim periods within those fiscal years,
          although
          earlier application is encouraged. Additionally, prospective application
          of the
          provisions of SFAS No. 157 is required as of the beginning of the fiscal
          year in
          which it is initially applied, except when certain circumstances require
          retrospective application. The Company is currently evaluating the impact
          of
          SFAS No. 157 on its consolidated financial position and results of
          operations.
  16
 
 **MISONIX,
          INC.**
 **MANAGEMENT’S
          DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND**
 **RESULTS
          OF OPERATIONS.**
 
 **Item
          2. Management’s Discussion and Analysis of Financial Condition and Results of
          Operations.**
 
 Six
          months ended December 31, 2006 and 2005.
 
 **Net
          sales** :
          Net
          sales increased $902,006 to $20,281,964 for the six months ended December
          31,
          2006 from $19,379,958 for the six months ended December 31, 2005. The difference
          in net sales was due to an increase in sales of medical device products
          of
          $606,648 to $11,051,464 for the six months ended December 31, 2006 from
          $10,444,816 for the six months ended December 31, 2005. The increase in
          medical
          device products revenues was attributable to a 20% increase in therapeutic
          medical device products revenues to $5,439,575, partially offset by a 5%
          decrease in diagnostic medical device products revenues to $5,611,889.
          The
          increase in therapeutic medical device products revenues was primarily
          due to
          the increase in unit sales and fee per use revenues from the Sonoblate
          500®
which is used to treat prostate cancer as well as other prostate afflictions.
          The decrease in diagnostic medical device product revenues was not attributable
          to any one specific product or customer but across multiple products and
          customers. This difference in net sales is also due to an increase in sales
          of
          laboratory and scientific products of $295,358 to $9,230,500 for the six
          months
          ended December 31, 2006 from $8,935,142 for the six months ended December
          31,
          2005. The increase in sales of laboratory and scientific products was a
          result
          of increased ultrasonic laboratory products sales of $74,993, increased
          ductless
          fume enclosure and related product sales of $57,203 and increased Labcaire
          Systems Limited (“Labcaire”) sales of $543,735, primarily sales of Guardian
          product service partially offset by reduced sales of wet scrubber products
          of
          $380,573. The decrease in sales of wet scrubber products is due to the
          Company
          being extremely selective in the opportunities it pursues.
 
 **Gross
          profit:** Gross
          profit increased to 43.0% as a percentage of sales for the six months ended
          December 31, 2006 from 37.7% for the six months ended December 31, 2005.
          Gross
          profit for medical device products increased to 44.1% of sales in the six
          months
          ended December 31, 2006 from 41.5% of sales in the six months ended December
          31,
          2005. The increase in gross profit for medical device products was primarily
          due
          to increased volume from Sonoblate 500 unit sales and fee per use revenue
          which
          carry higher margins than other medical device products. Gross profit for
          laboratory and scientific products increased to 41.7% for the six months
          ended
          December 31, 2006 from 33.2% for the six months ended December 31, 2005.
          The
          increase in gross profit for laboratory and scientific products was due
          to an
          increase in gross profit margin at Labcaire, which was attributable to
          increased
          service revenues on Guardian endoscopic units and increased margins for
          wet
          scrubbers due to higher margin product shipments. The Company manufactures
          and
          sells both medical device and laboratory and scientific products with a
          wide
          range of product costs and gross margin dollars as a percentage of
          revenues.
 
 **Selling
          expenses:** Selling
          expenses increased $272,885 to $3,521,356 for the six months ended December
          31,
          2006 from $3,248,471 for the six months ended December 31, 2005. Medical
          device
          products selling expenses increased $453,213, predominantly due to increased
          expenses related to sales of therapeutic medical device products, and clinical
          trial expenses primarily related to the Sonoblate 500 which is used to
          treat
          prostate cancer. Laboratory and scientific products selling expenses decreased
          $180,328, predominantly due to a decrease in marketing expenses and employees
          for the Company’s fume enclosure, Ultrasonic and wet scrubber
          products.
 
 **General
          and administrative expenses** :
          General
          and administrative expenses decreased $318,111 from $5,025,542 in the six
          months
          ended December 31, 2005 to $4,707,431 in the six months ended December
          31, 2006.
          Effective July 1, 2005 the Company implemented SFAS 123R which requires
          companies to measure and record expenses related to stock-based compensation.
          Stock-based compensation decreased $274,000 from $374,000 in the December
          2005
          period to $100,000 in the December 2006 period. In addition, general and
          administrative expenses decreased at Labcaire and Sonora due to reduced
          personnel. The above decreases were partially offset by administrative
          expenses
          at UKHIFU which commenced operations April 1, 2006.
 
 17
  **MISONIX,
          INC.**
 **MANAGEMENT’S
          DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND**
 **RESULTS
          OF OPERATIONS.**
  **Research
          and development expenses** :
          Research and development expenses decreased $115,351 from $1,763,736 for
          the six
          months ended December 31, 2005 to $1,648,385 for the six months ended December
          31, 2006. Laboratory and Scientific products research and development expenses
          decreased $65,379, predominately due to reduced research and development
          efforts
          for wet scrubber products. Research and development expenses for medical
          device
          products decreased $49,972. Therapeutic medical device products research
          and
          development expenses decreased $69,709 due to decreased consulting fees
          to Focus
          Surgery, Inc. for the liver/kidney product. Research and development expenses
          for diagnostic medical device products increased $19,737 relating to the
          development of new products which are expected to be introduced during
          the
          current fiscal year.
 
 **Other
          income (expense):** Other
          income for the six months ended December 31, 2006 was $275,075 as compared
          to
          $314,191 for the six months ended December 31, 2005. The decrease of $39,116
          was
          primarily due to increased interest expense of $111,883, which was partially
          offset by increased royalty and license income of $27,009 and decreased
          royalty
          expense of $26,048. The increased interest expense was due principally
          to
          short-term borrowings used to fund domestic operations and increased borrowings
          at Labcaire.
 
 **Income
          taxes:** The
          effective tax rate was 42.9% for the six months ended December 31, 2006,
          as
          compared to an effective tax rate of 25.8% for the six months ended December
          31,
          2005. The effective tax rate for the six months ended December 31, 2006
          was
          favorably impacted by an additional $98,000 of Research and Experimentation
          Credits provided for by the December 20, 2006 enactment of the Tax Relief
          and Health Care Act of 2006 (HR6111), which retroactively extends the tax
          credit
          for Research and Experimentation Expenditures through December 31,
          2007.
 
 Three
          months ended December 31, 2006 and 2005.
 
 **Net
          sales** :
          Net
          sales increased $370,700 to $10,639,086 for the three months ended December
          31,
          2006 compared to $10,268,386 for the three months ended December 31, 2005.
          This
          increase in net sales is due to an increase of medical device products
          revenues
          of $750,529 to $6,221,009 for the three months ended December 31, 2006
          from
          $5,470,480 for the three months ended December 31, 2005. This difference
          in net
          sales is also due to a decrease in laboratory and scientific products sales
          of
          $379,829 to $4,418,077 for the three months ended December 21, 2006 from
          $4,797,906 for the three months ended December 31, 2005. The increase in
          sales
          of medical device products is due to a $681,579 increase in sales of therapeutic
          medical device products and an increase of $68,950 in sales of diagnostic
          medical device products. The increase in sales of therapeutic medical device
          products was primarily due to increased unit sales and fee per use revenues
          from
          the Sonoblate 500 in Europe. The increase in sales of diagnostic medical
          device
          products was not attributable to a single customer or distributor or any
          other
          specific factor, but an increase in demand for several products. The decrease
          in
          sales of laboratory and scientific products is due to a decrease in wet
          scrubber
          sales of $463,989 partially offset by an increase in ultrasonic laboratory
          products sales of $64,415, an increase in ductless fume enclosures and
          related
          product sales of $5,357 and an increase in Labcaire sales of $14,388. The
          decrease in sales of wet scrubbers is due to the Company being extremely
          selective in the opportunities it pursues.
 
 **Gross
          profit:** Gross
          profit increased to 45.0% of sales for the three months ended December
          31, 2006
          from 37.6% of sales for the three months ended December 31, 2005. Gross
          profit
          for medical device products increased to 48.5% of sales for the three months
          ended December 31, 2006 from 44.9% for the three months ended December
          31, 2005.
          Gross profit for laboratory and scientific products increased to 40.1%
          of sales
          for the three months ended December 31, 2006 from 29.4% of sales for the
          three
          months ended December 31, 2005. The increase in gross profit from medical
          device
          products was a result of increased units sales and fee per use revenue
          from the
          Sonoblate 500 which carry higher margins.
  18
  **MISONIX,
          INC.**
 **MANAGEMENT’S
          DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND**
 **RESULTS
          OF OPERATIONS.**
 
 The
          increase in gross profit from laboratory and scientific products is primarily
          due to the Company’s selectivity of opportunities pursued in wet scrubber
          products.
 
 **Selling
          expenses** **:** Selling
          expenses increased $237,280 to $1,924,117 for the three months ended December
          31, 2006 from $1,686,837 for the three months ended December 31, 2005.
          Medical
          device products selling expenses increased $288,835, principally due to
          additional sales and marketing efforts for European distribution of the
          Sonoblate 500 product used to treat prostate cancer and other prosthetic
          afflictions. Laboratory and scientific products selling expenses decreased
          $51,555, predominately due to decreased head count related to wet scrubber
          product sales.
 
 **General
          and administrative expenses** :
          General
          and administrative expenses increased $12,468 to $2,303,148 in the three
          months
          ended December 31, 2006 from $2,290,680 in the three months ended December
          31,
          2005. The increase is predominately due to increased expenses at Misonix
          and
          UKHIFU which were partially offset by reduced stock-based compensation
          and
          decreased personnel expense related to head count reductions at Labcaire
          and
          Sonora.
  **Research
          and development expenses** :
          Research and development expenses decreased $18,828 to $828,168 for the
          three
          months ended December 31, 2006 from $846,996 from the three months ended
          December 31, 2005. Medical device products research and development expenses
          increased $18,135, predominately due to increased efforts in research and
          development for the liver/kidney project. Research and development expenses
          for
          laboratory and scientific products decreased $36,963, primarily due to
          reduced
          research and development efforts for various product enhancements and new
          product designs for wet scrubber products.
 
 **Other
          income (expense):** Other
          income for the three months ended December 31, 2006 was $141,417 as compared
          to
          $139,332 for the three months ended December 31, 2005. The increase of
          $2,085
          was primarily due to an increase in royalty and license income of $56,005
          and a
          decrease in royalty expense of $31,895 offset by increased interest expense
          of
          $100,555. The increase in interest expense is due to an increase in the
          average
          outstanding balance of the Labcaire note payable and borrowings against
          the
          Company’s line of credit for the three months ended December 31, 2006 as
          compared to the three months ended December 31, 2005.
 
 **Income
          taxes:** The
          effective tax rate is 119% for the three months ended December 31, 2006,
          as
          compared to an effective tax rate of 38.5% for the three months ended December
          31, 2005. The effective tax rate was favorably impacted by an additional
          $98,000
          of Research and Experimentation Credits provided for with the December
          20, 2006
          enactment of the Tax Relief and Health Care Act of 2006 (HR6111), which
          retroactively extends the tax credit for Research and Experimentation
          Expenditures through December 31, 2007. The effective income tax rate excluding
          the Research Experimentation Credit, in the December 2006 quarter, was
          38.7%.
 
 **Critical
          Accounting Policies:**
 
 The
          Company prepares its consolidated financial statements in accordance with
          accounting principles generally accepted in the United States of America.
          Certain of these accounting policies require the Company to make estimates
          and
          judgments that affect the reported amounts of assets, liabilities, revenues
          and
          expenses, and the related disclosure of contingent assets and liabilities,
          revenues and expenses. On an ongoing basis, the Company bases its estimates
          on
          historical data and experience, when available, and on various other assumptions
          that are believed to be reasonable under the circumstances, the combined
          results
          of which form the basis for making judgments about the carrying values
          of assets
          and liabilities that are not readily apparent from other sources.
 
 19
 
 **MISONIX,
          INC.**
 **MANAGEMENT’S
          DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND**
 **RESULTS
          OF OPERATIONS.**
 
 Actual
          results may differ from these estimates. There have been no material changes
          in
          the Company’s critical accounting policies and estimates from those discussed in
          Item 7 of the Company’s Annual Report on Form 10-K for the year ended June 30,
          2006.
 
 **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 performance of contracts
          or
          in conducting other activities, product mix in sales, results of joint
          ventures
          and investments in related entities, future economic, competitive and market
          conditions, and the outcome of legal proceedings as well as management
          business
          decisions.
 
 **Liquidity
          and Capital Resources**
 
 Working
          capital at December 31, 2006 and June 30, 2006 was $11,220,764 and $12,103,001,
          respectively. The decrease in working capital at December 31, compared
          to June
          30, 2006, was due principally to increases in short-term debt which were
          partially offset by increased accounts receivable and reduced accounts
          payable
          and other accruals.
 
 Accounts
          receivable increased 19.6% at December 31, 2006 compared to June 30, 2006,
          primarily as a result of higher sales volumes. The Company borrowed against
          its
          revolving credit facilities during the six month period ended December
          31, 2006
          to pay down accounts payable and to fund operations.
 
 For
          the
          six months ended December 31, 2006, cash used in operations totaled $1,885,029.
          For the six months ended December 31, 2006, cash used in investing activities
          was $217,208, which primarily consisted of the purchase of property, plant
          and
          equipment in the regular course of business. For the six months ended December
          31, 2006, cash provided by financing activities was $2,680,223, primarily
          consisting of short-term borrowings of $5,070,569, partially offset by
          principal
          payments on short-term borrowings, capital lease obligations and long-term
          debt.
          On December 29, 2006 the Company entered into a Credit Agreement with Wells
          Fargo Bank (see information below in “Revolving Credit Facilities”). The
          proceeds from this loan totaled $2,685,000 and approximately $2,006,000
          was used
          to pay off the Company’s outstanding revolving credit facility with the Bank of
          America and $629,000 was deposited with Bank of America to collateralize
          the
          Company’s obligation with respect to an outstanding letter of
          credit.
 
 The
          Company believes its financial resources will be sufficient for the
          foreseeable future to provide for continued investment in working capital
          and
          property, plant and equipment and for general corporate purposes.
 
 **Revolving
          Credit Facilities**
 
 On
          December 29, 2006, the Company and its subsidiaries, Acoustic Marketing
          Research, Inc. d/b/a Sonora Medical Systems (“Sonora”) and Hearing Innovations
          Incorporated (collectively referred to as the “Borrowers”) and Wells Fargo Bank,
          entered into a (i) Credit and Security Agreement and a (ii) Credit and
          Security
          Agreement Export-Import Subfacility (collectively referred to as the “Credit
          Agreements”). The aggregate credit limit under the Credit Agreements is
          $8,000,000 consisting of a revolving facility in the amount of up to $8,000,000.
          Up to $1,000,000 of the revolving facility is available under the Export-Import
          Agreement as a subfacility for Export-Import working capital financing.
          All
          credit facilities under the Credit Agreements mature on December 29, 2009.
          Payment of amounts outstanding under the Credit Agreements may be accelerated
          upon the occurrence of an Event of Default (as defined in the Credit
          Agreements). All loans and advances under the Credit Agreements are secured
          by a
          first priority security interest in all of the Borrowers’ accounts receivable,
          deposit accounts, property, plant and equipment, general intangibles,
          intellectual property, inventory, letter-of-credit rights, and all other
          business assets. The Borrowers have the right to terminate or reduce the
          credit
          facility prior to December 29, 2009 by paying a fee based on the aggregate
          credit limit (or reduction, as the case may be) as follows: (i) during
          year one
          of the Credit Agreements, 3%; (ii) during year two of the Credit Agreements,
          2%;
          and (iii) during year three of the Credit Agreements, 1%.
  20
  **MISONIX,
          INC.**
 **MANAGEMENT’S
          DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND**
 **RESULTS
          OF OPERATIONS**
 
 The
          Credit Agreements contain financial covenants requiring that the Borrowers
          (i)
          on a consolidated basis not have a Net Loss ( as defined in the Credit
          Agreements) of more than $700,000 for the fiscal quarter ended December
          31,
          2006, (b) $340,000 for the fiscal quarter ending March 31, 2007 and (c)
          $150,000
          for the fiscal quarter ending June 30, 2007; and (ii) not incur or contract
          to
          incur Capital Expenditures (as defined in the Credit Agreements) of more
          than
          $1,000,000 in the aggregate in any fiscal year or more than $1,000,000
          in any
          one transaction.
 
 The
          available amount under the Credit Agreements is the lesser of $8,000,000
          or the
          amount calculated under the Borrowing Base (as defined in the Credit
          Agreements). The Borrowers must maintain a minimum outstanding amount of
          $1,250,000 under the Credit Agreements at all times and pay a fee equal
          to the
          interest rate set forth on any such shortfall. Interest on amounts borrowed
          under the Credit Agreements is payable at Wells Fargo’s prime rate of interest
          plus 1% per annum floating, payable monthly
          in arrears. The default rate of interest is 3% higher than the rate otherwise
          payable. A fee of 1/2 % per annum on the Unused Amount (as defined in the
          Credit
          Agreements) is payable monthly in arrears. At December 31, 2006, the balance
          outstanding under the Credit Agreements is $2,685,000 and the Company is
          not in
          violation of financial covenants.
 
 Approximately
          $2,006,000 of the proceeds from the Credit Agreements was used to pay off
          the
          Company’s outstanding revolving credit facility with the Bank of America and
          $629,000 was deposited with Bank of America to collateralize the Company’s
          obligation with respect to an outstanding letter of credit. As of December
          31,
          2006 the Company no longer has a credit facility with the Bank of
          America.
 
 Labcaire
          has a debt purchase agreement with Lloyds TSB Commercial Finance (“Lloyds”). The
          amount of this facility bears interest at the bank’s base rate (4.5% and 5.25%
          at December 31, 2006 and December 31, 2005, respectively) plus 1.75% and
          a
          service charge of .15% of sales invoice value and fluctuates based upon
          the
          outstanding United Kingdom and European receivables. The agreement expired
          September 30, 2006 and was extended until March 2007. The agreement covers
          all
          United Kingdom and European sales. At December 31, 2006, the balance outstanding
          under this credit facility was $1,221,000 and Labcaire is not in violation
          of
          financial covenants.
 
 Labcaire
          has an overdraft facility with Lloyds. The amount of this facility bears
          interest at Lloyds’ base rate of 4.5% at December 31, 2006 plus 3%. The
          agreement expired September 30, 2006 and is currently being extended on
          a month
          to month basis while the Company and Lloyds are working on a longer extension.
          At December 31, 2006, the balance outstanding under this overdraft facility
          was
          $615,000 and Labcaire is not in violation of financial covenants.
 
 **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 is material to the
          Company.
  21
  **Other**
 
 The
          Company believes that its existing capital resources will enable it to
          maintain
          its current and planned operations for at least 18 months from the date
          hereof.
 
 In
          the
          opinion of management, inflation has not had a material effect on the operations
          of the Company.
 
 22
  **MISONIX,
          INC.**
  **Item
          3. Quantitative and Qualitative Disclosures About Market
          Risk**
  *Market
          Risk:*
  The
          principal market risks (i.e. the risk of loss arising from adverse changes
          in
          market rates and prices) to which the Company is exposed are interest rates
          on
          short-term investments and foreign exchange rates, which generate translation
          gains and losses due to the English Pound to U.S. Dollar conversion of
          Labcaire,
          Misonix Ltd and UKHIFU.
 
 *Foreign
          Exchange Rates:*
  Approximately
          27% of the Company’s revenues in the six month period ended December 31, 2006
          were received in English Pounds currency. To the extent that the Company’s
          revenues are generated in English Pounds, its operating results are translated
          for reporting purposes into U.S. Dollars using rates of 1.90 and 1.77 for
          the
          six months ended December 31, 2006 and 2005, respectively. A strengthening
          of
          the English Pound, in relation to the U.S. Dollar, will have the effect
          of
          increasing its reported revenues and profits, while a weakening will have
          the
          opposite effect. Since the Company’s operations in England generally sets prices
          and bids for contracts in English Pounds, a strengthening of the English
          Pound,
          while increasing the value of its UK assets, might place the Company at
          a
          pricing disadvantage in bidding for work from manufacturers based overseas.
          The
          Company collects its receivables in the currency the subsidiary resides
          in. The
          Company has not engaged in foreign currency hedging transactions, which
          include
          forward exchange agreements.
 
 *Interest
          Rate Risk*
  The
          Company earns interest on cash balances and pays interest on debt incurred.
          In
          light of the Company’s existing cash, results of operations, the terms of its
          debt obligations and projected borrowing requirements, it does not believe
          a 10%
          change in interest rates would have a significant impact on its consolidated
          financial position.
  **Item
          4. Controls and Procedures**
 
 Our
          disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
          under the Exchange Act) are designed to ensure that information required
          to be
          disclosed in the reports that we file or submit under the Exchange Act
          is
          recorded, processed, summarized and reported within the time periods specified
          in the rules and forms of the SEC. The Company carried out an evaluation,
          under
          the supervision and with the participation of the Company's management,
          including the Company's Chief Executive Officer and Chief Financial Officer,
          of
          the effectiveness of the design and operation of the Company's disclosure
          controls and procedures as of December 31, 2006 and, based on their evaluation,
          the Chief Executive Officer and Chief Financial Officer concluded that
          the
          Company's disclosure controls and procedures are effective.
  There
          has
          been no change in the Company's internal control over financial reporting
          (as
          defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred
          during the six months ended December 31, 2006 that has materially affected,
          or
          is reasonable likely to materially affect, the Company’s internal control over
          financial reporting.
  23
  **MISONIX,
          INC.**
 
 **PART
          II -**  **OTHER
          INFORMATION**
 
 **Item
          1A.**  **Risk
          Factors.**
 
 Risks
          and
          uncertainties that, if they were to occur, could materially adversely affect
          our
          business or that could cause our actual results to differ materially from
          the
          results contemplated by the forward-looking statements contained in this
          Report
          and other public statements we make were set forth in the “Item 1A - Risk
          Factors” section of our Annual Report on Form 10-K for the year ended June 30,
          2006. There have been no material changes from the risk factors disclosed
          in
          that Form 10-K.
 
 **Item
          4.**  **Submission
          of Matters to a Vote of Security Holders.**
  At
          the
          Company’s Annual Meeting of Shareholders, held on December 14, 2006, Messrs.
          Howard Alliger, John W. Gildea, Michael A. McManus, Jr., Dr. Charles Miner
          III,
          T. Guy Minetti and Thomas F. O’Neill were elected as Directors for a one-year
          term. The votes were as follows: Mr. Alliger - votes for 5,666,077; votes
          withheld 567,913. Mr. Gildea - votes for 5,665,977; votes withheld 568,013.
          Mr.
          McManus - votes for 5,513,929; votes withheld 720,061. Dr. Miner - votes
          for
          5,664,977; votes withheld 569,013. Mr. Minetti - votes for 5,667,577; votes
          withheld 566,413. Mr. O’Neill - votes for 5,667,577; votes withheld
          566,413.
 
 **Item
          6.**  **Exhibits.**
 
 Exhibit
          31.1 - Rule 13a-14(a)/15d-14(a) Certification
 Exhibit
          31.2 - Rule 13a-14(a)/15d-14(a) Certification
 Exhibit
          32.1 - Section 1350 Certification of Chief Executive Officer
 Exhibit
          32.2 - Section 1350 Certification of Chief Financial Officer
 
 24
  **SIGNATURES**
 
 Pursuant
          to the requirements of the Securities Exchange Act of 1934, the registrant
          has
          duly caused this report to be signed on its behalf by the undersigned thereunto
          duly authorized.
 
 Date:  February
          13, 2007
 MISONIX,
                    INC.
                  (Registrant)By:
                /s/
                  Michael A. McManus, Jr.Michael
                    A. McManus, Jr.
                  President
                    and Chief Executive Officer
  By:
                  /s/
                    Richard ZarembaRichard
                      Zaremba
                    Senior
                      Vice President, Chief Financial Officer,
                    Treasurer
                      and Secretary
  25