MISONIX INC - 10-Q Quarterly Report

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 March 31, 2005

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. Employer
incorporation 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 an accelerated filer (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:

	Outstanding at
Class of Common Stock	May 2, 2005

Common Stock, $.01 par value		6,824,952

MISONIX, INC.

INDEX

Part I - FINANCIAL INFORMATION		Page

Item 1.	Financial Statements:

	Consolidated Balance Sheets as of March 31, 2005 (Unaudited) and June 30, 2004	3

	Consolidated Statements of Income Nine months ended March 31, 2005 and 2004 (Unaudited)	4

	Consolidated Statements of Income Three months ended March 31, 2005 and 2004 (Unaudited)	5
	Consolidated Statements of Cash Flows Nine months ended March 31, 2005 and 2004 (Unaudited)	6

	Notes to Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25

Item 4.	Controls and Procedures	25

Part II - OTHER INFORMATION

Item 4.	Submission of Matters to a Vote of Security Holders	26

Item 6.	Exhibits	26

Signatures		27

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

MISONIX, INC.

CONSOLIDATED BALANCE SHEETS

	March 31,			June 30,
	2005			2004
Assets	(Unaudited)
Current assets:
Cash and cash equivalents	$	3,060,824		$	4,839,866
Accounts receivable, less allowance for doubtful accounts of $395,347 and $457,016, respectively		8,183,124			7,601,693
Inventories		12,675,576			10,944,572
Deferred income taxes		668,572			645,381
Prepaid expenses and other current assets		1,534,624			1,114,546
Total current assets		26,122,720			25,146,058

Property, plant and equipment, net		4,216,125			3,892,920
Deferred income taxes		379,136			412,201
Goodwill		4,473,713			4,473,713
Other assets		406,374			316,220
Total assets	$	35,598,068		$	34,241,112

Liabilities and stockholders’ equity
Current liabilities:
Revolving credit facilities	$	1,470,615		$	1,373,681
Accounts payable		4,946,209			4,507,476
Accrued expenses and other current liabilities		1,565,118			1,857,097
Income taxes payable		72,166			107,282
Current maturities of long-term debt and capital lease obligations		365,575			302,932
Total current liabilities		8,419,683			8,148,468

Long-term debt and capital lease obligations		1,366,585			1,264,480

Deferred income		633,449			769,033
Minority interest		372,284			315,955

Stockholders’ equity:
Common stock, $.01 par value—shares authorized 10,000,000; 6,902,752 and 6,816,253 issued and 6,824,952 and 6,738,453 outstanding, respectively		69,028			68,163
Additional paid-in capital		23,464,854			23,116,602
Retained earnings		1,263,425			665,461
Treasury stock, 77,800 shares		(412,424	)		(412,424	)
Accumulated other comprehensive income		421,184			305,374
Total stockholders’ equity		24,806,067			23,743,176
Total liabilities and stockholders’ equity	$	35,598,068		$	34,241,112

See Accompanying Notes to Consolidated Financial Statements.

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MISONIX, INC.

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

	For the nine months ended
	March 31
	2005			2004

Net sales	$	32,016,885		$	28,262,256

Cost of goods sold		18,610,337			16,164,154
Gross profit		13,406,548			12,098,102

Operating expenses:
Selling expenses		4,407,551			3,282,312
General and administrative expenses		6,026,911			5,703,640
Research and development expenses		2,540,070			1,717,878
Total operating expenses		12,974,532			10,703,830
Income from operations		432,016			1,394,272

Other income (expense):
Interest income		45,194			39,278
Interest expense		(165,457	)		(119,972	)
Option/license fees		19,155			19,815
Royalty income		669,856			1,036,485
Foreign exchange loss		(19,744	)		(16,562	)
Loss on impairment of Hearing Innovations, Inc.		¾			(198,800	)
Total other income		549,004			760,244

Income before minority interest and income taxes		981,020			2,154,516
Minority interest in net income of consolidated subsidiary		56,329			35,941
Income before income taxes		924,691			2,118,575

Income tax expense		326,727			947,498
Net income	$	597,964		$	1,171,077
Net income per share - Basic	$	.09		$	.18
Net income per share - Diluted	$	.09		$	.17
Weighted average common shares outstanding - Basic		6,776,137			6,655,865
Weighted average common shares outstanding - Diluted		6,981,837			6,744,207

See Accompanying Notes to Consolidated Financial Statements.

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MISONIX, INC.

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

	For the three months ended
	March 31,
	2005			2004

Net sales	$	10,879,607		$	10,346,249

Cost of goods sold		6,330,457			5,892,060
Gross profit		4,549,150			4,454,189

Operating expenses:
Selling expenses		1,476,236			1,203,820
General and administrative expenses		2,284,786			1,813,594
Research and development expenses		918,112			654,232
Total operating expenses		4,679,134			3,671,646
Income from operations		(129,984	)		782,543

Other income (expense):
Interest income		15,462			11,432
Interest expense		(52,735	)		(42,969	)
Option/license fees		6,999			6,690
Royalty income		234,716			197,897
Foreign exchange loss		(9,331	)		(7,621	)
Loss on impairment of Hearing Innovations, Inc.		¾			(163,200	)
Total other income		195,111			2,229

Income before minority interest and income taxes		65,127			784,772
Minority interest in net income of consolidated subsidiary		29,083			7,790
Income before income taxes		36,044			776,982

Income tax expense		32,683			388,933
Net income	$	3,361		$	388,049
Net income per share - Basic	$	¾		$	.06
Net income per share - Diluted	$	¾		$	.06
Weighted average common shares outstanding - Basic		6,812,673			6,655,865
Weighted average common shares outstanding - Diluted		7,037,501			6,774,501

See Accompanying Notes to Consolidated Financial Statements.

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MISONIX, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	For the nine months ended
	March 31,
	2005			2004
Operating activities
Net income	$	597,964		$	1,171,077
Adjustments to reconcile net income to net cash provided by operating activities:
Bad debt (recovery) expense		(12,560	)		(53,264	)
Deferred income tax benefit		9,874			290,362
Depreciation and amortization		628,555			542,866
Loss on disposal of equipment		153,552			45,843
Foreign currency exchange loss		19,744			16,562
Minority interest in net income of subsidiaries		56,329			35,941
Loss on impairment of investments		¾			198,800
Changes in operating assets and liabilities:
Accounts receivable		(374,014	)		1,569,258
Inventories		(1,561,418	)		(1,619,688	)
Prepaid income taxes		¾			25,314
Prepaid expenses and other current assets		(405,585	)		(194,731	)
Other assets		(115,010	)		(47,198	)
Accounts payable and accrued expenses		(100,476	)		444,557
Deferred income		(135,585	)		31,403
Income taxes payable		(36,502	)		320,010
Net cash (used in) provided by operating activities		(1,275,132	)		2,777,112

Investing activities
Acquisition of property, plant and equipment		(560,329	)		(350,870	)
Loans to Hearing Innovations, Inc.		¾			(198,800	)
Cash acquired from consolidation of variable interest entity		¾			236
Net cash used in investing activities		(560,329	)		(549,434	)

(Continued on next page)

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MISONIX, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(UNAUDITED)

Financing activities
Proceeds from short-term borrowings		437,279			492,632
Payments of short-term borrowings		(398,114	)		(629,654	)
Principal payments on capital lease obligations		(255,090	)		(241,806	)
Payments of long-term debt		(42,753	)		(41,756	)
Proceeds from stock options		349,117			¾
Net cash provided by (used in) financing activities		90,439			(420,584	)

Effect of exchange rate changes on assets and liabilities		(34,020	)		53,290
Net (decrease) increase in cash and cash equivalents		(1,779,042	)		1,860,384
Cash and cash equivalents at beginning of period		4,839,866			2,279,869
Cash and cash equivalents at end of period	$	3,060,824		$	4,140,253

Supplemental disclosure of cash flow information:
Cash paid for
Interest	$	165,457		$	119,972
Income taxes	$	351,227		$	118,917

Supplemental disclosure of noncash investing and financing activities:
Capital lease additions	$	397,685		$	236,199

See Accompanying Notes to Consolidated Financial Statements.

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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 nine months ended March 31, 2005 are not necessarily indicative of the results that may be expected for the year ending June 30, 2005.

The balance sheet at June 30, 2004 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

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, 2004.

2.	Net Income Per Share

Basic income per common share excludes any dilution. It is based upon the weighted average number of common shares outstanding during the period. Dilutive earnings per share reflects the potential dilution that would occur if options to purchase common stock were exercised. The following table sets forth the reconciliation of weighted average shares outstanding and diluted weighted average shares outstanding:

For the Nine Months

For the Three Months

Ended March 31,

2005

2004

2005

2004

Weighted average common shares outstanding

6,776,137

6,655,865

6,812,673

6,655,865

Dilutive effect of stock options

205,700

88,342

224,828

118,636

Diluted weighted average common shares outstanding

6,981,837

6,744,207

7,037,501

6,774,501

3.	Comprehensive Income

Total comprehensive income (loss) was $713,774 and ($56,015) for the nine and three months ended March 31, 2005, respectively, and $1,534,638 and $506,051 for the nine and three months ended March 31, 2004, respectively. Accumulated other comprehensive income is comprised of foreign currency translation adjustments.

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MISONIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information with respect to interim periods is unaudited) (CONTINUED)

4.	Stock-Based Compensation

The Company accounts for stock-based employee and outside directors’ compensation under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, "Accounting for Stock-Based Compensation" (“SFAS No. 123”) and SFAS No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure”, which was released in December 2002 as an amendment of SFAS No. 123. The following table illustrates the effect on net income (loss) and net income (loss) per share as if the Company had applied the fair value recognition provisions of SFAS 123 to stock-based employee compensation:

	For the Nine Months						For the Three Months
	Ended March 31,						Ended March 31,
	2005			2004			2005			2004
Net income - As reported:	$	597,964		$	1,171,077		$	3,361		$	388,049
Stock based compensation determined under SFAS 123		(692,357	)		(473,867	)		(327,498	)		(193,318	)
Net income (loss)- Pro forma:		($ 94,393	)	$	697,210			($ 324,137	)	$	194,731
Net income (loss) per share - Basic:
As reported	$	.09		$	.18		$	¾		$	.06
Pro forma		($ .01	)	$	.10			($ .05	)	$	.03
Net income (loss) per share - Diluted:
As reported	$	.09		$	.17		$	¾		$	.06
Pro forma		($ .01	)	$	.10			($ .05	)	$	.03

The Financial Accounting Standards Board (“FASB”) issued FASB Statement 123R, Share-Based Payment (“FAS 123R”) in December 2004. FAS 123R requires all companies to measure compensation cost for all share-based payments (including employee stock options) at fair value and recognize such costs in the statement of operations. FAS 123R is effective for public companies for annual periods beginning after June 15, 2005. Management is currently evaluating the impact of FAS 123R and has not determined the impact of this statement on the consolidated financial statements.

5.	Inventories

Inventories are summarized as follows:

	March 31, 2005		June 30, 2004
Raw material	$	5,003,942	$	4,397,472
Work-in-process		2,381,142		1,733,577
Finished goods		5,290,492		4,813,523
	$	12,675,576	$	10,944,572

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MISONIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information with respect to interim periods is unaudited) (CONTINUED)

6.	Accrued Expenses and Other Current Liabilities

The following summarizes accrued expenses and other current liabilities:

	March 31, 2005		June 30, 2004
Accrued payroll and vacation	$	309,318	$	296,628
Accrued VAT and sales tax		132,997		155,180
Accrued commissions and bonuses		17,059		387,078
Customer deposits and deferred contracts		868,273		808,414
Accrued professional fees		198,261		176,426
Other		39,210		33,371
	$	1,565,118	$	1,857,097

7.	Loans to Affiliate

Hearing Innovations, Inc.

During fiscal 2005, the Company entered into ten loan agreements whereby Hearing Innovations, Inc. (“Hearing Innovations”) was required to pay the Company an aggregate amount of $62,383 due December 31, 2004. The notes bear interest at 8% per annum. The notes are secured by a lien on all of Hearing Innovations’ right, title and interest in accounts receivable, inventory, property, plant and equipment and processes of specified products whether now existing or arising after the date of these agreements. The loan agreements contain warrants to acquire an aggregate of 62,383 shares of Hearing Innovations common stock, at the option of the Company, at a cost of $.20 per share. These warrants, which are deemed nominal in value, expire in December 2005. The Company recorded an allowance against the entire balance and accrued interest due for the period ended March 31, 2005. Hearing Innovations suspended operations in April 2004 and filed for bankruptcy in November 2004.

In connection with the adoption of FASB Interpretation 46 “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51” (“FIN 46”) the Company consolidated Hearing Innovations in its March 31, 2004 balance sheet as the entity was determined to be a Variable Interest Entity and the Company is its primary beneficiary. The Company elected to record the adoption of FIN 46 as a cumulative effect of an accounting change. Consolidating Hearing Innovations did not have a material impact on the Company’s consolidated results of operations or financial condition. Since Hearing Innovations is now consolidated, loans of $62,383 for the nine months ended March 31, 2005 are eliminated in consolidation.

On July 14, 2004, Hearing Innovations sent all shareholders and creditors a plan for reorganization and disclosure statement. Hearing Innovations filed a petition for relief under Chapter 11 of the U.S. Bankruptcy Code in November 2004 and a plan was confirmed in January 2005. During February 2005, the Company funded Hearing Innovations with $150,000 for the reorganization plan. Once the plan is fully consummated, the Company will own 100% of the equity in Hearing Innovations.

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MISONIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information with respect to interim periods is unaudited) (CONTINUED)

8.	Business Segments

The Company operates in two business segments which are organized by product types: laboratory and scientific products and medical device products. Laboratory and scientific products include the Sonicator ultrasonic liquid processor, Aura ductless fume enclosure, the Labcaire Autoscope and Guardian endoscope disinfectant systems and the Mystaire wet scrubber. Medical device products include the Auto Sonix ultrasonic cutting and coagulatory system, refurbishing revenues of high-performance ultrasound systems and replacement transducers for the medical diagnostic ultrasound industry, ultrasonic lithotriptor, ultrasonic neuroaspirator (used for neurosurgery), soft tissue aspirator (used primarily for the cosmetic surgery market) and the Sonablate 500. The Company evaluates the performance of the segments based upon income from operations before general and administrative expenses. The accounting policies of the segments are the same as those described in the summary of significant accounting policies (Note 1) in the Company’s Annual Report on Form 10-K for the year ended June 30, 2004. Certain items are maintained at the corporate headquarters (corporate) and are not allocated to the segments. They primarily include general and administrative expenses. The Company does not allocate assets by segment. Summarized financial information for each of the segments are as follows:

For the nine months ended March 31, 2005:

			Laboratory and		(a)
	Medical Device Products		Scientific Products		Corporate and Unallocated			Total
Net sales	$	17,317,800	$	14,699,085	$	¾		$	32,016,885
Cost of goods sold		9,621,898		8,988,439		¾			18,610,337
Gross profit		7,695,902		5,710,646		¾			13,406,548
Selling expenses		2,284,383		2,123,168		¾			4,407,551
Research and development expenses		1,816,253		723,817		¾			2,540,070
Total operating expenses		4,100,636		2,846,985		6,026,911			12,974,532
Income (loss) from operations	$	3,595,266	$	2,863,661		($ 6,026,911	)	$	432,016

(a)

Amount represents general and administrative expenses.

For the three months ended March 31, 2005:

			Laboratory and		(a)
	Medical Device Products		Scientific Products		Corporate and Unallocated			Total
Net sales	$	5,666,421	$	5,213,186	$	¾		$	10,879,607
Cost of goods sold		3,083,901		3,246,556		¾			6,330,457
Gross profit		2,582,520		1,966,630		¾			4,549,150
Selling expenses		770,968		705,268		¾			1,476,236
Research and development expenses		640,498		277,614		¾			918,112
Total operating expenses		1,411,466		982,882		2,284,786			4,679,134
Income (loss) from operations	$	1,171,054	$	983,748		($ 2,284,786	)		($ 129,984	)

(a)

Amount represents general and administrative expenses.

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MISONIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information with respect to interim periods is unaudited) (CONTINUED)

For the nine months ended March 31, 2004:

			Laboratory and		(a)
	Medical Devices		Scientific Products		Corporate and Unallocated			Total
Net sales	$	15,771,176	$	12,491,080	$	—		$	28,262,256
Cost of goods sold		8,700,327		7,463,827		—			16,164,154
Gross profit		7,070,849		5,027,253		—			12,098,102
Selling expenses		1,415,141		1,867,171		—			3,282,312
Research and development expenses		1,119,595		598,283		—			1,717,878
Total operating expenses		2,534,736		2,465,454		5,703,640			10,703,830
Income from operations	$	4,536,113	$	2,561,799	$	(5,703,640	)	$	1,394,272

(a)

Amount represents general and administrative expenses.

For the three months ended March 31, 2004:

			Laboratory and		(a)
	Medical Devices		Scientific Products		Corporate and Unallocated			Total
Net sales	$	6,040,544	$	4,305,705	$	—		$	10,346,249
Cost of goods sold		3,299,161		2,592,899		—			5,892,060
Gross profit		2,741,383		1,712,806		—			4,454,189
Selling expenses		551,549		652,271		—			1,203,820
Research and development expenses		424,851		229,381		—			654,232
Total operating expenses		976,400		881,652		1,813,594			3,671,646
Income from operations	$	1,764,983	$	831,154	$	(1,813,594	)	$	782,543

(a)

Amount represents general and administrative expenses.

The Company’s revenues are generated from various geographic regions. The following is an analysis of net sales by geographic region:

For the nine months ended March 31:

	2005		2004
United States	$	19,806,026	$	18,746,761
Canada		707,669		342,071
Mexico		21,101		229,603
United Kingdom		7,389,117		6,383,027
Europe		2,419,255		1,133,740
Asia		775,694		757,271
Middle East		372,683		229,229
Other		525,340		440,554
	$	32,016,885	$	28,262,256

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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.

Nine months Ended March 31, 2005 and 2004.

Net sales: Net sales of the Company's medical device products and laboratory and scientific products increased $3,754,629 to $32,016,885 for the nine months ended March 31, 2005 from $28,262,256 for the nine months ended March 31, 2004. This difference in net sales is due to an increase in sales of medical device products of $1,546,624 to $17,317,800 for the nine months ended March 31, 2005 from $15,771,176 for the nine months ended March 31, 2004. This difference in net sales is also due to an increase in sales of laboratory and scientific products of $2,208,005 to $14,699,085 for the nine months ended March 31, 2005 from $12,491,080 for the nine months ended March 31, 2004. The increase in sales of medical device products was due to an increase in therapeutic medical device products shipments of $282,134 and an increase in sales of diagnostic medical device products of $1,264,490, both due to increased customer demand for several diagnostic and therapeutic medical device products. The increase in sales of diagnostic medical device products was not attributable to a single customer, distributor or any other specific factors. The remaining increase in sales of therapeutic medical device products is due to increased demand for several products. The increase in sales of laboratory and scientific products is due to an increase in Labcaire sales of $1,313,265, sales of wet scrubber products of $564,126 and ductless fume enclosure products of $383,855 partially offset by a decrease in laboratory ultrasonic products sales of $53,241. The increase in Labcaire sales is primarily due to the strengthening of the English Pound and an increase in demand for the Guardian (endoscopic cleaning) product. The increase in sales of wet scrubber products is due to increased demand from semiconductor and non-semiconductor manufacturers of process related products. The increase in sales of ductless fume enclosure products is due to an increase in demand relating to new clean air standards for the state of California for the manufacturing process. The decrease in sales of laboratory ultrasonic products is due to decreased demand for such products. Export sales from the United States are remitted in U.S. Dollars and export sales for Labcaire are remitted in English Pounds. During the nine months ended March 31, 2005 and 2004, the Company had foreign net sales of $12,210,859 and $9,515,495, respectively, representing 38% and 34% of net sales for such years, respectively. The increase in foreign sales during the nine months ended March 31, 2005 as compared to the nine months ended March 31, 2004 is substantially due to increased sales of therapeutic medical device products in Europe and increased Labcaire product sales. In March 2004, the Company signed an exclusive distribution agreement with Focus Surgery, Inc. (“Focus Surgery”) for the sale of the Sonablate 500 for the treatment of prostate cancer and other prostatic tumors in the geographic areas of Western Europe, Eastern Europe and Russia. The agreement is for a term of two years, with automatic renewals for successive one-year terms as long as minimum quantities are purchased. Labcaire represented 70% and 75% of foreign net sales during the nine months ended March 31, 2005 and 2004, respectively. The remaining 30% and 25% represents net foreign sales remitted in U.S. Dollars during the nine months ended March 31, 2005 and 2004, respectively. Approximately 27% of the Company’s revenues for the nine months ended March 31, 2005 were received in English Pounds. To the extent that the Company’s revenues are generated in English Pounds, its operating results were translated for reporting purposes into U.S. Dollars using weighted average rates of 1.86 and 1.77 for the nine months ended March 31, 2005 and 2004, respectively. A strengthening of the English Pound, in relation to the U.S. Dollar, will have the effect of increasing reported revenues and profits, while a weakening of the English Pound will have the opposite effect. Since the Company’s operations in England generally set 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.

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MISONIX, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

The Company’s revenues are generated from various geographic regions. The following is an analysis of net sales by geographic region:

For the nine months ended March 31:

	2005		2004

United States	$	19,806,026	$	18,746,761
Canada		707,669		342,071
Mexico		21,101		229,603
United Kingdom		7,389,117		6,383,027
Europe		2,419,255		1,133,740
Asia		775,694		757,271
Middle East		372,683		229,229
Other		525,340		440,554
	$	32,016,885	$	28,262,256

Summarized financial information for each of the segments for the nine months ended March 31, 2005 and 2004 are as follows:

For the nine months ended March 31, 2005:

			Laboratory and		(a)
	Medical Device Products		Scientific Products		Corporate and Unallocated			Total
Net sales	$	17,317,800	$	14,699,085	$	¾		$	32,016,885
Cost of goods sold		9,621,898		8,988,439		¾			18,610,337
Gross profit		7,695,902		5,710,646		¾			13,406,548
Selling expenses		2,284,383		2,123,168		¾			4,407,551
Research and development expenses		1,816,253		723,817		¾			2,540,070
Total operating expenses		4,100,636		2,846,985		6,026,911			12,974,532
Income (loss) from operations	$	3,595,266	$	2,863,661		($ 6,026,911	)	$	432,016

(a)

Amount represents general and administrative expenses.

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MISONIX, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

For the nine months ended March 31, 2004:

			Laboratory and		(a)
	Medical Device Products		Scientific Products		Corporate and Unallocated			Total
Net sales	$	15,771,176	$	12,491,080	$	¾		$	28,262,256
Cost of goods sold		8,700,327		7,463,827		¾			16,164,154
Gross profit		7,070,849		5,027,253		¾			12,098,102
Selling expenses		1,415,141		1,867,171		¾			3,282,312
Research and development expenses		1,119,595		598,283		¾			1,717,878
Total operating expenses		2,534,736		2,465,454		5,703,640			10,703,830
Income (loss) from operations	$	4,536,113	$	2,561,799	$	(5,703,640	)	$	1,394,272

(a)

Amount represents general and administrative expenses.

Gross profit: Gross profit decreased to 41.9% for the nine months ended March 31, 2005 from 42.8% for the nine months ended March 31, 2004. Gross profit for medical device products decreased to 44.4% of sales for the nine months ended March 31, 2005 from 44.8% of sales for the nine months ended March 31, 2004. The decrease in gross profit for medical device products was impacted by an unfavorable mix of sales of therapeutic medical device products and diagnostic medical device products and lower volume. Gross profit for laboratory and scientific products decreased to 38.9% for the nine months ended March 31, 2005 from 40.2% for the nine months ended March 31, 2004. The decrease in gross profit for laboratory and scientific products is predominantly due to a decrease in gross profit margin for ductless fume enclosure products due to discounting offset by an increase in gross profit margins for wet scrubber products due to increased volume. The Company manufactures and sells both medical device products 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 $1,125,239 to $4,407,551 for the nine months ended March 31, 2005 from $3,282,312 for the nine months ended March 31, 2004. Medical device products selling expenses increased $869,242, predominantly due to additional sales personnel and marketing efforts for European distribution of the Sonablate 500 product used to treat prostate cancer and other prostatic afflictions. Laboratory and scientific products selling expenses increased $255,997, predominantly due to an increase in marketing expenses for Labcaire’s Guardian endoscopic cleaning product and the strengthening of the English Pound.

General and administrative expenses: General and administrative expenses increased $323,271 from $5,703,640 for the nine months ended March 31, 2004 to $6,026,911 for the nine months ended March 31, 2005. The increase was primarily attributable to increased consulting expense related to enhancing the Company’s quality control system to identify key quality metrics which are designed to improve first pass yields and other manufacturing efficiency measurements, increased stockholder relations expenses, accounting fees and rent expense for a new location for Sonora Medical Systems.

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MISONIX, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Research and development expenses: Research and development expenses increased $822,192 from $1,717,878 for the nine months ended March 31, 2004 to $2,540,070 for the nine months ended March 31, 2005. Medical device products research and development expenses increased $696,658 predominantly due to increased research and development efforts for a product to treat liver and kidney cancer and the upgrade of our ultrasonic platform to a more modern digital format. Laboratory and scientific products research and development expenses increased $125,534, predominantly due to increased research and development efforts in various product enhancements and new product designs.

Other income (expense): Other income for the nine months ended March 31, 2005 was $549,004 as compared to $760,244 for the nine months ended March 31, 2004. The decrease was primarily due to a decrease in royalty income. The Company received an additional royalty payment for the quarter ended September 30, 2003 of approximately $403,000, which was based upon a review of United States Surgical records that determined that royalties were due for prior years. The review showed that United States Surgical owed (and subsequently paid in the first quarter of fiscal 2004) royalties due on a product that was not included in the original royalty computation.

Income taxes: The effective tax rate is 35.3% for the nine months ended March 31, 2005, as compared to an effective tax rate of 44.7% for the nine months ended March 31, 2004. The decrease in the consolidated effective tax rate was due to the increase in both foreign sales and in anticipated research and development credits.

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MISONIX, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Three Months Ended March 31, 2005 and 2004.

Net sales: Net sales of the Company's medical device products and laboratory and scientific products increased $533,358 to $10,879,607 for the three months ended March 31, 2005 from $10,346,249 for the three months ended March 31, 2004. This difference is due to an increase in sales of laboratory and scientific products of $907,481 to $5,213,186 for the three months ended March 31, 2005 from $4,305,705 for the three months ended March 31, 2004. The increase in laboratory and scientific products sales was partially offset by a 6.2% decrease in sales of medical device products of $374,123 to $5,666,421 for the three months ended March 31, 2005 from $6,040,544 for the three months ended March 31, 2004. The decrease in medical device products revenue was predominantly due to reduced shipments of therapeutic medical device products from $3,665,874 in the third fiscal 2004 quarter to $2,609,936 in the third fiscal 2005 quarter. This decrease was attributable to a reduction of shipments to Focus Surgery on production units for Asia and Japan and a temporary reduction of shipments for the Company’s AutoSonix products. The decrease in shipments of therapeutic medical device products was partially offset by a $681,815 increase in diagnostic medical device products revenues from $2,374,671 to $3,056,486. The increase in laboratory and scientific products revenues was due to an increase in Labcaire sales of $1,023,621 and an increase in sales of ultrasonic laboratory and scientific products sales of $104,443. Wet scrubber products sales decreased $183,356 in the 2005 quarter due to the timing of orders and delivery dates. In addition, fume enclosure products sales also decreased $37,227 during the 2005 quarter. Export sales from the United States are remitted in U.S. Dollars and export sales for Labcaire are remitted in English Pounds. During the three months ended March 31, 2005 and 2004, the Company had foreign net sales of $4,465,793 and $3,526,136, respectively, representing 41.0% and 34.0% of net sales for such years, respectively. The increase in foreign sales during the three months ended March 31, 2005 as compared to the three months ended March 31, 2004 is substantially due to increased Labcaire product sales. In March 2004, the Company signed an exclusive distribution agreement with Focus Surgery for the sale of the Sonablate 500 for the treatment of prostate cancer and other prostatic tumors in the geographic areas of Western Europe, Eastern Europe and Russia. The agreement is for a term of two years with automatic renewals for successive one-year terms as long as minimum quantities are purchased. Labcaire represented 77% and 68% of foreign net sales during the three months ended March 31, 2005 and 2004, respectively. The remaining 23% and 32% represents net foreign sales remitted in U.S. Dollars during the three months ended March 31, 2005 and 2004, respectively. Approximately 31% of the Company’s revenues for the three months ended March 31, 2005 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 weighted average rates of 1.89 and 1.84 for the three months ended March 31, 2005 and 2004, respectively. A strengthening of the English Pound, in relation to the U.S. Dollar, will have the effect of increasing reported revenues and profits, while a weakening of the English Pound will have the opposite effect. Since the Company’s operations in England generally set 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.

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MISONIX, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

The Company’s revenues are generated from various geographic regions. The following is an analysis of net sales by geographic region:

For the three months ended March 31:

	2005		2004

United States	$	6,413,814	$	6,820,113
Canada		252,266		193,001
Mexico		2,000		63,170
United Kingdom		2,966,475		2,163,826
Europe		800,277		621,660
Asia		109,352		339,507
Middle East		181,538		78,193
Other		153,885		66,779
	$	10,879,607	$	10,346,249

Summarized financial information for each of the segments for the three months ended December 31, 2003 and 2004 are as follows:

For the three months ended March 31, 2005:

			Laboratory and		(a)
	Medical Device Products		Scientific Products		Corporate and Unallocated			Total
Net sales	$	5,666,421	$	5,213,186	$	¾		$	10,879,607
Cost of goods sold		3,083,901		3,246,556		¾			6,330,457
Gross profit		2,582,520		1,966,630		¾			4,549,150
Selling expenses		770,968		705,268		¾			1,476,236
Research and development expenses		640,498		277,614		¾			918,112
Total operating expenses		1,411,466		982,882		2,284,786			4,679,134
Income (loss) from operations	$	1,171,054	$	983,748		($ 2,284,786	)		($ 129,984	)

(a)

Amount represents general and administrative expenses.

For the three months ended March 31, 2004:

			Laboratory and		(a)
	Medical Device Products		Scientific Products		Corporate and Unallocated			Total
Net sales	$	6,040,544	$	4,305,705	$	¾		$	10,346,249
Cost of goods sold		3,299,161		2,592,899		¾			5,892,060
Gross profit		2,741,383		1,712,806		¾			4,454,189
Selling expenses		551,549		652,271		¾			1,203,820
Research and development expenses		424,851		229,381		¾			654,232
Total operating expenses		976,400		881,652		1,813,594			3,671,646
Income (loss) from operations	$	1,764,983	$	831,154		($ 1,813,594	)	$	782,543

(a)

Amount represents general and administrative expenses.

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MISONIX, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Gross profit: Gross profit decreased from 43.1% for the three months ended March 31, 2004 to 41.8% for the three months ended March 31, 2005. Gross profit for medical device products increased to 45.6% of sales for the three months ended March 31, 2005 from 45.4% of sales for the three months ended March 31, 2005. Gross profit for laboratory and scientific products decreased to 37.7% for the three months ended March 31, 2005 from 39.8% for the three months ended March 31, 2004. The decrease in gross profit for laboratory and scientific products was negatively impacted by the unfavorable order mix for sales of ductless fume enclosure products due to discounting. The Company manufactures and sells both medical device products 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 $272,416 to $1,476,236 for the three months ended March 31, 2005 from $1,203,820 for the three months ended March 31, 2004. Medical device products selling expenses increased $219,419, due both to additional sales and marketing efforts for therapeutic medical device products in Europe and clinical costs for the wound debrider product. Laboratory and scientific products selling expenses increased $52,997, predominantly due to an increase in marketing expenses for Labcaire’s Guardian endoscopic cleaning product and the strengthening of the English Pound.

General and administrative expenses: General and administrative expenses increased $471,192 to $2,284,786 for the three months ended March 31, 2005 from $1,813,594 for the three months ended March 31, 2004. The March 2004 quarter included a reduction of bad debt expense of $198,000 and there was no similar benefit in the March 2005 quarter. The increase was also due to increased general and administrative expenses related to consultants, stockholder relations expenses, accounting fees related to income tax matters and corporate insurance expenses.

Research and development expenses: Research and development expenses increased $263,880 to $918,112 for the three months ended March 31, 2005 from $654,232 for the three months ended March 31, 2004. Medical device products research and development expenses increased $215,647, predominantly due to increased research and development efforts for a product to treat liver and kidney cancer and upgrading our ultrasonic platform to a more modern digitized format. Research and development expenses for laboratory and scientific products increased $48,233, predominantly due to increased research and development efforts for various product enhancements and new product designs.

Other income (expense): Other income increased $192,882 for the three months ended March 31, 2005 to $195,111, as compared to $2,229 for the three months ended March 31, 2004. The 2004 period included an impairment loss of $163,200 related to loans to Hearing Innovations, Inc. Royalty income increased by $36,819 during the March 2005 quarter, which was partially offset by an increase in interest expense of $9,766. The increase in interest expense is due to an increase in the average outstanding balance of the Labcaire note payable and capital leases for the three months ended March 31, 2005 as compared to the three months ended March 31, 2004.

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MISONIX, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Income taxes: The effective tax rate was 91% and 50% for the three months ended March 31, 2005 and the three months ended March 31, 2004, respectively. The increase was due to the large percentage of minority interest income to total income.

Critical Accounting Policies:

General: Financial Reporting Release No. 60, which was released by the Securities and Exchange Commission in December 2001, requires all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements. Note 1 of the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2004 includes a summary of the Company’s significant accounting policies and methods used in the preparation of its financial statements. The Company’s discussion and analysis of its financial condition and results of operations are based upon the Company’s financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going basis, management evaluates its estimates and judgments, including those related to bad debts, inventories, property, plant and equipment, goodwill and income taxes. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the 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. Actual results may differ from these estimates under different assumptions or conditions. The Company considers certain accounting policies related to allowance for doubtful accounts, inventories, property, plant and equipment, goodwill and income taxes to be critical policies due to the estimation process involved in each.

Allowance for Doubtful Accounts: The Company’s policy is to review its customers’ financial condition prior to extending credit and, generally, collateral is not required. The Company utilizes letters of credit on foreign or export sales where appropriate.

Inventories: Inventories are stated at the lower of cost (first-in, first-out) or market and consist of raw materials, work-in-process and finished goods. Management evaluates the need to record adjustments for impairments of inventory on a quarterly basis. The Company’s policy is to assess the valuation of all inventories, including raw materials, work-in-process and finished goods.

Property, Plant and Equipment: Property, plant and equipment are recorded at cost. Depreciation of property and equipment is provided using the straight-line method over estimated useful lives ranging from 1 to 5 years. Depreciation of the Labcaire building is provided using the straight-line method over the estimated useful life of 50 years. Leasehold improvements are amortized over the life of the lease or the useful life of the related asset, whichever is shorter. The Company’s policy is to periodically evaluate the appropriateness of the lives assigned to property, plant and equipment and to make adjustments if necessary.

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MISONIX, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Goodwill: In July 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 141 (“SFAS 141”) and SFAS 142 (“SFAS 142”), “Business Combinations” and “Goodwill and Other Intangible Assets”, respectively. SFAS 141 replaced Accounting Principles Board (“APB”) Opinion 16 “Business Combinations” and requires the use of the purchase method for all business combinations initiated after June 30, 2001. SFAS 142 requires goodwill and intangible assets with indefinite useful lives to no longer be amortized, but instead be tested for impairment at least annually and whenever events or circumstances occur that indicate goodwill might be impaired. With the adoption of SFAS 142, as of July 1, 2001, the Company reassessed the useful lives and residual values of all acquired intangible assets to make any necessary amortization period adjustments. Based on that assessment, only goodwill was determined to have an indefinite useful life and no adjustments were made to the amortization period or residual values of other intangible assets. SFAS 142 provided a six-month transitional period from the effective date of adoption for the Company to perform an assessment of whether there is an indication that goodwill is impaired. To the extent that an indication of impairment exists, the Company must perform a second test to measure the amount of impairment. The second test must be performed as soon as possible, but no later than the end of the fiscal year. Any impairment measured as of the date of adoption will be recognized as the cumulative effect of a change in accounting principle. The Company performed the first test and determined that there was no indication that the goodwill recorded was impaired and, therefore, the second test was not required. The Company also completed its annual goodwill impairment tests for fiscal 2004 in the fourth quarter with no impairment noted.

Income Taxes: Income taxes are accounted for in accordance with SFAS No. 109, “Accounting for Income Taxes”. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Stock-Based Compensation: The Company accounts for its stock-based compensation plans in accordance with APB Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25") and related interpretations. Under APB 25, because the exercise price of the Company’s employee stock options is generally set equal to the market price of the underlying stock on the date of grant, no compensation expense is recognized.

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MISONIX, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Recent Accounting Pronouncements

In December 2004, the FASB issued SFAS 123R, which is currently effective for public companies for annual periods beginning after June 15, 2005. The Company is required to implement the proposed standard no later than the quarter that begins July 1, 2005. The cumulative effect of adoption, if any, applied on a modified prospective basis, would be measured and recognized on July 1, 2005. SFAS 123R would eliminate the ability to account for share-based compensation transactions using APB 25, “Accounting for Stock Issued To Employees”, and would instead require companies to recognize compensation expense, using a fair-value based method, for costs related to share-based payments including stock options and employee stock purchase plans. The Company is in the process of determining the impact of this statement on its consolidated financial statements.

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 March 31, 2005 and June 30, 2004 was $17,703,037 and $16,997,590, respectively. In the nine months ended March 31, 2005, cash used in operations totaled $1,275,132. The decrease in the cash balance is predominately due to the increase in inventory to support future shipments, prepaid insurance premiums for policies with renewal dates in March, and payments of accounts payable and accrued expenses. In the nine months ended March 31, 2005, cash used in investing activities was $560,329, which primarily consisted of the purchase of property, plant and equipment during the regular course of business. In the nine months ended March 31, 2005, cash provided by financing activities was $90,439, primarily consisting of increased short-term borrowings and receipts from the exercise of employee stock options, partially offset by payments on capital lease obligations, short-term borrowings and long-term debt.

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MISONIX, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Revolving Credit Facilities

Labcaire has a debt purchase agreement with Lloyds TSB Commercial Finance. The amount of this facility is approximately $1,800,000 (£950,000) and bears interest at the bank’s base rate of 5.25% 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 was renewed effective February 28, 2005 through June 30, 2005 and covers all United Kingdom and European sales.

The Company secured a $5,000,000 revolving credit facility with Bank of America on January 18, 2002, which expired on February 18, 2005. The Company is currently negotiating a new credit facility with Bank of America, which agreement will be retroactive to February 18, 2005.

Hearing Innovations, Inc.

During fiscal 2005, the Company entered into ten loan agreements whereby Hearing Innovations was required to pay the Company an aggregate amount of $62,383 due December 31, 2004. The notes bear interest at 8% per annum. The notes are secured by a lien on all of Hearing Innovations’ right, title and interest in accounts receivable, inventory, property, plant and equipment and processes of specified products whether now existing or arising after the date of these agreements. The loan agreements contain warrants to acquire an aggregate of 62,383 shares of Hearing Innovations common stock, at the option of the Company, at a cost of $.20 per share. These warrants, which are deemed nominal in value, expired in December 2004. The Company recorded an allowance against the entire balance and accrued interest due for the period ended March 31, 2005. Hearing Innovations suspended operations in April 2004 and filed for bankruptcy in November 2004.

In connection with the adoption of FASB Interpretation 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51” (“FIN 46”), the Company consolidated Hearing Innovations in its March 31, 2004 balance sheet as the entity was determined to be a variable interest entity and the Company is its primary beneficiary. The Company elected to record the adoption of FIN 46 as a cumulative effect of an accounting change. Consolidating Hearing Innovations did not have a material impact on the Company’s consolidated results of operations or financial condition. Since Hearing Innovations is now consolidated, loans of $62,383 for the nine months ended March 31, 2005 are eliminated in consolidation.

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MISONIX, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

On July 14, 2004, Hearing Innovations sent all shareholders and creditors a plan for reorganization and disclosure statement. Hearing Innovations filed a petition for relief under Chapter 11 of the U.S. Bankruptcy Code in November 2004 and a plan was confirmed in January 2005. During February 2005 the Company funded Hearing Innovations $150,000 for the reorganization plan. Once the plan is fully consummated, the Company will own 100% of the equity in Hearing Innovations.

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.

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.

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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.

Foreign Exchange Rates:

Approximately 27% of the Company’s revenues in the nine month period ended March 31, 2005 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 1.86 and 1.77 for the nine months ended March 31, 2005 and 2004, 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 of the English Pound 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.

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 Securities and Exchange Commission. 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 March 31, 2005 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 third quarter of fiscal 2005 that has materially affected, or is reasonable likely to materially affect, the Company’s internal control over financial reporting.

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MISONIX, INC.

PART II - OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders.

At the Company’s Annual Meeting of Shareholders, held on January 27, 2005, Messrs. Howard Alliger, John W. Gildea, Michael A. McManus, Jr., 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 5,785,354; votes withheld 943,014. Mr. Gildea-votes for 6,272,749; votes withheld 455,619. Mr. McManus - votes for 5,783,704; votes withheld 944,664. Mr. Minetti - votes for 6,096,544; votes withheld 631,824. Mr. O’Neill - votes for 6,147,077; votes withheld - 581,291.

The shareholders ratified the selection of Ernst & Young LLP as the Company’s auditors for its 2005 fiscal year by a vote of 6,694,879 shares for and 25,209 shares against, with 8,280 shares abstaining.

The shareholders failed to approve the adoption of the Company’s 2004 Employee Stock Option Plan by a vote of 1,353,111 shares for and 2,025,902 shares against, with 81,621 shares abstaining.

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

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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.


	MISONIX, INC. (Registrant)

Date: May 13, 2005	By:	/s/ Michael A. McManus, Jr.

		Michael A. McManus, Jr. President and Chief Executive Officer



	By:	/s/ Richard Zaremba

		Richard Zaremba Senior Vice President, Chief Financial Officer, Treasurer and Secretary

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