See Accompanying Notes to Consolidated Financial Statements.

MISONIX, INC. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

See Accompanying Notes to Consolidated Financial Statements.

MISONIX, INC.Misonix, Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

See Accompanying Notes to Consolidated Financial Statements.

MISONIX, INC.Misonix, Inc. and Subsidiaries

Consolidated Statement of Stockholders'Shareholders’ Equity

(Unaudited)

For the nine months ended March 31, 2016

See Accompanying Notes to Consolidated Financial Statements.

MISONIX, INC.Misonix, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

See Accompanying Notes to Consolidated Financial Statements.

MISONIX, INC. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)For the Three and Six Months Ended December 31, 2016 and 2015

1.Basis of Presentation, Organization and Business and Summary of Significant Accounting Policies

Explanatory Note

Misonix, Inc. (“Misonix” or the “Company”) was not able to file its Quarterly Report on Form 10-Q (the “10-Q”) for the quarter ended December 31, 2016 by its due date. For several months, with the assistance of outside counsel, Misonix has been conducting a voluntary investigation into the business practices of its independent Chinese entity that previously distributed its products in China and the Company’s knowledge of those business practices, which may have implications under the Foreign Corrupt Practices Act (“FCPA”), as well as into various internal controls issues identified during the investigation. On September 27, 2016 and September 28, 2016, Misonix voluntarily contacted the Securities and Exchange Commission (“SEC”) and the U.S. Department of Justice (“DOJ”), respectively, to advise both agencies of these potential issues.  Misonix has provided and will continue to provide documents and other information to the SEC and the DOJ, and is cooperating fully with these agencies in their investigations of these matters.

Although the internal investigation is now complete, additional issues or facts could arise which may expand the scope or severity of the potential violations.  Misonix could also receive additional requests from the DOJ or SEC, which may require further investigation. Misonix has no current information derived from the internal investigation or otherwise to suggest that its previously reported financial statements and results are incorrect.

Refer to footnote 9, Commitments and Contingencies, for additional information regarding these matters.

Basis of Presentation

These consolidated financial statements include the accounts of Misonix and its 100% owned subsidiaries. All significant intercompany balances and transactions have been eliminated.

The accompanying unaudited financial information should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Annual Report on Form 10-K for the year ended June 30, 2015 (“2015 Annual Report”) of MISONIX, INC. (“Misonix” or the “Company”). A summary of the Company’s significant accounting policies is identified in Note 1 of the notes to the consolidated financial statements included in the Company’s 2015 Annual Report. As of March 31, 2016 the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2015-17, “Balance Sheet Classification of Deferred Taxes (Topic 740)”. The amendments in the ASU change the criteria for the classification of deferred income taxes and requires all deferred tax assets and liabilities to be classified as long term. The resulting reclassification of deferred tax assets and liabilities are presented in the current period; prior periods will be shown as reported. The effect is totally on the balance sheet. For the period ended June 30, 2015, the result is a reduction in current assets of $2,118,716 and a corresponding increase in non-current assets for the same amount. Working capital also decreased by $2,118,716 to $16,170,213. There have been no other changes in the Company’s significant accounting policies subsequent to June 30, 2015.

The accompanying unauditedcondensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted accounting principlesin the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X pursuant to the requirements of the U.S. Securities and Exchange Commission.S-X. Accordingly, theythese financial statements do not include all of the information and footnotes required by generally accepted accounting principlesU.S. GAAP for complete financial statements. As such, they should be read with reference to the Company’s Annual Report on Form 10-K for the year ended June 30, 2016, which provides a more complete explanation of the Company’s accounting policies, financial position, operating results, business properties and other matters. In the opinion of management, these financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentationstatement of interim results.

Reclassifications

Certain expenses on the Statement of Operations have been included. The results of operations forreclassified to be consistent with the interim periods are not necessarily indicative of the results of operations for the entire year.

The consolidated financial statements ofcurrent year presentation. Historically, the Company includehad recorded stock compensation expense and bonus expense predominantly within general and administrative expenses. The Company has reclassified the accountsprior years’ presentation to allocate certain of Misonixthese costs to cost of goods sold, selling expenses and its 100% owned subsidiaries, Fibra-Sonics (NY) Inc.research and Hearing Innovations, Inc. All significant intercompany balancesdevelopment expenses, which is consistent with the classification being used in fiscal 2017. This reclassification had no impact on the Company’s presentation of operating income (loss) and transactions have been eliminated.the gross profit impact was not material.

Organization and Business

Misonix is a surgical device company that designs, manufactures, develops and markets innovative therapeutic ultrasonic devices. These products worldwideare used for spineprecise bone sculpting, removal of soft tumors, and tissue debridement in the fields of orthopedic surgery, skull-basedplastic surgery, neurosurgery, woundpodiatry and burn debridement, cosmetic surgery, laparoscopic surgery and other surgical applications.

The Company’s revenues are generated from various regions throughout the world. Sales by the Company outsidevascular surgery. In the United States, are made primarilythe Company sells its products through distributors. Sales made ina network of commissioned agents assisted by Company personnel. Outside of the United States, are made primarily through independent representative agents.the Company sells to distributors who then resell the product to hospitals. The following is an analysis of net sales from continuing operations by geographic region:

MISONIX, INC. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)Company operates as one business segment.

Discontinued Operations

High Intensity Focused Ultrasound Technology

In consideration for the May 2010 sale ofThe Company sold its rights to the high intensity focused ultrasound technology to USHIFU LLC, now SonaCare Medical, LLC (“SonaCare”), Misonix will in May 2010. The Company may receive up to approximately $5.8 million paid outin payment for the sale. SonaCare will pay the Company 7% of an earn-out of 7% ofthe gross revenues received from SonaCare’sits sales of the (i) prostate product in Europe and (ii) kidney and liver products around the world related to the business being sold up to the timeworldwide, until the Company has received the firstpayments of $3 million, and thereafter 5% of the gross revenues, up to an aggregate payment of $5.8 million. Commencing 90 days after each December 31^st and beginning December 31, 2011 the payments will be the greatermillion, all subject to a minimum annual royalty of (a) $250,000 or (b) 7% of gross revenues received up to the time the Company has received the first $3 million and thereafter 5% of gross revenues up to the $5.8 million.$250,000. Cumulative payments through MarchDecember 31, 2016 were $1,254,788. No payments were received during the six months ended December 31, 2016. Payments are generally received once per year, in the Company’s third fiscal quarter.

Major Customers and Concentration of Credit Risk

ResultsIncluded in sales from continuing operations are sales to Cicel (Beijing) Science and Tech Co. Ltd. (“Cicel”) of Discontinued Operations

Accounts Receivable

Accounts receivable, principally trade, are generally due within 30 to 90 days$0 and are stated at amounts due from customers, net of an allowance for doubtful accounts. The Company performs ongoing credit evaluations and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by a review of their current credit information. The Company continuously monitors aging reports, collections and payments from customers and maintains a provision for estimated credit losses based upon historical experience and any specific customer collection issues that have been identified. While such credit losses have historically been within expectations and the provisions established, the Company cannot guarantee that the same credit loss rates will be experienced in the future. The Company writes off accounts receivable when they become uncollectible.

2. (Loss)/Income Per Share of Common Stock

Basic income (loss) per common share (“basic EPS”) is computed by dividing income (loss) by the weighted average number of common shares outstanding$899,635 for the period. Diluted income (loss) per common share (“diluted EPS”) is computed by dividing income (loss) by the weighted average number of common shares and dilutive common share equivalents outstanding (consisting of outstanding common stock options) for the period.

MISONIX, INC. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

The number of weighted average common shares used in the calculation of basic EPS and diluted EPS were as follows:

Excluded from the calculations of diluted EPS are options to purchase 92,000 shares of common stock for the three months and ninesix months ended March 31, 2015, as the exercise price exceeds the average market prices during the period.

Diluted EPS for the three and nine months ended March 31, 2016 presented is the same as basic EPS as the inclusion of the effect of common share equivalents then outstanding would be anti-dilutive. For this reason, excluded from the calculation of diluted EPS are outstanding options to purchase 1,813,599 shares of common stock for the three and nine months ended March 31, 2016.

3.Comprehensive (Loss)/Income

Total comprehensive (loss)/income was $(724,400) and $1,738,734 for the nine months ended MarchDecember 31, 2016 and 2015, respectively. Accounts receivable from Cicel was $0 at December 31, 2016 and June 30, 2016. The Company terminated its agreement with Cicel in the first quarter of fiscal 2017.

Total comprehensive (loss)/income was $(679,244)royalties from Medtronic Minimally Invasive Therapies (“MMIT”) related to their sales of the Company’s ultrasonic cutting products, which use high frequency sound waves to coagulate and $454,340divide tissue for both open and laparoscopic surgery, were $1,885,788 and $1,979,026, for the threesix months ended MarchDecember 31, 2016 and 2015, respectively. There are no components of comprehensive income other than net income for all periods presented.

4.Stock-Based Compensation

Stock options are granted with exercise prices not less than the fair market value of our common stockAccounts receivable from MMIT royalties were approximately $1,885,788 and $973,000 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 a change in control. During the nine month periods ended March 31, 2016 and 2015, the Company granted options to purchase 320,000 and 369,000 shares of the Company’s common stock, respectively.

Stock-based compensation expense for the nine month periods ended March 31, 2016 and 2015 was approximately $1,175,000 and $763,000, respectively. Stock based compensation for the three month period ended March 31, 2016 and 2015 was approximately $446,000 and $279,000, respectively. Compensation expense is recognized in the general and administrative expenses line of the Company’s consolidated statements of operations on a straight-line basis over the vesting periods. As of March 31, 2016, there was approximately $3,759,000 of total unrecognized compensation cost related to non-vested stock-based compensation arrangements to be recognized over a weighted-average period of 2.6 years.

Shares may be acquired by various methods. They may be acquired by (a) cash or certified check, (b) with previously acquired shares of common stock having an aggregate fair market value, on the date of exercise, equal to the aggregate exercise price of all options being exercised (provided that such shares were not acquired less than six (6) months prior to such exercise date), (c) in certain circumstances by surrendering options to acquire shares of common stock in in exchange for the number of shares of common stock equal to the product of the number of shares of common stock as to which the options is being exercised multiplied by a fraction, the numerator of which is the fair market value of the common stock less the exercise price of the option and the denominator of which is such fair market value. Cash in the amount of $151,247 was received from the exercise of stock options for the nine months ended March 31, 2016. The Company received 13,867 shares of previously acquired common stock as payment for options exercised for the nine months ended March 31, 2016. The acquired shares are held and accounted for as treasury stock. Total options, exercised by either cash or through surrender of previously owned shares, were 62,137. The total number of shares underlying options forfeited for the nine months ended March 31, 2016 was 1,000, representing the unvested portion upon termination of employment. Shares underlying options expiring at the end of option term totaled 280 for the nine months ended March 31, 2016.

MISONIX, INC. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

The fair values of the options granted during the nine months ended March 31, 2016 and 2015 were primarily estimated on the date of the grant using the Black-Scholes option-pricing model on the basis of the following weighted average assumptions during the respective periods:

The expected option term is based upon the number of years the Company estimates the option will be outstanding based on historical exercises and terminations. The expected volatility for the expected life of the options is determined using historical price changes of the Company’s stock over a period equal to that of the expected life of the options. The risk free rate is based upon the U.S. Treasury yield in effect at the time of the grant. The expected dividend yield is 0% as the Company has historically not declared dividends and does not anticipate declaring any in the future.

Changes in outstanding stock options during the nine months ended March 31, 2016 were as follows:

MISONIX, INC. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

5.Income Taxes

For the nine months ended March 31, 2016, the Company recorded an income tax benefit from continuing operations of $237,000. For the nine months ended March 31, 2016 and 2015, the effective rate of 27% and 4%, respectively, on continuing operations varied from the U.S. federal statutory rate primarily due to permanent book tax differences, state taxes and a change in the valuation allowance.

The Company, as of June 30, 2015, reversed the valuation allowance against its deferred tax assets based on its consideration of all available positive and negative evidence including achieving cumulative profitable operation performance over the past three years and a positive outlook for taxable income for the future. The results of the first nine months of fiscal 2016 do not alter the strong positive evidence. As a result, the Company recorded an income tax benefit for the first nine months of fiscal 2016 at the annual projected tax rate of 27%.

As of MarchDecember 31, 2016 and June 30, 2015, the Company has no material unrecognized tax benefits or accrued interest and penalties.2016, respectively. The license agreement with MMIT expires in August 2017.

6.InventoriesAt December 31, 2016 and June 30, 2016, the Company’s accounts receivable with customers outside the United States were approximately $341,000 and $768,000, respectively, none of which is over 90 days.

Inventories are summarized as follows:

7.Accrued Expenses and Other Current LiabilitiesUse of Estimates

The following summarizes accruedpreparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and judgments that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and other current liabilities:

MISONIX, INC.assumptions are used for but not limited to establishing the allowance for doubtful accounts, valuation of inventory, depreciation, asset impairment evaluations and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)establishing deferred tax assets and related valuation allowances, and stock-based compensation. Actual results could differ from those estimates.

8.Commitments and ContingenciesRecent Accounting Pronouncements

In January 2017, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2017-04,Simplifying the Test for Goodwill Impairment. Under the new standard, goodwill impairment would be measured as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying value of goodwill. This ASU eliminates existing guidance that requires an entity to determine goodwill impairment by calculating the implied fair value of goodwill by hypothetically assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. This update is effective for annual periods beginning after December 15, 2019, and interim periods within those periods. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company will apply this guidance to applicable impairment tests after the adoption date.

In February 2016, the FASB issued guidance on lease accounting requiring lessees to recognize a right-of-use asset and a lease liability for long-term leases. The liability will be equal to the present value of lease payments. This guidance must be applied using a modified retrospective transition approach to all annual and interim periods presented and is effective for the Company beginning in fiscal 2019. The Company is currently in the early stages of evaluating this guidance to determine the impact it will have on its subsidiaries arefinancial statements.

In May 2014, the FASB issued guidance on revenue from timecontracts with customers. The underlying principle is that an entity will recognize revenue to time involved in ordinary and routine litigation. Management presently believesdepict the transfer of goods or services to customers at an amount that the ultimate outcomeentity expects to be entitled to in exchange for those goods or services. The guidance provides a five-step analysis of these proceedings, individually ortransactions to determine when and how revenue is recognized. Other major provisions include capitalization of certain contract costs, consideration of time value of money in the aggregate,transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved, in certain circumstances. The guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. This guidance permits the use of either the retrospective or cumulative effect transition method and is effective for the Company beginning in 2019; early adoption is permitted beginning in 2018. The Company has not yet selected a transition method and is currently evaluating the impact of the guidance on the Company's financial condition, results of operations and related disclosures. The FASB has also issued the following additional guidance clarifying certain issues on revenue from contracts with customers: Revenue from Contracts with Customers - Narrow-Scope Improvements and Practical Expedients and Revenue from Contracts with Customers - Identifying Performance Obligations and Licensing. The Company is currently in the early stages of evaluating this guidance to determine the impact it will nothave on its financial statements. 

There are no other recently issued accounting pronouncements that are expected to have a material adverse effect on the Company’sCompany's financial position, cash flows or result of operations.

Nevertheless, litigation is subject to inherent uncertainties and an unfavorable ruling could occur.  An unfavorable ruling could include money damages and in such event, could result in a material adverse impact on the Company’s results of operations in the year in which the ruling occurs.or cash flows.

2. Fair Value of Financial Instruments

We follow a three-level fair value hierarchy that prioritizes the inputs to measure fair value. This hierarchy requires entities to maximize the use of “observable inputs”"observable inputs" and minimize the use of “unobservable"unobservable inputs.”" The three levels of inputs used to measure fair value are as follows:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect assumptions that market participants would use in pricing an asset or liability.

The following is a summary of the carrying amounts and estimated fair values of our financial instruments at MarchAt December 31, 2016 and June 30, 2015:

MISONIX, INC.2016, all of our cash, trade accounts receivable and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)trade accounts payable were short term in nature, and their carrying amounts approximate fair value.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:3. Inventories

CashInventories are summarized as follows:

4. Property, Plant and cash equivalentsEquipment

Depreciation and amortization of property, plant and equipment totaled approximately $429,000 and $638,000 for the six months ended December 31, 2016 and 2015, respectively. Inventory items included in property, plant and equipment are depreciated using the straight line method over estimated useful lives of 3 to 5 years. Depreciation of generators which are consigned to customers is expensed over a 5 year period during the six months ended December 31, 2016 and is expensed over a 3 year period for the six months ended December 31, 2015, and depreciation is charged to selling expenses. The carrying amount approximates fair value becauseimpact of this change in accounting estimate was a reduction in expense of approximately $350,000 for the short maturity of those instruments.six months ended December 31, 2016, compared to what the expense would have been without this change.

Trade Accounts Receivable

The carrying amount of trade receivables reflects net recovery value and approximates fair value because of their short outstanding terms.

Trade Accounts Payable

The carrying amount of trade payables approximates fair value because of their short outstanding terms.

Non-financial assets and liabilities

Certain non-financial assets and liabilities, principally goodwill, are measured at fair value on a non-recurring basis; that is the assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances, such as when evidence of impairment exists. At March 31, 2016, no fair value adjustments or material fair value measurements were required for non-financial assets or liabilities.

10. 5. Goodwill and Intangible Assets

Goodwill is not amortized. We review goodwill for impairment annually and whenever events or changes indicate that the carrying value of an asset may not be recoverable. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of significant assets or product lines.products. Application of these impairment tests requires significant judgments, including estimation of cash flows, which is dependent on internal forecasts, estimation of the long-termlong term rate of growth for ourthe Company’s business, estimation of the useful lifelives over which cash flows will occur and determination of our weighted-averagethe Company’s weighted average cost of capital. WeThe Company primarily useutilizes the Company’s market capitalization and a discounteddiscontinued cash flow model in determining the fair value which consists of level threeLevel 3 inputs. Changes in the projected cash flows and discount rate estimates and assumptions underlying the valuation of goodwill could materially affect the determination of fair value at acquisition or during subsequent periods when tested for impairment. The Company determined that there were no indicators that the recordedcompleted its annual goodwill impairment tests for fiscal 2016 and 2015 as of June 30 of each year. No impairment of goodwill was impaired as of March 31,deemed to exist in fiscal 2016 which required further testing.and 2015.

6. Patents

The costcosts of acquiring or processing patents is capitalized. This amount isare capitalized at cost. These amounts are being amortized using the straight-line method over the estimated useful lives of the underlying assets, which is approximately 17 years. Net patents reported in intangiblePatents totaled $707,366 and other assets totaled $567,672 and $566,028$604,916 at MarchDecember 31, 2016 and June 30, 2015, respectively. Accumulated amortization totaled $861,448 and $791,551 at March 31, 2016, and June 30, 2015, respectively. Amortization expense for the three month periodssix months ended MarchDecember 31, 2016 and 2015 was approximately $23,000$53,000 and $22,000, respectively.  Amortization expenses for the nine month periods ended March 31, 2016 and 2015 was approximately $70,000 and $127,000, respectively.

MISONIX, INC. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Net customer relationships reported in intangible and other assets totaled $0 and $40,000 at March 31, 2016 and June 30, 2015, respectively. Accumulated amortization amounted to $800,000 at March 31, 2016 and $760,000 at June 30, 2015. Amortization expense for the three months ended March 31, 2016 and 2015 was $0 and $40,000, respectively.  Amortization expense for the nine month period ended March 31, 2016 and 2015 was approximately $40,000 and $120,000, respectively.

Net reacquired contractual rights from Aesculap reported in intangible and other assets totaled $0 at March 31, 2016 and $178,983 at June 30, 2015. Accumulated amortization amounted to $328,136 at March 31, 2016 and $149,153 at June 30, 2015. Amortization expense for the three months ended March 31, 2016 and 2015 was $0 and $59,661, respectively. Amortization for the nine month period ended March 31, 2016 and 2015 was approximately $178,983 and $59,661,$47,000, respectively.

The following is a schedule of estimated future patent amortization expense as of MarchDecember 31, 2016:

11. Recent Accounting Pronouncements7. Accrued Expenses and Other Current Liabilities

In April 2014, the FASB issued ASU 2014-08, “Presentation of Financial Statements (Topic 205)”The following summarizes accrued expenses and “Property, Plant and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” other current liabilities:

8. Stock-Based Compensation Plans

Stock Option Awards

The amendments in the ASU change the criteriacompensation cost that has been charged against income for reporting discontinued operations while enhancing related disclosures. The amendments in the ASU are effective in the first quarter of 2015. The adoption of ASU 2014-08 did not have a material impact on the Company’s consolidated financial statements.stock option plans was $83,865, which included a charge to modify certain stock options of $81,765 and a reversal of stock compensation from prior periods due to forfeitures of unvested options of $616,239, for the six months ended December 31, 2016. For the six months ended December 31, 2015, compensation cost that has been charged against income for the Company’s stock option plans was $728,993. As of December 31, 2016, there was approximately $3,158,221 of total unrecognized compensation cost related to non-vested share-based compensation arrangements to be recognized over a weighted-average period of 3.0 years. Certain share based costs for the six months ended December 31, 2015 included in general and administrative expenses were reclassified to cost of revenue, selling and research and development expenses to be consistent with the current year’s classification.

In May 2014,During the FASB issued ASU 2014-09, "Revenuesix months ended December 31, 2016, the Company modified the terms of certain stock options, which resulted in a charge to operations of $81,765.

Stock options typically expire 10 years from Contracts with Customers (Topic 606)." The new revenue recognition standard as amended provides a five-step analysis to determine when and how revenue is recognized.  The standard requires that a company recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU is effective for annual periods beginning after December 15, 2017 (public entities) and will be applied retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption.grant and vest over service periods, which typically are 4 years. All options are granted at fair market value, as defined in the applicable plans.

The fair value of each option award was estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions noted in the following table. The expected volatility represents the historical price changes of the Company’s stock over a period equal to that of the expected term of the option. The Company uses the simplified method for determining the option term. The risk-free rate was based on the U.S. Treasury yield curve in effect at the time of grant. The expected dividend yield is currently evaluating the impact of the pending adoption of ASU 2014-09 on its consolidated financial statements.

In August 2014, the FASB issued guidance on management's responsibility in evaluating whether there is substantial doubt about a company's ability to continue as a going concernbased upon historical and related footnote disclosures. Management will be required to evaluate, at each reporting period, whether there are conditions or events that raise substantial doubt about a company's ability to continue as a going concern within one year from the date the financial statements are issued. This guidance is effective prospectively for annualprojected dividends. The Company has historically not paid dividends, and interim reporting periods beginning in 2017; implementation of this guidance is not expected to do so in the near term. 

The weighted average fair value at date of grant for options granted during the six months ended December 31, 2016 and 2015 was $4.46 and $4.01 respectively. There were options to purchase 327,500 shares granted during the six months ended December 31, 2016. The fair value was estimated based on the weighted average assumptions of:

A summary of option activity under the Company’s equity plans as of December 31, 2016, and changes during the six months ended December 31, 2016 is presented below:

The total fair value of shares vested during the six months ended December 31, 2016 was $923,215. The number and weighted-average grant-date fair value of non-vested stock options at the beginning of fiscal 2017 was 976,875 and $4.81, respectively. The number and weighted-average grant-date fair value of stock options which vested during the six months ended December 31, 2016 was 190,500 and $4.85, respectively.

Restricted Stock Awards

On December 15, 2016, the Company issued 400,000 shares of restricted stock to its Chief Executive Officer. These awards vest over a period of up to five years, subject to meeting certain service, performance and market conditions. These awards were valued at approximately $3.4 million and compensation expense recorded in the quarter ended December 31, 2016 was $40,565.

9. Commitments and Contingencies

Leases

The Company has entered into several non-cancellable operating leases for the rental of certain manufacturing and office space, equipment and automobiles expiring in various years through 2021. The principal building lease provides for a monthly rental of approximately $26,000. The Company also leases certain office equipment and automobiles under operating leases expiring through fiscal 2018.

Class Action Securities Litigation

On September 19, 2016, Richard Scalfani, an individual shareholder of Misonix, filed a lawsuit against the Company and its former CEO and CFO in the U.S. District Court for the Eastern District of New York, alleging violations of the federal securities laws. The complaint alleges that the Company’s stock price was artificially inflated between November 5, 2015 and September 14, 2016 as a result of alleged false and misleading statements in the Company’s securities filings concerning the Company’s business, operations, and prospects and the Company’s internal control over financial reporting. Scalfani filed the action seeking to represent a putative class of all persons (other than defendants, officers and directors of the Company, and their affiliates) who purchased publicly traded Misonix securities between November 5, 2015 and September 14, 2016. Scalfani seeks an unspecified amount of damages for himself and for the putative class under the federal securities laws.

On November 18, 2016, Scalfani and another individual Misonix shareholder, Tracey Angiuoli, petitioned the Court to be appointed lead plaintiffs for purposes of pursuing the action on behalf of the putative class.

The Company believes it has various legal and factual defenses to the allegations in the complaint, and intends to vigorously defend the action. The case is at its earliest stages; there has been no discovery and there is no trial date. The Company is not able to estimate the amount of potential loss it may recognize, if any, from this claim. The Company believes that its insurance coverage is sufficient to cover a potential loss, after payment of the policy retention of $250,000.

Chinese Distributor

For several months, with the assistance of outside counsel, the Company has been conducting a voluntary investigation into the business practices of the independent Chinese entity that previously distributed its products in China and the Company’s knowledge of those business practices, which may have implications under the FCPA, as well as into various internal controls issues identified during the investigation.

On September 27, 2016 and September 28, 2016, we voluntarily contacted the SEC and the DOJ, respectively, to advise both agencies of these potential issues.  The Company has provided and will continue to provide documents and other information to the SEC and the DOJ, and is cooperating fully with these agencies in their investigations of these matters.

Although the Company’s investigation is complete, additional issues or facts could arise which may expand the scope or severity of the potential violations.  The Company has no current information derived from the investigation or otherwise to suggest that its previously reported financial statements and results are incorrect.

At this stage, the Company is unable to predict what, if any, action the DOJ or the SEC may take or what, if any, penalties or remedial measures these agencies may seek.  Nor can the Company predict the impact on the Company as a material effectresult of these matters, which may include the imposition of fines, civil and criminal penalties, which are not currently estimable, as well as equitable remedies, including disgorgement of any profits earned from improper conduct and injunctive relief, limitations on the Company’s financial conditionconduct, and the imposition of a compliance monitor.  The DOJ and the SEC periodically have based the amount of a penalty or resultsdisgorgement in connection with an FCPA action, at least in part, on the amount of operations.profits that a company obtained from the business in which the violations of the FCPA occurred.  Since the inception of its distributorship relationship with the prior Chinese distributor in 2012, the Company has generated sales of approximately $8 million from the relationship. 

In JulyFurther, the Company may suffer other civil penalties or adverse impacts, including lawsuits by private litigants in addition to the lawsuit that has already been filed, or investigations and fines imposed by local authorities. The investigative costs to date are approximately $1.9 million, of which approximately $1.4 million was charged to general and administrative expenses during the six months ended December 31, 2016.

10. Related Party Transactions

Applied BioSurgical, a company owned by the brother of the Company’s Chief Executive Officer, Stavros G. Vizirgianakis, is an independent distributor for the Company outside of the United States.

Set forth below is a table showing the Company’s net sales for the six months ended December 31 and accounts receivable at December 31 for the indicated time periods below with Applied BioSurgical:

On October 25, 2016, the Company sold 761,469 shares of Common Stock in a private placement to Stavros G. Vizirgianakis, the Company’s current Chief Executive Officer, at a price per share of $5.253, representing total cash proceeds to the Company of approximately $4.0 million.

11. Income Taxes

For the six months ended December 31, 2016 and 2015, the FASB issued ASU “Inventory (Topic 330).” The amendments in this update are effective for fiscal years beginning after December 2016. The adoptionCompany recorded an income tax benefit from continuing operations of Inventory (Topic 330) will not have a material impact on the Company’s consolidated financial statements.

MISONIX, INC.$56,000 and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)$307,000, respectively.

In November

For the six months ended December 31, 2016 and 2015, the FASB issued ASU 2015-17 “Balance Sheet Classificationeffective rate of deferred Taxes (Topic740)”. The amendments in this ASU require deferred(4.7)% and (87.2)%, respectively, on continuing operations varied from the U.S. federal statutory rate primarily due to permanent book tax liabilitiesdifferences, state taxes and assets be classified as noncurrent in a classified statement of financial position. The amendments eliminate the guidance in Topic 740 that requires an entity to separate deferred tax liabilities and assets into a current amount and a noncurrent amount in a classified statement of financial position. The amendments in this update have no effect on entities that do not present a classified statement of financial position. credits.

The Company, adopted ASU 2015-17 as of March 31, 2016 on a prospective basis. This means that the balance sheet for the period ended June 30, 2015, will be shown as previously reported. The effect is totallyreversed the valuation allowance against its deferred tax assets based on its consideration of all available positive and negative evidence including achieving cumulative profitable operating performance over the balance sheetpast three years and resulted in a reduction in current assets of $2,118,716 and a corresponding increase in noncurrent assetsits positive outlook for taxable income for the period endedfuture.

As of December 31, 2016 and June 30, 2015. In addition, working capital would have decreased by $2,118,716 to $16,170,213 for the period ended June 30, 2015.

In February 2016, the FASB issued guidance on lease accounting requiring lessees to recognize a right-of-use assetCompany has no material unrecognized tax benefits or accrued interest and a lease liability for long-term leases. The liability will be equal to the present value of lease payments. This guidance requires must be applied using a modified retrospective transition approach to all annual and interim periods presented and is effective for the company beginning in fiscal 2019. We are currently evaluating the impact of the guidance on the Company's financial condition, results of operations and related disclosures.

In March 2016, the FASB issued guidance on simplifying several aspects of accounting for share-based payment award transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This guidance requires a mix of prospective, modified retrospective, and retrospective transition to all annual and interim periods presented and is effective for the Company beginning in fiscal 2018; implementation of this guidance is not expected to have a material effect on the Company’s financial condition or results of operations. penalties.

12. Licensing Agreements for Medical Technology

In October 1996, the Company entered into a License Agreement (the "USS License") with United States Surgical (now, Medtronic Minimally Invasive Therapies (“MMIT”)) for a twenty-year period,MMIT expiring October 2016,August 2017, covering the further development and commercial exploitation of the Company's medical technology relating to laparoscopic products, which uses high frequency sound waves to coagulate and divide tissue for both open and laparoscopic surgery.

The USS License gives CovidienMMIT license provides for exclusive worldwide marketing and sales rights for this technology. Under the USS License, theThe Company has received $475,000 in licensing fees (which are being recorded as income over the term of the USS License or 20 years), plus royalties based upon netreceives a 5% royalty on sales of AutoSonix products. Total royaltiesthese products by MMIT. Royalties from sales of this devicelicense agreement were approximately $2,930,000$1,885,788 and $3,140,000$1,979,026 for the ninesix months ended MarchDecember 31, 2016 and 2015, respectively.

13. Segment Reporting

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated on a regular basis by the chief operating decision-maker (“CODM") in deciding how to allocate resources to an individual segment and in assessing performance of the segment. The Company has concluded that its Chief Executive Officer is the CODM as he is the ultimate decision maker for key operating decisions, determining the allocation of resources and assessing the financial performance of the Company. These decisions, allocations and assessments are performed by the CODM using consolidated financial information. Consolidated financial information is utilized by the CODM as the Company's current product offering primarily consists of minimally invasive therapeutic ultrasonic medical devices. The Company's products are relatively consistent and manufacturing is centralized and consistent across product offerings. Based on these factors, key operating decisions and resource allocations are made by the CODM using consolidated financial data and as such the Company has concluded that it operates as one segment.

Worldwide revenue for the Company's products is categorized as follows:

Substantially all of the Company’s long-lived assets are located in the United States.

14. Severance

On August 26, 2016, the Company and the Company’s former Chief Executive Officer, Michael McManus (“McManus”) entered into a retirement agreement and general release (the “Retirement Agreement”). Pursuant to the Retirement Agreement, on September 2, 2016 Mr. McManus resigned as a Director and the Chairman of the Board of Directors of the Company and retired as President and Chief Executive Officer of the Company. Pursuant to the Retirement Agreement, the Company agreed to (i) pay Mr. McManus’ salary through June 30, 2017 at the then current level; (ii) continue to pay premiums for Mr. McManus’ and his dependents’ coverage under the Company’s medical, dental, vision, hospitalization, long term care and life insurance coverage through June 30, 2017 at the then current levels upon timely election by Mr. McManus under the law informally known as COBRA; and (iii) extend the exercisability of previously granted and then currently vested options to purchase shares of Common Stock through June 30, 2017. In addition, Mr. McManus had continued use of the vehicle provided him pursuant to his prior employment agreement through December 31, 2016. In connection with this Retirement Agreement, the Company recorded a charge of $330,000 during the quarter ended September 30, 2016 to accrue for the cash portion of these benefits, which will be paid during the period ending June 30, 2017. In addition, the Company recorded a non-cash compensation expense of $61,000 in connection with the modification of the terms of his vested stock options, and recorded a reduction in non-cash compensation expense of $596,000 relating to the forfeiture of his unvested stock options.

15. Subsequent Events

NASDAQ Deficiency Letters

On September 15, 2016, Misonix received a deficiency letter from The Nasdaq Stock Market LLC (“Nasdaq”) indicating that the Company, as a result of not filing its Annual Report on Form 10-K for the fiscal year ended June 30, 2016 (the “10-K”) on September 13, 2016 and disclosing that the Company likely would not be able to file the 10-K within the 15-day extension period provided in Rule 12b-25(b) under the Securities Exchange Act of 1934, as amended, was not in compliance with Listing Rule 5250(c)(1) of the Nasdaq Listing Rules (the “Rules”) for continued listing. In addition, on November 10, 2016, Misonix received a second deficiency letter from Nasdaq indicating that the Company, as a result of not filing its Quarterly Report on Form 10-Q for the period ended December 31, 2016 (the “Q1 10-Q”) by November 9, 2016, together with its prior failure to timely file the 10-K, was not in compliance with Listing Rule 5250(c)(1) for continued listing. In the letters, Nasdaq requested that Misonix submit a plan to regain compliance with the Rules by November 14, 2016. On November 14, 2016, Misonix submitted to Nasdaq a plan to regain compliance with the Rules. After reviewing Misonix's plan to regain compliance, Nasdaq granted an exception to enable the Company to regain compliance with the Rules. Under the terms of the exception, Misonix must file its 10-K and Q1 10-Q on or before March 13, 2017. In the event that Misonix does not satisfy the terms set forth in the extension, Nasdaq will provide written notification that Misonix's common stock will be delisted. At that time, Misonix may appeal Nasdaq's determination for a panel review. The Company filed the 10-K with the SEC on February 9, 2017.

On February 10, 2017, Misonix received a third deficiency letter from Nasdaq indicating that the Company, as a result of not filing its Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2016 (the “Q2 10-Q”) by February 9, 2017 and disclosing that the Company will not be able to file the Q2 10-Q within the five-day extension period provided in Rule 12b-25(b) under the Exchange Act, together with its prior and ongoing failure to timely file the Q1 10-Q, was not in compliance with Listing Rule 5250(c)(1) for continued listing. The Company previously submitted a plan to Nasdaq to regain compliance with the Rules and Nasdaq has granted the Company an exception until March 13, 2017 to regain compliance. The Company submitted its amended compliance plan to the Nasdaq on February 23, 2017 indicating that the Company expected to file its Q1 10-Q and Q2 10-Q by March 13, 2017.

Investigative Fees

Subsequent to December 31, 2016, the Company has incurred approximately $0.4 million in fees relating to its FCPA investigation and related activities.

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

This Management’s Discussion and Analysis of Financial Condition and Results of Operations of Misonix and its subsidiaries, in which we refer to as the Company as“Company”, “Misonix”, “we”, “our” and “us”, should be read in conjunction with the accompanying unaudited financial statements included in “Item 1. FinancialPart I – Item 1 “Financial Statements” of this Report and “ItemItem 7. Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (the “SEC”) on August 20, 2015,February 9, 2017, for the fiscal year ended June 30, 20152016 (“20152016 Form 10-K”). Item 7 of the 20152016 Form 10-K describes the application of our critical accounting policies, for which there have been no significant changes as of MarchDecember 31, 2016.

Forward Looking Statements

This Report contains certainWith the exception of historical information contained in this Form 10-Q, content herein may contain "forward looking statements" that are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. We cannot guarantee that any forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended,will be accurate, although we believe that we have been reasonable in our expectations 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 believesassumptions. Investors should realize that theif underlying assumptions underlying the forward looking statements contained herein are reasonable, any of the assumptions could beprove 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 causeor unknown risks or uncertainties materialize, actual results to differcould vary materially from the results specifically discussed in the forward looking statementsour expectations and projections. These factors include but are not limited to, the absence of anticipated contracts, higher than historical costs incurred ingeneral economic conditions, delays and risks associated with the performance of contracts, risks associated with international sales and currency fluctuations, uncertainties as a result of research and development, acceptable results from clinical studies, including publication of results and patient/procedure data with varying levels of statistical relevance, risks involved in introducing and marketing new products, regulatory compliance, potential acquisitions, consumer and industry acceptance, litigation and/or contemplated 510(k) filings, the ability to achieve and maintain profitability in conductingour business lines, and other activities, product mixfactors discussed in sales, future economic, competitivethe 2016 Form 10-K, subsequent Quarterly Reports on Form 10-Q and market conditions, and the outcome of legal proceedings as well as management business decisions.Current Reports on Form 8-K. We disclaim any obligation to update any forward-looking statements.

NineOverview

Misonix designs, manufactures, develops and markets therapeutic ultrasonic devices. These products are used for precise bone sculpting, removal of soft tumors, and tissue debridement in the fields of orthopedic surgery, plastic surgery, neurosurgery, podiatry and vascular surgery. In the United States, the Company sells its products through a network of commissioned agents assisted by Company personnel. Outside of the United States, the Company sells to distributors who then resell the product to hospitals. The Company operates as one business segment.

In the United States, the Company is taking a more aggressive approach to taking market share, expanding the market and increasing its share of recurring disposable revenue by using a consignment model, whereby the Company will consign the equipment (which is defined as a generator, hand pieces and accessories) (the “Equipment”) and sell to customers higher margin disposable, single use items (the “Consumables”) on a recurring basis. Title remains with the Company with respect to consigned Equipment, which is depreciated and charged to selling expenses over a five year period beginning in fiscal 2017, and a three year period in fiscal 2016. Outside of the United States, the Company has principally not yet adopted a consignment model. The Company’s overall goal is to increase the utilization rate of Equipment which will increase the total number of procedures and maximize the sale of Consumables to our customers, with the goal of becoming the standard of care in the various segments we focus on.

Results of Operations

The following discussion and analysis provides information which the Company's management believes is relevant to an assessment and understanding of the Company's results of operations and financial condition. This discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere herein. Unless otherwise specified, this discussion relates solely to the Company's continuing operations.

All of the Company's sales have been derived from the sale of medical device products, which include manufacture and distribution of ultrasonic medical device products.

Three months ended MarchDecember 31, 2016 and 2015

Our sales by category for the three months ended December 31, 2016 and 2015 are as follows:

Net sales:

Net sales increased 8.2% or $1,261,345decreased $8,975 to $16,716,487 for$6,030,380 in the nine months ended March 31, 2016second quarter of fiscal 2017, from $15,455,142 for the nine months ended March 31, 2015. The increase is due to higher BoneScalpel®$6,039,355 in fiscal 2016. Consumable sales of $1,784,360 and higher SonicOne OR® sales of $650,898, partially offset by lower SonicOne®sales of $442,682, lower SonaStar® sales of $440,634, lower Lysonix sales of $171,625, lower service sales of $85,243 and lower other sales of $33,729. There were 62 BoneScalpel units consigned in the United States increased 42.3%, or $1,141,973 for the quarter, in part due to the Company’s continued investment in its sales team and marketing efforts. This was offset by a reduction in International sales of $924,172. During the first quarter of fiscal 2017, the Company terminated its relationship with its Chinese distributor, which was its largest customer. Sales to this distributor during the nine month period ended March 31, 2016 as compared to 64 units consigned for the ninethree months ended March 31, 2015. There were 34 SonicOne OR units consigned for the nine month period ended March 31, 2016 as compared to 13 units consigned for the nine month ended March 31, 2015.

Set forth below are tables showing the Company’s net sales by (i) product category and (ii) geographic region for the nine months ended MarchDecember 31, 2016 and 2015:2015 were $0 and $646,583, respectively. In February 2017, the Company executed an agreement with a new Chinese distributor, with initial shipments anticipated to begin in 2017.

Gross profit: 

Gross profit decreased to 66.7%in the second quarter of fiscal 2017 was 69.8% of sales, forwhich increased from 67.6% in the nine months ended March 31, 2016second quarter of fiscal 2016. The increase resulted from 67.5%a stronger mix of sales for the nine months ended March 31, 2015. The decrease inConsumables revenue which carries a higher gross profit percentage is mainly related to an increase in reserves for obsolete inventory.margin than Equipment revenue.

Selling expenses:expenses 

Selling expenses increased $2,174,235by $279,447, or 9.3% to $8,744,498 for$3,271,134 in the nine month period ended March 31, 2016second quarter of fiscal 2017 from $6,570,263 for$2,991,687 in the nine months ended March 31, 2015.prior year period. The increase is principally related to higher salary and sales commission expenses. The Company continues to invest in sales and marketing in order to gain market share. The Company’s strategy to leverage its existing distributor network with product specialists domestically resulted in part in domestic sales growing by 28.6% during the second quarter. This quarterly expense increase is relatedwas partially offset by a decrease in depreciation of consigned units of $134,000, resulting from a change in accounting estimate to higher salary expenses of $822,526, due to increased head count, higher commission expenses of $420,539, higher travel expenses of $271,820, higher depreciation expense of $271,080 due to the increasedepreciate these units over five years in consignment units, higher advertising expenses of $230,814, higher employee benefit expenses of $118,667, due to increased headcount, higher training expenses of $34,937 and higher other expenses of $3,852.fiscal 2017 compared with three years in fiscal 2016.

General and administrative expenses:

General and administrative expenses increased $972,246by $412,329, or 24.6% to $5,336,507 for$2,087,419 in the nine month period ended March 31, 2016second quarter of fiscal 2017 from $4,364,261 for$1,675,090 in the nine month period ended March 31, 2015.prior year period. The increase is due to higher non-cash compensation expensesresulted principally from increased legal and accounting fees of $412,344 due$694,000 relating to the issuance of stock options, higher accounting expenses of $284,924, higher insurance expenses of $170,468 and higher salary expenses of $112,344, partially offset by lower other expenses of $7,834.Investigation.

Research and development expenses:

Research and development expenses increased $65,435by $48,296, or 12.3% to $1,235,100 for$440,364 in the nine months ended March 31, 2016second quarter of fiscal 2017 from $1,169,665 for$392,068 in the nine months ended March 31, 2015.prior year period. The increase is due generally to higher salary and consulting costs for increased product development material expenses of $131,973, higher office expenses of $8,077 and higher other expenses of $2,098, partially offset by lower patent and regulatory amortization of $76,713.activities.

Other income (expense): 

Other income fordecreased $70,547 to $942,427 in the nine months ended March 31, 2016 was $2,952,722 as compared to $3,207,997 forsecond quarter of fiscal 2017 from $1,012,974 in the nine months ended March 31, 2015.prior year period. The decrease is primarily duerelated to lower royalty income of $255,362 from MMIT. This royalty agreement expires in August 2017.

Income taxes: 

For the ninethree months ended MarchDecember 31, 2016 the Company recorded an effective tax rate of 26.6% compared to 3.6% for the nine months ended March 31, 2015. The Company, as of June 30,and 2015, reversed the valuation allowance against its deferred tax assets based upon the strong positive evidence of strong future income. The results of the first fiscal half 2016 do not alter the strong positive evidence. As a result, the Company recorded an income tax benefit forfrom continuing operations of $30,000 and $139,000, respectively. For the first fiscal halfthree months ended December 31, 2016 atand 2015, the annual projectedCompany recorded a tax benefit with an effective tax rate of 26.6%.(4.7)% compared to (390.6)%, respectively. The change relates to a change in permanent book to tax differences. The effective tax rate for both periods was also affected by state taxes and tax credits.

Income (Loss): Net loss for the nineSix months ended March 31, 2016 was $(724,400) as compared to net income of $1,738,734 for the nine months ended March 31, 2015. The Company continues to invest in sales and marketing in order to gain market share.

Three months ended MarchDecember 31, 2016 and 2015

Our sales by category for the six months ended December 31, 2016 and 2015 are as follows:

Net sales:

Net sales increased 2.1% or $111,350$911,665 to $5,426,147 for$12,202,005 in the threefirst six months ended March 31, 2016of fiscal 2017, from $5,314,797 for$11,290,340 the three months ended March 31, 2015. The increase is due to higher BoneScalpelprior year period. Consumable sales of $899,135 and higher SonicOne OR sales of $39,462, partially offset by lower SonaStar sales of $506,382, lower SonicOne sales of $143,063, lower Lysonix sales of $121,039 and lower other sales of $56,763. There were 14 BoneScalpel units consigned in the United States increased 35.5%, or $1,875,791 for the threeperiod, in part due to the Company’s continued investment in its sales team and marketing efforts. This was offset by a reduction in International sales of $822,018. During the first quarter of fiscal 2017, the Company terminated its relationship with its Chinese distributor, which was its largest customer. Sales to this distributor during the six months ended March 31, 2016 as compared to 27 consigned units for the three months ended March 31, 2015. There were 11 SonicOne OR units consigned in the United states for the three months ended MarchDecember 31, 2016 and 2015 were $0 and $899,635, respectively.

Set forth below are tables showing In February 2017, the Company’s net sales by (i) product category and (ii) geographic region for the three months ended March 31, 2016 and 2015:Company executed an agreement with a new Chinese distributor, with initial shipments anticipated to begin in 2017.