Someone said you this episode makes the audience shocked and morally confused. That's true, but I also think that is the point. The bad blood accumulated among students of the two dojos, combined with the truly dangerous skills they acquired, was a recipe for bad things to happen. After a long timing training, the kids end up applying karate to personal feuds, romantic jealousy and settling of scores. Even with the most Myagi-like lessons, that will tend to lead to grave outcomes when all the tensions that escalated through the season climax in a chaotic confrontation between teens that don't know when to stop, are not aware of their own strenght, don't know how to use their skills responsibly, and control their emotions.
Both Johnny and Daniel will have to live now with the consequences of their actions. Unfortunately, that is a recipe for a season 3 that starts slowly, as people will need to find a new relationship with karate before going back to training. I hope they will pull it off, because after the awesome climax and all the cliffhangers, there will be protests outside youtube if there is no season 3.