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**SECURITIESAND EXCHANGE COMMISSION****   Washington, D.C. 20549**

 **FORM 10-Q**

ý   **Quarterly Report Pursuant to Section 13or 15(d) of the Securities Exchange Act of 1934**

**For the Quarterlyperiod ended June 30, 2001**

**or**

**o****  Transition report pursuant to Section 13 or15(d) of the Securities Exchange Act of 1934**

**             Forthe transition period from                                        to                                   **

**Commission File Number 0-11278**

**MINNTECHCORPORATION**(Exact nameof registrant as specified in its charter)

| **Minnesota**                                                   | **41-1229121**                        |
|-----------------------------------------------------------------|---------------------------------------|
| (State or other  jurisdiction of incorporation or organization) | (I.R.S. Employer  Identification No.) |

**14605 - 28th Avenue North****Minneapolis, Minnesota 55447**(Address ofprincipal executive offices)

Registrant'stelephone number, including area code:  **(763)553-3300**

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Indicate by check mark whether theregistrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor 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 ý No o

Indicate the number of shares outstandingof each of the issuer’s classes of common stock, as of the latest practicabledate.
| Class                          | Outstanding at June  30, 2001 |
|--------------------------------|-------------------------------|
|                                |                               |
| Common Stock,  $0.05 par value | 6,684,562  shares             |

----

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**Minntech Corporation****QuarterlyReport on Form 10-Q June 30, 2001**

 

| Index                                         |
|-----------------------------------------------|
|                                          |
| **Part  I.  Financial Information** |
|                                          | Item 1.  Financial Statements |
|                                          | Condensed  Consolidated Statement of Operations |
|                                          | Condensed  Consolidated Balance Sheet |
|                                          | Condensed  Consolidated Statement of Cash Flows |
|                                          | Notes  to Condensed Consolidated Financial Statements |
|                                          |  Item  2.  Management's Discussion and  Analysis of Financial Condition and Results of Operations |
| **Part II.  Other Information**          |
|                                          |  Item 4.   Submission of Matters to a Vote of Security Holders |
|                                          |  Item 6.   Exhibits and Reports on Form 8-K |
| **Signatures**                                |
|                                               |  |  |

 

 

**Part I - Financial Information**

**Item 1.  FinancialStatements**

**Minntech CorporationCondensed Consolidated Statement of Operations**(Unaudited)(In thousands, except per share amounts)

 

|                                                                                           | Thirteen weeks ended  June 30, 2001  |   | Thirteen weeks ended  July 1, 2000 |   |
|------------------------------------------------------------------------------------------------|--------------------------------------|--------|------------------------------------|--------|
|                                                                                           |                                      |   |                                    |   |
| **Total Revenues**                                                                             | $                                    | 19,951 |                               | $      | 17,605 |   |
| **Operating costs and expenses**                                                               |                                 |   |                               |   |
|                                                                                           | Cost of product sales                | 12,151 |                               | 11,622 |   |
|                                                                                           | Research and  development            | 884    |                               | 1,014  |   |
|                                                                                           | Selling, general and  administrative | 5,262  |                               | 5,051  |   |
|                                                                                           | Amortization of  intangible assets   | 52     |                               | 59     |   |
|                                                                                           |                                 |        |                               |        |   |
|                                                                                           | Total operating costs  and expenses  | 18,349 |                               | 17,746 |   |
|                                                                                           |                                      |   |                                    |   |
| **Earnings / (loss) from  operations**                                                         | 1,602                                |   | (141                               | )      |
| Other income, net                                                                              | 250                                  |   | 52                                 |   |
|                                                                                           |                                      |   |                                    |   |
| **Earnings / (loss) before  income taxes**                                                | 1,852                                |   | (89                                | )      |
| Provision / (benefit)  for income taxes                                                        | 648                                  |   | (28                                | )      |
|                                                                                           |                                      |   |                                    |   |
| **Net earnings / (loss) before  cumulative effect of a  change in  accounting principle** | 1,204                                |   | (61                                | )      |
| Cumulative effect of a  change in accounting principle                                         | —                               |   | (136                               | )      |
|                                                                                           |                                      |   |                                    |   |
| **Net earnings / (loss)**                                                                      | $                                    | 1,204  |                               | $      | (197 | ) |
|                                                                                           |                                      |   |                                    |   |
| Weighted avg. common  shares outstanding - basic                                               | 6,681                                |   | 6,682                              |   |
| Earnings / (loss) per  share – basic:                                                     |                                 |   |                               |   |
| Earnings / (loss)  before cumulative effect                                                    | $                                    | .18    |                               | ($0.01 | ) |
| Cumulative effect                                                                              | —                               |   | ($0.02                             | )      |
|                                                                                           |                                      |   |                                    |   |
| Net earnings / (loss)                                                                          | $                                    | .18    |                               | ($0.03 | ) |
|                                                                                           |                                      |   |                                    |   |
| Weighted avg. common  shares outstanding – diluted:                                       | 6,708                                |   | 6,682                              |   |
| Earnings / (loss) per  share – diluted:                                                   |                                 |   |                               |   |
| Earnings / (loss)  before cumulative effect                                                    | $                                    | .18    |                               | ($0.01 | ) |
| Cumulative effect                                                                              | -----                                |   | ($0.02                             | )      |
|                                                                                           |                                      |   |                                    |   |
| Net earnings / (loss)                                                                          | $                                    | .18    |                               | ($0.03 | ) |
|                                                                                           |                                      |   |                                    |   |

The accompanying notes are an integralpart of these financial statements.

**MinntechCorporationCondensed Consolidated Balance Sheet** (Amounts in thousands, except share and pershare amounts)

**ASSETS**

|                       | (Unaudited)  June 30, 2001                                 |    | March 31, 2001 |    |
|----------------------------|------------------------------------------------------------|---------|----------------|---------|
|                       |                                                            |    |                |    |
| **Current  assets**        |                                                       |    |           |    |
|                       | Cash  and cash equivalents                                 | $       | 15,825         |    | $ | 15,344 |   |
|                       | Accounts  receivable, less allowance for doubtful accounts |    |           |    |   |
|                       | of  $409 and $364, respectfully                            | 14,444  |           | 13,333  |   |
|                       | Inventories                                                |    |           |    |   |
|                       | Finished  goods                                            | 4,803   |           | 4,627   |   |
|                       | Raw  materials                                             | 3,699   |           | 3,881   |   |
|                       | Work-in-process                                            | 2,432   |           | 2,738   |   |
|                       |                                                            |    |                |    |
|                       | Total  inventories                                         | 10,934  |           | 11,246  |   |
|                       | Prepaid  expenses and other current assets                 | 3,633   |           | 3,131   |   |
|                       |                                                            |    |                |    |
|                       | **Total  current assets**                                  | 44,836  |           | 43,054  |   |
|                       |                                                       |    |           |    |   |
| **Property and equipment** |                                                       |    |           |    |
|                       | Land,  buildings and improvements                          | 12,690  |           | 12,685  |   |
|                       | Machinery  and equipment                                   | 29,524  |           | 29,146  |   |
|                       |                                                            |    |                |    |
|                       | 42,214                                                     |    | 41,831         |    |
|                       | Less  accumulated depreciation                             | (25,176 | )              | (24,421 | ) |
|                       |                                                            |    |                |    |
|                       | Net  property and equipment                                | 17,038  |           | 17,410  |   |
| **Other  assets**          |                                                       |    |           |    |
|                       | Patent  costs, net                                         | 494     |           | 430     |   |
|                       | Goodwill,  net                                             | 376     |           | 390     |   |
|                       | Other                                                      | 1,717   |           | 1,728   |   |
|                       |                                                            |    |                |    |
| **Total  assets**          | $                                                          | 64,461  |           | $       | 63,012 |   |
|                       |                                                            |    |                |    |
|                            |                                                            |         |                |         |  |  |  |  |  |

**LIABILITIESAND STOCKHOLDERS' EQUITY**

| **Current  liabilities**                             |                                                                                                                              |   |   |   |
|------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|
|                                                 | Accounts  payable                                                                                                                 | $      | 4,019  |   | $ | 3,717 |   |
|                                                 | Income  taxes payable                                                                                                             | 663    |   | 271    |   |
|                                                 | Accrued  compensation                                                                                                             | 1,017  |   | 889    |   |
|                                                 | Other  accrued expenses                                                                                                           | 3,442  |   | 3,919  |   |
|                                                 |                                                                                                                                   |   |        |   |
|                                                 | **Total current liabilities**                                                                                                     | 9,141  |   | 8,796  |   |
| Deferred  compensation                               | 754                                                                                                                               |   | 738    |   |
| Deferred  income taxes                               | 56                                                                                                                                |   | 57     |   |
|                                                 |                                                                                                                                   |   |        |   |
| **Total  liabilities**                               | 9,951                                                                                                                             |   | 9,591  |   |
| **Commitments  and contingencies**                   |                                                                                                                              |   |   |   |
| **Stockholders'  equity**                            |                                                                                                                              |   |   |   |
|                                                 | Preferred  stock, no par value; 5,000,000 shares authorized, none outstanding                                                     | — |   | — |   |
|                                                 | Common  stock, $.05 par value; 20,000,000 shares authorized, 6,702,956 and 6,679,287  shares issued and outstanding, respectively | 335    |   | 334    |   |
|                                                 | Additional  paid-in capital                                                                                                       | 12,243 |   | 12,084 |   |
|                                                 | Accumulated  other comprehensive income                                                                                           | (1,633 | )      | (1,358 | ) |
|                                                 | Retained  earnings                                                                                                                | 43,565 |   | 42,361 |   |
|                                                 |                                                                                                                                   |   |        |   |
| **Total  stockholders’ equity**                 | 54,510                                                                                                                            |   | 53,421 |   |
|                                                 |                                                                                                                                   |   |        |   |
| **Total  liabilities and stockholders’ equity** | $                                                                                                                                 | 64,461 |   | $      | 63,012 |   |
|                                                 |                                                                                                                                   |   |        |   |
|                                                      |                                                                                                                                   |        |        |        |  |  |  |  |

The accompanying notes are an integralpart of these financial statements.

 

**MinntechCorporationCondensed ConsolidatedStatement of Cash Flows**(Unaudited)(Dollars in thousands)

|                                                        | Thirteen  weeks ended  June  30, 2001                                                    |   | Thirteen  weeks ended  July  1, 2000 |    |
|-------------------------------------------------------------|-----------------------------------------------------------------------------------------------|--------|-------------------------------------------|---------|
|                                                        |                                                                                               |   |                                           |    |
| **Cash flows from operating  activities**                   |                                                                                          |   |                                      |    |
|                                                        | Net earnings / (loss)                                                                         | $      | 1,204                                     |    | $ | (61 | ) |
|                                                        | Adjustments to  reconcile net earnings / (loss) to net cash provided by operating activities: |   |                                      |    |   |
|                                                        | Depreciation and  amortization                                                                | 846    |                                      | 802     |   |
|                                                        | Foreign currency  exchange gain                                                               | (113   | )                                         | (132    | ) |
|                                                        | Other, net                                                                                    | 9      |                                      | 116     |   |
|                                                        | Changes in operating  assets and liabilities:                                                 |   |                                      |    |   |
|                                                        | Accounts receivable                                                                           | (1,264 | )                                         | 173     |   |
|                                                        | Inventories                                                                                   | 286    |                                      | (495    | ) |
|                                                        | Prepaid expenses and  other current assets                                                    | (505   | )                                         | (748    | ) |
|                                                        | Accounts payable                                                                              | 323    |                                      | 957     |   |
|                                                        | Accrued expenses                                                                              | (341   | )                                         | (260    | ) |
|                                                        | Income taxes payable                                                                          | 429    |                                      | (372    | ) |
|                                                        |                                                                                               |   |                                           |    |
|                                                        | Total adjustments                                                                             | (330   | )                                         | 41      |   |
|                                                        |                                                                                               |   |                                           |    |
| **Net cash provided by / (used  in) operating activities**  | 874                                                                                           |   | (20                                       | )       |
|                                                        |                                                                                               |   |                                           |    |
| **Cash flows from investing  activities**                   |                                                                                          |   |                                      |    |
|                                                        | Purchases of property  and equipment                                                          | (497   | )                                         | (945    | ) |
|                                                        | Patent application  costs                                                                     | (101   | )                                         | (42     | ) |
|                                                        | Other                                                                                         | 12     |                                      | 8       |   |
|                                                        |                                                                                          |        |                                      |         |   |
| **Net cash used in investing  activities**                  | (586                                                                                          | )      | (979                                      | )       |
| **Cash flows from financing  activities**                   |                                                                                          |   |                                      |    |
|                                                        | Proceeds from exercise  of stock options                                                      | 43     |                                      | —  |   |
|                                                        | Proceeds from / payments on employee stock purchase plan                                      | 117    |                                      | 97      |   |
|                                                        | Repurchase of common stock                                                                    | — |                                      | (194    | ) |
|                                                        |                                                                                               |   |                                           |    |
| **Net cash provided by / (used  in) financing activities**  | 160                                                                                           |   | (97                                       | )       |
| Effects of exchange  rate changes on cash                   | 33                                                                                            |   | 44                                        |    |
|                                                        |                                                                                               |   |                                           |    |
| **Net increase / (decrease) in  cash and cash equivalents** | 481                                                                                           |   | (1,052                                    |  ) |
| Cash and cash equivalents  at beginning of period           | 15,344                                                                                        |   | 10,687                                    |    |
|                                                        |                                                                                               |   |                                           |    |
| Cash and cash  equivalents at end of period                 | $                                                                                             | 15,825 |                                      | $       | 9,635 |   |
|                                                        |                                                                                               |   |                                           |    |
|                                                             |                                                                                               |        |                                           |         |  |  |  |  |  |

The accompanying notes are an integralpart of these financial statements.

**Minntech CorporationNotes to CondensedConsolidated Financial Statements(Unaudited)**

**Note 1 – Financial Information**

The unaudited interim condensedconsolidated financial statements have been prepared pursuant to the rules andregulations of the Securities and Exchange Commission; accordingly, certaininformation and footnote disclosures normally included in financial statementsprepared in accordance with accounting principles generally accepted in theUnited States of America have been condensed or omitted.

These unaudited interim condensedconsolidated financial statements should be read in conjunction with theconsolidated financial statements and notes in the Company’s Annual Report onForm 10-K for the year ended March 31, 2001 as filed with the Securities andExchange Commission.

The Company adopted a universal calendarfor financial reporting beginning in the first quarter of fiscal 2001.  A fiscal year will include either 52 or 53weeks in total.  This change inreporting is not materially different from prior years.

Effective April 1, 2000, Minntech modifiedtheir revenue recognition policy for certain equipment sales and certainproduct shipments, resulting in a cumulative effect of a change inaccounting.  The cumulative effect ofthis accounting change was $.219 million ($.136 million, net of tax).  The accounting change did not have amaterial effect on revenue or quarterly earnings during fiscal 2001.  Minntech has restated its results for thethirteen week period ended July 1, 2000. See further discussion of this matter in the Company’s Annual Report onForm 10-K for the year ended March 31, 2001.

In the opinion of management, theunaudited interim condensed consolidated financial statements reflect alladjustments necessary for a fair presentation of the interim periods.

 

**Note 2 – Line of Credit**

At June 30, 2001, the Company had a lineof credit with a commercial bank which allowed the Company to borrow up to $10million on an unsecured basis at the prime rate of interest (6.75% at June 30,2001) or the indexed London Interbank Offered Rate (LIBOR).  As of June 30, 2001, the Company had nooutstanding borrowings under the line of credit.  This credit line expires on September 30, 2002.

**Note 3 – Earnings/(Loss) Per Share**

The following table reconciles thenumerators and denominators of the basic and diluted earnings/(loss) per sharecomputations for the quarter ended June 30, 2001 and July 1, 2000.

 

| (in  thousands, except per share amounts)Quarter ended June 30, 2001 | Basic Earnings Per Share |   | Effect of Dilutive Stock Options |   | Diluted Earnings Per Share |   |
|----------------------------------------------------------------------|--------------------------|--------|----------------------------------|--------|----------------------------|--------|
|                                                                      |                          |        |                                  |        |                            |        |
| Net earnings                                                         | $                        | 1,204  |                             |   |                       | $      | 1,204 |   |
| Weighted average  common shares outstanding                          | 6,681                    |   | 27                               |   | 6,708                      |   |
|                                                                 | Per share amount         | $      | .18                              |   |                       |   | $ | .18 |   |
|                                                                 |                     |   |                             |   |                       |   |   |   |   |
| Quarter ended July 1,  2000                                          |                     |   |                             |   |                       |   |
|                                                                      |                          |        |                                  |        |                            |        |
| Net loss                                                             | $                        | (197   | )                                |   |                       | $      | (197 |  ) |
| Weighted average  common shares outstanding                          | 6,682                    |   |                             |   | 6,682                      |   |
|                                                                 | Per share amount         | $      | (.03                             | )      |                       |   | $ | (.03 |  ) |

**Minntech CorporationNotes to Condensed Consolidated Financial Statements(Unaudited)**

**Note 3 – Earnings Per Share (continued)**

Outstanding stock options to purchase280,195 and 588,049 shares of common stock as of June 30, 2001 and July 1,2000, respectively, were not included in the computation of diluted earningsper share because the options’ exercise prices were greater than the averagemarket price of the common stock during the period.

**Note 4 – Comprehensive Income**

The components of comprehensive incomeare as follows:

| (dollars in thousands)       | Quarter ended June 30, 2001        |   | Quarter ended July 1, 2000 |   |
|------------------------------|------------------------------------|--------|----------------------------|--------|
|                              |                                    |        |                            |        |
| Net earnings/(loss)          | $                                  | 1,204  |                       | $      | (61 | ) |
| Other comprehensive  income: |                               |   |                       |   |
|                         | Foreign currency  translation, net | (275   | )                          | 26     |   |
|                         |                               |        |                       |        |   |
|                         | Total other  comprehensive income  | (275   | )                          | 26     |   |
|                         |                                    |   |                            |   |
|                         | Total comprehensive  income/(loss) | $      | 929                        |   | $ | (35 |  ) |
|                         |                                    |   |                            |   |
|                              |                                    |        |                            |        |  |  |  |  |

The accumulated other comprehensionincome balance as of June 30, 2001 is solely comprised of foreign currencytranslation.

**Note 5 – Stockholders’ Equity**

ConsolidatedStatement of Stockholders’ Equity(dollars in thousands)

|                                     | Common Stock                  |   |   |   |                       |   |                                   |    |
|------------------------------------------|-------------------------------|--------|--------|--------|----------------------------|--------|----------------------------------------|---------|
|                                     |                               |   |   |   |                       |   |                                   |    |
|                                     | Shares issued and outstanding |   | Amount |   | Additional paid-in capital |   | Accumulated other comprehensive income |    | Retained earnings |   | Total |   |
|                                     |                               |   |        |   |                            |   |                                        |    |  |   |  |   |
| Balances at March 31,  2001              | 6,679,287                     |   | $      | 334    |                       | $      | 12,084                                 |    | $ | (1,358 | ) | $ | 42,361 |   | $ | 53,421 |   |
| Net earnings                             |                          |   |   |   |                       |   |                                   |    | 1,204 |   | 1,204 |   |
| Foreign currency translation  adjustment |                          |   |   |   |                       |   | (275                                   |  ) |   |   | (275 | ) |
| Employee stock  purchase plan            | 18,394                        |   | 1      |   | 117                        |   |                                   |    |   |   | 118 |   |
| Exercised stock  options                 | 5,275                         |   |   |   | 42                         |   |                                   |    |   |   | 42 |   |
| Payment of cash  dividends               |                          |   |   |   |                       |   |                                   |    |   |   |   |   |
|                                     |                               |   |        |   |                            |   |                                        |    |  |   |  |   |
| Balances at June 30,  2001               | 6,702,956                     |   | $      | 335    |                       | $      | 12,243                                 |    | $ | (1,633 | ) | $ | 43,565 |   | $ | 54,510 |   |
|                                     |                               |   |        |   |                            |   |                                        |    |  |   |  |   |

 

**Note 6 - Segment Data and Significant Customers**

The Company's businesses are organized,managed, and internally reported as three segments. These segments, which arebased upon products, services and industry, are Dialysis Products,Cardiosurgery Products and Other Developing Businesses.  Management of these segments includesresponsibility for different product lines and services on a geographic basis,including accountability for revenues as well as sales and marketing costs.

 

**Minntech CorporationNotes to Condensed Consolidated Financial Statements(Unaudited)**

**Note 6 - Segment Data and Significant Customers (continued)**

The Dialysis Product segment includessupplies, concentrates, reprocessing services and electronic equipment forhemodialysis treatment of patients with chronic kidney failure or end-stagerenal disease.  Included in theCardiosurgery Products segment are oxygenators and hemoconcentrators which areused during open-heart surgery, and hemofilters, which are used in acute renalfailure.  Developing Businesses includefiltration and separation and endoscope reprocessing product lines.

Research and development is managed atthe corporate level. Resource decisions and performance assessment is managedby corporate officers.  Research anddevelopment expenses are monitored by project and allocated to their respectivesegments.  Corporate and unallocatedrepresent costs that are not assigned to reportable segments.  Therefore, management does not representthat these segments, if operated independently, would report the operatingincome and other financial information shown below. The table below presentsinformation about reportable segments for the quarter ended June 30, 2001 andJuly 1, 2000, respectively.

*Business Segment Information*

|                                    | Dialysis Products |   | Cardiosurgery Products |   | Other Developing Businesses |   | Corporate & Unallocated (1) |   | Total Company |   |
|-----------------------------------------|-------------------|--------|------------------------|--------|-----------------------------|--------|---------------------------------|--------|---------------|--------|
|                                    |                   |   |                        |   |                             |   |                                 |   |               |   |
| Revenues                                |              |   |                   |   |                        |   |                            |   |          |   |
|                                         |              |   |                   |   |                        |   |                            |   |          |   |
| First  quarter ended June 30, 2001      | $                 | 14,869 |                   | $      | 2,770                       |   | $                               | 2,312  |          | $      | - |   | $ | 19,951 |   |
| First  quarter ended July 1, 2000       | $                 | 13,771 |                   | $      | 2,055                       |   | $                               | 1,779  |          | $      | - |   | $ | 17,605 |   |
| Earnings (loss) from  Operations        |              |   |                   |   |                        |   |                            |   |          |   |
|                                         |              |   |                   |   |                        |   |                            |   |          |   |
|  First quarter ended June 30, 2001 | $                 | 2,788  |                   | $      | 935                         |   | $                               | 744    |          | $      | (2,865 |  ) | $ | 1,602 |   |
|  First quarter ended July 1, 2000  | $                 | 2,536  |                   | $      | 206                         |   | $                               | (230   | )             | $      | (2,653 | ) | $ | (141 | ) |
| Identifiable assets  (2)                |              |   |                   |   |                        |   |                            |   |          |   |
|                                         |              |   |                   |   |                        |   |                            |   |          |   |
| June  30, 2001                          | $                 | 29,641 |                   | $      | 7,908                       |   | $                               | 4,924  |          | $      | 21,988 |   | $ | 64,461 |   |
| March 31, 2001                          | $                 | 29,273 |                   | $      | 9,101                       |   | $                               | 5,079  |          | $      | 19,559 |   | $ | 63,012 |   |

 

| (1) | Loss  from operations consists of unallocated corporate administrative expenses and  amortization of intangibles.                                                                                                                                                                                                                                       |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Identifiable  segment assets include accounts receivable; property plant and equipment;  inventories; and long term notes receivable.   Additional assets included in Corporate and Unallocated primarily  include cash and short-term investments, capitalized patent costs, deferred  income taxes, goodwill, land and certain prepaid expenses. |

*      SignificantCustomers*

     During the first quarter ended June 30, 2001 no individual customersales totals represented 10% or more or total revenues.

**Minntech CorporationNotes to Condensed Consolidated Financial Statements(Unaudited)**

**Note 7 – Accounting Pronouncements**

             InJune 1998, the Financial Accounting Standards Board “FASB,” issued Statement ofFinancial Accounting Standard No. 133 “Accounting for Derivative Instrumentsand Hedging Activities.”  Thisstatement, which had to  be adopted bythe Company for transactions entered into beginning April 1, 2001, establishednew standards for recognition and measurement of derivatives and hedgingactivities. The adoption of this statement did not have a material effect onthe Company's financial statements.

             Inthe fourth quarter of 2001, the Company adopted the Financial AccountingStandards Board’s Emerging Issues Task Force (EITF) No. 00-10, “Accounting forShipping and Handling Fees and Costs.” EITF No. 00-10 requires companies to classify as revenue all amountsbilled to customers in a sales transaction, including those amounts related toshipping and handling.  The adoption ofEITF No. 00-10 has resulted in the reclassification of certain freight amountsinvoiced from cost of goods sold to revenue. The effect on the Company’s Consolidated Statement of Operations was toincrease cost of sales and increase revenue by $822 and $745 in the firstquarter of fiscal 2002 and 2001, respectively. These reclassifications did not effect consolidated net earnings/(loss).

             InJuly 2001, the Financial Accounting Standards Board issued Statements ofFinancial Accounting Standards No. 141, Business Combinations ("FAS141") and No. 142, Goodwill and Other Intangible Assets ("FAS142").  FAS 141 requires allbusiness combinations initiated after June 30, 2001 to be accounted for usingthe purchase method. Under FAS 142, goodwill and intangible assets withindefinite lives are no longer amortized but are reviewed annually (or morefrequently if impairment indicators arise) for impairment. Separable intangibleassets that are not deemed to have indefinite lives will continue to beamortized over their useful lives (but with no maximum life). Upon adoption ofFAS 142, amortization of goodwill recorded for business combinations consummatedprior to July 1, 2001 will cease, and intangible assets acquired prior to July1, 2001 that do not meet the criteria for recognition under FAS 141 will bereclassified to goodwill. The amortization provisions of FAS 142 apply togoodwill and intangible assets acquired after June 30, 2001.   Companies are required to adopt FAS 142 forfiscal years beginning after December 15, 2001, but early adoption ispermitted.  The Company will adopt FAS142 on April 1, 2002, the beginning of fiscal 2003. In connection with theadoption of FAS 142, the Company will be required to perform a transitionalgoodwill impairment assessment. The Company has not yet determined the impactthese standards will have on its results of operations and financial position.Goodwill amortization of $14,000 was recorded during the first quarter offiscal 2002. An estimated $56,000 will be recorded during fiscal 2002 for thefull year.

**Note 8 – Product Line Disposition**

                           OnOctober 6, 1999, the Company sold all assets and rights related to its Biocorä oxygenator and EnGUARDä PHX cardioplegiasystems components to LifeStream International LLC, a newly formedcardiopulmonary products company, in exchange for $7.2 million in cash andwarrants.  Under the terms of theagreement Minntech received $2.24 million in cash at closing.  One payment of $.25 million was receivedwhen a product modification met specifications and another $.25 million wasreceived when 510K approval by the Federal Drug Administration was received ona new product. An additional $1.25 million was received on the one yearanniversary of the sale and $.28 million of inventory was purchased. Theremaining amount to be collected is $1.45 million in deferred payments.  In addition, LifeStream will purchase theremaining inventory balances for these product lines when the Company ceasesthe contract manufacturing arrangement. As of June 30, 2001 the Company had $.35 million in related inventoryfor these products.

**Minntech CorporationNotes to Condensed Consolidated Financial Statements(Unaudited)**

**Note 9 – Merger Agreement with Cantel Medical Corp.**

             OnMay 30, 2001, the Company entered into a definitive merger agreement withCantel Medical Corporation, under which Cantel will acquire the Company.  Under the terms of the agreement, each shareof Minntech stock will be converted into the right to receive $10.50,consisting of $6.25 in cash, and a fraction of a share of common stock ofCantel having a value of $4.25, subject to possible adjustment.

             Formore information on the merger and the merger agreement, please refer to thejoint proxy statement/prospectus of Cantel and the Company, which is includedin Cantel's registration statement on Form S-4 (Reg. No. 333-64580) filed onJuly 30, 2001. Cantel and the Company have each called special meetings oftheir shareholders to approve the merger. These meetings will be held onSeptember 6, 2001. The merger is expected to close shortly after theshareholders' meetings, if shareholder approval is received.

             Thetransaction is subject to customary closing conditions, including the approvalof the shareholders of the Company and Cantel. Under the merger agreement, the Company has the right to terminate theagreement if Cantel’s average closing stock price during a defined periodending shortly before the merger is below $13.24, unless Cantel elects toprovide the Company’s shareholders additional consideration, in cash or Cantelshares, at Cantel’s option, such that the total consideration is no less than$10.00 for each Minntech share.  Additional information about the proposed merger can be found inthe proxy statement / prospectus, and other documents filed with the Securitiesand Exchange Commission, which can be accessed at www.sec.gov.

             OnMay 30, 2001, the Company’s Board of Directors amended the share rights plan(described in “Note 9 – Preferred Stock” above) to exempt this transaction fromits application.  The Company recordedcharges of approximately $.30 million in legal and consulting expenses inconnection with this transaction in the first quarter of fiscal 2002.

**Quarterly Report on Form 10-Q**

**Part I- Financial Information**

**Item 2.  Management’s Discussion and Analysis ofFinancial****Conditionand Results of Operations**

Results of OperationsRevenue in the first quarter of fiscal2002 increased 13.3 percent to $20.0 million, compared to $17.6 million in thesame period one year ago.  Dialysisproduct sales increased 8.0 percent to $14.9 million in the first quarter offiscal 2002 due primarily to increases in dialyzer reprocessing product sales,with dialyzer reprocessing equipment unit growth accounting for most of theincrease. Cardiosurgery sales increased by 34.8 percent to $2.8 million in thefirst quarter of fiscal 2002.  Thecardiosurgery sales increase in the quarter is due to increases in hemofilter,hemoconcentrator, and oxygenator sales. Developing businesses sales increased30 percent to $2.3 million in the first quarter of fiscal 2002 due primarily toa 38.5% increase in filtration and separation products which was driven bygrowth in sterilant products.

Product sales by group are summarized inthe following table:

 

|                                | Quarter ended       |
|-------------------------------------|---------------------|
| (in  thousands of dollars)          | June 30,  2001 |   | % of Total Sales |   | July 1, 2000 |   | % of Total Sales |   |
|                                |                     |   |  |   |  |   |  |   |
| Dialysis products                   | $                   | 14,869 |   | 74.5 | % | $ | 13,771 |   | 78.2 | % |
| Cardiosurgery products              | 2,770               |   | 13.9 |   | 2,055 |   | 11.7 |   |
| Other Developing  Business products | 2,312               |   | 11.6 |   | 1,779 |   | 10.1 |   |
|                                     |                     |  |  |  |  |  |  |  |
| Total Company                       | $                   | 19,951 |   | 100.0 | % | $ | 17,605 |   | 100.0 | % |
|                                     |                     |  |  |  |  |  |  |  |

Following is a summary of earnings/(loss)from operations before income taxes by business segment:

|                         | Quarter ended |
|------------------------------|---------------|
| (in  thousands of dollars)   | June 30, 2001 |   | % of Segment Revenues |   | July 1, 2000 |   | % of Segment Revenues |   |
|                         |               |   |  |   |  |   |  |   |
| Dialysis products            | $             | 2,788 |   | 18.8 | % | $ | 2,536 |   | 18.4 | % |
| Cardiosurgery products       | 935           |   | 33.8 |   | 206 |   | 10.0 |   |
| Other Developing  Businesses | 744           |   | 32.2 |   | (230 | ) | — |   |
| Corporate &  Unallocated | (2,865        | ) | — |   | (2,653 | ) | — |   |
|                              |               |  |  |  |  |  |  |  |
| Total Company                | $             | 1,602 |   | 8.0 | % | $ | (141 | ) | — |   |
|                              |               |  |  |  |  |  |  |  |

 

**Minntech CorporationManagement’s Discussion and Analysis of FinancialCondition and Results of Operations (continued)**

Gross margin as a percentage of productsales increased to 39.1 percent in the first quarter of fiscal 2002 from 34.0percent in the same quarter in the prior year. The improvement in gross marginsis attributable to increased unit volume in all business segments, an improvedproduct mix, and cost efficiencies in manufacturing and distribution.

Research and development expenses in thefirst quarter of fiscal 2002 were $.9 million or 4.4 percent of revenuescompared to $1.0 million or 5.8 percent of revenues in the prior year.The decrease in research anddevelopment spending is attributable to transitioning major developmentprojects to later stages of completion in the current fiscal year.  The Company expects that research anddevelopment spending in fiscal 2002 will range between 4.5 and 5.0 percent ofrevenues.

Selling, general and administrativeexpenses for the first quarter of fiscal 2002 were $5.3 million or 26.4 percentof revenues compared to $5.1 million or 28.7 percent of revenues in the sameperiod one year ago. Selling, general, and administrative expenses in the firstquarter of fiscal 2002 include $.3 million of non-recurring expenses related tothe Company’s pending merger with Cantel Medical Corp.

Other income of $.250 million in thefirst quarter of the current year is up from $52,000 in the prior year quarterdue to favorable foreign exchange combined with an increase in interest income.

The Company’s effective tax rate for thefirst quarter that ended June 30, 2001 was 35.0 percent compared to effectiverate of 32.0 percent for the corresponding period one year ago. The Company’seffective tax rate increased in the current year primarily due to recognizingadditional state income tax expense in the U.S.

The Company reported net earnings of $1.2million for the first quarter ended June 30, 2001 or 6.0 percent of revenuecompared to a net loss of $.2 million in the first quarter one year ago.  The increase in net earnings in the currentyear is primarily attributable to the improvement in gross margins from theprior year.

Liquidity and CapitalResourcesOperating activities provided $.9 millionof cash and cash equivalents in the first quarter ended June 30, 2001.  The Company invested $.6 million in capitalequipment and patents in the first quarter of fiscal 2002.  At June 30, 2001 the Company had $15.8million of cash and cash equivalents.

Workingcapital at June 30, 2001 was $35.7 million as compared to $34.3 million as ofMarch 31, 2001.  The current ratio as ofJune 30, 2001 was 4.9, unchanged from March 31, 2001.

The Company initiated a stock repurchaseprogram in August 1998 and has spent $3.9 million to repurchase a total of388,100 shares to date under the program. There have been no share repurchasessince the first quarter of fiscal 2001, when the Company expended $.2 millionto repurchase 24,100 shares.

 

 

 

 

 

**Minntech Corporation**

**Management’s Discussion andAnalysis of FinancialCondition and Results of Operations (continued)**

 

The Company expects its cash balances,cash flow from operations, and line of credit to be adequate to meet itsobligations and anticipated operating cash needs, including planned capital expenditures,in its core business in fiscal 2002.

On May 30, 2001, the Company entered intoan Agreement and Plan of Merger with Cantel Medical Corporation and a newlyformed, wholly owned subsidiary of Cantel. Under the merger agreement, the Company’s ability to incur additionalindebtedness without Cantel’s consent is substantially limited.  In addition, the merger agreement precludesthe Company’s issuance of debt or equity securities (except in connection withoption exercises) without Cantel’s consent.

For more information on the merger andthe merger agreement, please refer to the joint proxy statement/prospectus ofCantel and the Company, which is included in Cantel's registration statement onForm S-4(Reg. No. 33-64580) filed on July 30, 2001. Cantel and the Company haveeach called special meetings of their shareholders to approve the merger. Thesemeetings will be held on September 6, 2001. The merger is expected to closeshortly after the shareholders' meetings, if shareholder approval is received.

New AccountingPronouncements

See Note 7 to the condensed consolidatedfinancial statements for the first quarter ended June 30, 2001.

Euro Conversion

Effective January 1, 1999, the EuropeanEconomic and Monetary Union created a single Eurocurrency (the euro) for itsmember countries.  A transition periodis in effect that began January 1, 1999, and goes through December 31, 2001,during which time transactions will be executed in both the euro and the membercountry currencies.  Effective January1, 2002, euro bank notes will be introduced and on July 1, 2002, the euro willbe the sole legal tender of the European Economic and Monetary Union countries.

In general, the adoption of a singlecurrency for the participating countries is expected to result in greatertransparency of pricing, making Europe a more competitive environment forbusinesses.  However, conversion to theeuro is expected to affect many financial systems and business applications.

The Company switched all Europeanbusiness to the euro as the functional currency as of April 1, 2001.  The Company’s current European price list ismaintained in euros. This conversion required minimal information systemmodifications. It is not anticipated at this time, that the euro will have amaterial impact on our fundamental risk management philosophy. Any costsincurred associated with the adoption of the euro were expensed as incurred,and were not material to the Company’s results of operations, financialcondition, or cash flows.

**Minntech CorporationQuarterly Report on Form 10-Q**

**Part II- Other Information**

Item 4.  Submission ofMatters to a Vote of Security Holders             None.

Item 6.  Exhibits andreports on Form 8K

|   | a)     | Exhibits                                                                                                                                                                                                                           |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | 2(a)   | Agreement  and Plan of Merger, dated as of May 30, 2001, among Cantel Medical  Corporation, Canopy Merger Corporation, and the Company(1)                                                                                          |
|   | 3(a)   | Restated  Articles of Incorporation, as amended(2)                                                                                                                                                                                 |
|   | 3(b)   | Restated  Bylaws(3)                                                                                                                                                                                                                |
|   | 3(c)   | Amendment  to Bylaws(4)                                                                                                                                                                                                            |
|   | 4(a)   | Form  of Specimen Common Stock Certificate(5)                                                                                                                                                                                      |
|   | 4(b)   | Rights  Agreement, dated as of July 1, 1999, between the Company and Wells Fargo Bank  Minnesota, N.A. (formerly known as Norwest Bank Minnesota, N.A.)(6)                                                                         |
|   | 4(c)   | First  Amendment to Rights Agreement, dated as of May 30, 2001, between the  Company and Wells Fargo Bank Minnesota, N.A.(7)                                                                                                  |
|   | 10(a)  | 1989  Stock Plan, as amended(8)*                                                                                                                                                                                                   |
|   | 10(b)  | Amendment  to 1989 Stock Plan effective February 25, 1998(9)*                                                                                                                                                                      |
|   | 10(c)  | Amendment  to 1989 Stock Plan effective September 30, 1998(10)*                                                                                                                                                                    |
|   | 10(d)  | Employment  Agreement with Barbara A. Wrigley dated September 1, 1996(11)*                                                                                                                                                         |
|   | 10(e)  | 1990  Employee Stock Purchase Plan, as amended and restated, effective June 1,  1998(12)*                                                                                                                                     |
|   | 10(f)  | Employment  Agreement with R. James Danehy dated November 29, 2000(12)*                                                                                                                                                            |
|   | 10(g)  | Management  Agreement with R. James Danehy dated November 29, 2000(12)*                                                                                                                                                            |
|   | 10(h)  | Non-Qualified  Stock Option Agreement with R. James Danehy dated November 29, 2000(12)*                                                                                                                                            |
|   | 10(i)  | Emeritus  Director Consulting Plan(13)*                                                                                                                                                                                            |
|   | 10(j)  | Amendment  to Emeritus Director Consulting Plan effective September 26, 1996(14)*                                                                                                                                                  |
|   | 10(k)  | 1998  Stock Option Plan, as amended(15)*                                                                                                                                                                                           |
|   | 10(l)  | Separation  and Consulting Agreement with Richard P. Goldhaber dated February 18,  2000(16)*                                                                                                                                  |
|   | 10(m)  | Separation  and Consulting Agreement with Thomas J. McGoldrick dated July 17, 2000(11)*                                                                                                                                            |
|   | 10(n)  | Amendment  to Separation and Consulting Agreement with Thomas J. McGoldrick dated August  1, 2000(11)*                                                                                                                             |
|   | 10(o)  | Separation  and Consulting Agreement with Daniel H. Schyma dated July 31, 2000(11)*                                                                                                                                                |
|   | 10(p)  | Amended  and Restated Supplemental Executive Retirement Plan effective April 1,  2000(11)*                                                                                                                                    |
|   | 10(q)  | Employment  Agreement with Robert W. Johnson dated September 1, 1996, as amended April 1,  1997(11)*                                                                                                                               |
|   | 10(r)  | Employment  Agreement with Paul E. Helms dated September 1, 1996, as amended April 1,  1997(11)*                                                                                                                                   |
|   | 10(s)  | Employment  Agreement with Jules L. Fisher dated December 11, 1996, as amended April 1,  1997(11)*                                                                                                                                 |
|   | 10(t)  | First  Amendment to Supplemental Executive Retirement Plan effective September 27,  2000(17)*                                                                                                                                      |
|   | 10(u)  | Employment  Agreement with Michael P. Petersen dated May 26, 2000(17)*                                                                                                                                                        |
|   | 10(v)  | Second  Amendment to 1998 Stock Option Plan effective March 28, 2001*                                                                                                                                                         |
|   | 10(w)  | Amendment  to 1990 Employee Stock Purchase Plan effective July 26, 2000(18)*                                                                                                                                                  |
|   | 10(x)  | Amendment  to 1990 Employee Stock Purchase Plan effective May 30, 2001*                                                                                                                                                       |
|   | 21     | Subsidiaries  of the Registrant(19)                                                                                                                                                                                                |
|   | (b)    | Reports on Form 8-K                                                                                                                                                                                                                |
|   |   | Report on Form 8-K, filed June 4, 2001,  relating to the execution of the Agreement and Plan of Merger among Cantel  Medical Corp., Canopy Merger Corp., and the Company, providing for the  acquisition of the Company by Cantel. |

 

----

| *    | Management  contract, compensatory plan or arrangement.                                                                                                                        |
|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1)  | Incorporated  by reference to Exhibit 2 to the Company’s Current Report on Form 8-K dated  May 30, 2001, File No. 0-11278.                                           |
| (2)  | Incorporated  by reference to Exhibit 3(a) to the Company’s Annual Report on Form 10-K for  the year ended March 31, 1999, File No. 0-11278.                         |
| (3)  | Incorporated  by reference to Exhibit 3(b) to the Company’s Quarterly Report on Form 10-Q  for the quarter ended September 30, 1995, File No. 0-11278.               |
| (4)  | Incorporated  by reference to Exhibit 4.3 to the Company’s Registration Statement on Form  S-8, Registration No. 333-70545.                                               |
| (5)  | Incorporated  by reference to Exhibit 4 to the Company’s Annual Report on Form 10-K for the  year ended March 31, 1993, File No. 0-11278.                            |
| (6)  | Incorporated  by reference to Exhibit 1 to the Company’s Registration Statement on Form 8-A  filed on July 12, 1999, File No. 0-11278.                                    |
| (7)  | Incorporated  by reference to Exhibit 1 to the Company’s Registration Statement on Form  8A/A filed on June 7, 2001, File No. 0-11278.                               |
| (8)  | Incorporated  by reference to Exhibit 10(a) to the Company’s Annual Report on Form 10-K for  the year-ended March 31, 1997, File No. 0-11278.                             |
| (9)  | Incorporated  by reference to Exhibit 10(b) to the Company’s Annual Report on Form 10-K for  the year ended March 31, 1998, File No. 0-11278.                             |
| (10) | Incorporated  by reference to Exhibit 10(i) to the Company’s Quarterly Report on Form 10-Q  for the quarter ended September 30, 1998, File No. 0-11278.              |
| (11) | Incorporated  by reference to the same-numbered exhibit to the Company’s Quarterly Report  on Form 10-Q for the quarter ended July 1, 2000, File No. 0-11278.        |
| (12) | Incorporated  by reference to the same-numbered exhibit to the Company’s Quarterly Report  on Form 10-Q for the quarter ended December 30, 2000, File No. 0-11278.        |
| (13) | Incorporated  by reference to Exhibit 10 to the Company’s Quarterly Report on Form 10-Q for  the quarter ended June 30, 1995, File No. 0-11278.                           |
| (14) | Incorporated  by reference to Exhibit 10(b) filed as part of the Company’s Quarterly Report  on Form 10-Q for the quarter ended September 30, 1996, File No. 0-11278.     |
| (15) | Incorporated  by reference to Exhibit 10 to the Company’s Registration Statement on Form  S-8, Registration No. 333-70545.                                                |
| (16) | Incorporated  by reference to Exhibit 10(l) to the Company’s Annual Report on Form 10-K for  the year ended March 31, 2000, File No. 0-11278.                             |
| (17) | Incorporated  by reference to the same-numbered exhibit to the Company’s Quarterly Report  on Form 10–Q for the quarter ended September 30, 2000, File No.  0-11278. |
| (18) | Incorporated  by reference to Exhibit 10(f) to the Company’s Quarterly Report on Form 10-Q  for the quarter ended September 30, 2000, File No. 0-11278.              |
| (19) | Incorporated  by reference to Exhibit 21 to the Company’s Annual Report on Form 10-K for  the year ended March 31, 1999, File No. 0-11278.                           |

 

**Signatures**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

|   |            |   | Minntech Corporation            |
|--------|-----------------|--------|---------------------------------|
| Date:  | August 14, 2001 |   |                            |
|   |                 |   |  /s/  Jules L. Fisher |
|   |            |   |                                 |
|   |            |   | Jules L. Fisher                 |
|   |            |   | Chief Financial Officer         |
|   |            |   | (Duly authorized officer)       |
|   |            |   | (Principal financial officer)   |