10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

ý	Quarterly Report pursuant to Section 13 or 15(d)
	of the Securities Exchange Act of 1934
For the quarterly period ended January 31, 2006.
or
o	Transition Report pursuant to Section 13 or 15(d)
	of the Securities Exchange Act of 1934

For the transition period from            to           .

Commission file number:   001-31337

CANTEL MEDICAL CORP.

(Exact name of registrant as specified in its charter)

Delaware	22-1760285
(State or other jurisdiction of	(I.R.S. employer
incorporation or organization)	identification no.)

150 Clove Road, Little Falls, New Jersey                   07424

(Address of principal executive offices)                (Zip code)

Registrant’s telephone number, including area code

(973) 890-7220

Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes  ý       No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer   o                    Accelerated filer    ý                    Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No  ý

Number of shares of Common Stock outstanding as of February 28, 2006: 15,550,832.

PART I - FINANCIAL INFORMATION

ITEM 1. - FINANCIAL STATEMENTS

CANTEL MEDICAL CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollar Amounts in Thousands, Except Share Data)

(Unaudited)

	January 31,			July 31,
	2006			2005
Assets
Current assets:
Cash and cash equivalents	$	19,722		$	33,335
Accounts receivable, net of allowance for doubtful accounts of $805 at January 31 and $761 at July 31	37,005			34,250
Inventories:
Raw materials	10,287			6,284
Work-in-process	3,844			2,915
Finished goods	18,839			12,933
Total inventories	32,970			22,132
Deferred income taxes	2,432			2,772
Prepaid expenses and other current assets	2,636			1,177
Total current assets	94,765			93,666
Property and equipment, net	35,550			22,661
Intangible assets, net	44,956			13,317
Goodwill	67,912			33,343
Other assets	2,003			1,353
	$	245,186		$	164,340
Liabilities and stockholders’ equity
Current liabilities:
Current portion of long-term debt	$	3,000		$	15,750
Accounts payable	11,476			10,930
Compensation payable	4,252			4,956
Accrued expenses	6,655			6,018
Deferred revenue	5,659			2,271
Income taxes payable	—			2,726
Total current liabilities	31,042			42,651
Long-term debt	58,500			—
Deferred income taxes	23,907			10,305
Other long-term liabilities	2,707			2,758
Stockholders’ equity:
Preferred Stock, par value $1.00 per share; authorized 1,000,000 shares; none issued	—			—
Common Stock, par value $.10 per share; authorized 30,000,000 shares; January 31 - 15,970,275 shares issued and 15,524,687 shares outstanding; July 31 - 15,448,941 shares issued and 15,005,382 shares outstanding	1,597			1,545
Additional capital	66,882			57,491
Retained earnings	53,373			45,698
Accumulated other comprehensive income	8,946			5,621
Treasury Stock, at cost; January 31 - 445,588 shares; July 31 - 443,559 shares	(1,768		)	(1,729		)
Total stockholders’ equity	129,030			108,626
	$	245,186		$	164,340

See accompanying notes.

1

CANTEL MEDICAL CORP.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Dollar Amounts in Thousands, Except Per Share Data)

(Unaudited)

	Three Months Ended						Six Months Ended
	January 31,						January 31,
	2006			2005			2006			2005
Net sales:
Product sales	$	55,088		$	43,492		$	108,726		$	83,319
Product service	6,536			6,044			13,131			11,559
Total net sales	61,624			49,536			121,857			94,878
Cost of sales:
Product sales	34,569			26,933			67,590			51,495
Product service	4,191			3,782			8,256			7,347
Total cost of sales	38,760			30,715			75,846			58,842
Gross profit	22,864			18,821			46,011			36,036
Operating expenses:
Selling	6,094			5,814			12,511			11,222
General and administrative	8,113			5,367			16,224			10,817
Research and development	1,415			1,022			2,635			2,006
Total operating expenses	15,622			12,203			31,370			24,045
Income before interest and income taxes	7,242			6,618			14,641			11,991
Interest expense	1,098			420			2,362			849
Interest income	(149		)	(107		)	(361		)	(185		)
Income before income taxes	6,293			6,305			12,640			11,327
Income taxes	2,364			2,430			4,965			4,345
Net income	$	3,929		$	3,875		$	7,675		$	6,982
Earnings per common share:
Basic	$	0.25		$	0.26		$	0.50		$	0.47
Diluted	$	0.24		$	0.24		$	0.47		$	0.44

See accompanying notes.

2

CANTEL MEDICAL CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollar Amounts in Thousands)

(Unaudited)

	Six Months Ended
	January 31,
	2006			2005
Cash flows from operating activities
Net income	$	7,675		$	6,982
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	5,524			2,256
Stock-based compensation expense	678			—
Amortization of debt issuance costs	170			286
Loss on disposal of fixed assets	83			36
Deferred income taxes	(822		)	1,902
Excess tax benefits from stock-based compensation	(621		)	—
Changes in assets and liabilities:
Accounts receivable	2,690			143
Inventories	(3,405		)	1,111
Prepaid expenses and other current assets	(578		)	(861		)
Accounts payable and accrued expenses	(476		)	(2,069		)
Income taxes payable	(2,212		)	(1,789		)
Net cash provided by operating activities	8,706			7,997
Cash flows from investing activities
Capital expenditures	(1,550		)	(1,856		)
Proceeds from disposal of fixed assets	143			8
Acquisition of Crosstex, net of cash acquired	(68,114		)	—
Other, net	(9		)	(18		)
Net cash used in investing activities	(69,530		)	(1,866		)
Cash flows from financing activities
Borrowings under term loan facility for Crosstex acquisition, net of debt issuance costs	39,399			—
Borrowings under revolving credit facility for Crosstex acquisition, net of debt issuance costs	27,635			—
Repayments under term loan facility	(16,750		)	(2,750		)
Repayments under revolving credit facility	(5,800		)	(3,000		)
Proceeds from exercises of stock options	1,111			2,305
Excess tax benefits from stock-based compensation	621			—
Net cash provided by (used in) financing activities	46,216			(3,445		)
Effect of exchange rate changes on cash and cash equivalents	995			1,053
(Decrease) increase in cash and cash equivalents	(13,613		)	3,739
Cash and cash equivalents at beginning of period	33,335			17,862
Cash and cash equivalents at end of period	$	19,722		$	21,601

See accompanying notes.

3

CANTEL MEDICAL CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1.Basis of Presentation

The unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial reporting and the requirements of Form 10-Q and Rule 10.01 of Regulation S-X. Accordingly, they do not include certain information and note disclosures required by generally accepted accounting principles for annual financial reporting and should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report of Cantel Medical Corp. (“Cantel”) on Form 10-K for the fiscal year ended July 31, 2005 (the “2005 Form 10-K”), and Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere herein.

The unaudited interim financial statements reflect all adjustments (of a normal and recurring nature) which management considers necessary for a fair presentation of the results of operations for these periods. The results of operations for the interim periods are not necessarily indicative of the results for the full year.

The condensed consolidated balance sheet at July 31, 2005 was derived from the audited consolidated balance sheet of Cantel at that date.

Cantel had five operating companies at July 31, 2005 and six operating companies at January 31, 2006 due to the August 1, 2005 acquisition of Crosstex International, Inc. (“Crosstex”). Minntech Corporation (“Minntech”), Carsen Group Inc. (“Carsen”), Mar Cor Purification, Inc. (formerly known as Mar Cor Services, Inc.)(“Mar Cor”), Saf-T-Pak, Inc. (“Saf-T-Pak”) and Crosstex are wholly-owned operating subsidiaries of Cantel. Biolab Equipment Ltd. (“Biolab”) is a wholly-owned operating subsidiary of Carsen. In addition, Minntech has two foreign subsidiaries, Minntech B.V. and Minntech Japan K.K., which serve as Minntech’s bases in Europe and the Asia/Pacific markets, respectively.

On August 1, 2005, Cantel acquired Crosstex, a privately held company headquartered in Hauppauge, New York, as more fully described in note 3 to the condensed consolidated financial statements. Crosstex is a leading manufacturer and reseller of single-use, infection control products used principally in the dental market. For the three and six months ended January 31, 2006, the Crosstex business is reported in a new reporting segment known as Dental. Because the acquisition of Crosstex was consummated on August 1, 2005, its results of operations are not included in the three and six months ended January 31, 2005. However, see note 3 to the condensed consolidated financial statements for pro forma information which assumes Crosstex was included in our results of operation as of the beginning of fiscal 2005.

Unless the context otherwise requires, references herein to “Cantel,” “us,” “we”, “our,” and the “Company” include Cantel and its subsidiaries.

During fiscal 2005, as part of our acquisition integration plan, we combined our two water treatment businesses, Biolab and Mar Cor, and a portion of the non-medical filter business of Minntech’s filtration technologies group, to form a single business operation known as Mar Cor Purification. As a result of this restructuring, we have modified our reporting

4

segments to reflect the way we manage, allocate resources and measure the performance of our business. Commencing with the fiscal year ended July 31, 2005, the operations of Mar Cor Purification, together with the portion of the non-medical filter business of Minntech’s filtration technologies group remaining with Minntech, are being reported in a new reporting segment, Water Purification and Filtration. The medical filter business of Minntech’s filtration technologies group is being reported in a new operating segment, Therapeutic Filtration, which is included in the All Other reporting segment. The Biolab and Mar Cor businesses were previously reported as the Water Treatment reporting segment, and Minntech’s entire filtration technologies group was previously reported as the Filtration and Separation reporting segment. All prior period segment results have been restated to reflect this change.

Therefore, we currently operate our business through eight operating segments: Dialysis, Dental, Endoscopy and Surgical, Endoscope Reprocessing, Water Purification and Filtration, Scientific, Specialty Packaging and Therapeutic Filtration. The Scientific, Specialty Packaging and Therapeutic Filtration operating segments are combined in the All Other reporting segment.

Note 2.Stock-Based Compensation

On August 1, 2005, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 123, “Share-Based Payment (Revised 2004)” (“SFAS 123R”) using the modified prospective method for the transition. Under the modified prospective method, stock compensation expense will be recognized for any option grant or stock award granted on or after August 1, 2005, as well as the unvested portion of stock options granted prior to August 1, 2005, based upon the award’s fair value. For fiscal 2005 and earlier periods, we have accounted for stock options using the intrinsic value method under which stock compensation expense is not recognized because we granted stock options with exercise prices equal to the market value of the shares at the date of grant.

The following table shows the allocation of total stock-based compensation expense recognized in the condensed consolidated statements of income for the three and six months ended January 31, 2006:

	Three Months Ended			Six Months Ended
	January 31, 2006			January 31, 2006
Cost of sales	$	13,000		$	38,000
Operating expenses:
Selling	39,000			97,000
General and administrative	217,000			531,000
Research and development	4,000			12,000
Total operating expenses	260,000			640,000
Stock-based compensation before income taxes	273,000			678,000
Income tax benefits	(66,000		)	(159,000		)
Total stock-based compensation expense, net of tax	$	207,000		$	519,000

As of January 31, 2006, we have recorded stock-based compensation in the amount of $678,000 as additional capital and the related income tax benefits of $159,000 (which pertain to options that do not qualify as incentive stock options) as long-term deferred income tax assets (which are netted with long-term deferred income tax liabilities) in our condensed consolidated balance sheet at that date.

5

If we had elected to recognize compensation expense prior to August 1, 2005 based on the fair value of the options granted at the grant date over the vesting period as prescribed by SFAS 123, net income and earnings per share for the comparable periods would have been as follows:

	Three Months Ended			Six Months Ended
	January 31, 2005			January 31, 2005
Net income:
As reported	$	3,875,000		$	6,982,000
Stock-based compensation expense determined under fair value based model, net of tax	(639,000		)	(1,099,000		)
Pro forma	$	3,236,000		$	5,883,000
Earnings per common share - basic:
As reported	$	0.26		$	0.47
Pro forma	$	0.22		$	0.40
Earnings per common share - diluted:
As reported	$	0.24		$	0.44
Pro forma	$	0.20		$	0.37

The stock-based compensation expense recorded for the three and six months ended January 31, 2006 and the pro forma stock-based compensation for the three and six months ended January 31, 2005 may not be representative of the effect of stock-based compensation expense in future periods due to the level of options issued in past years (which level may not be similar in the future), assumptions used in determining fair value (including the volatility of Cantel stock), the estimated forfeiture rate (which was approximately 3% for the three and six months ended January 31, 2006) and the accelerated vesting of certain options in fiscal 2005.

We accelerated the vesting of certain unvested and “out-of-the-money” stock options previously awarded to certain executive officers and other employees (67 individuals in total) under our 1997 Employee Stock Option Plan. Such options had exercise prices greater than $16.85, the closing price on June 24, 2005, the date that our Board of Directors authorized such acceleration. Options to purchase 759,650 shares of common stock (of which approximately 577,500 shares are subject to options held by executive officers) were subject to this acceleration. All other terms and conditions of the options remain in effect. Options held by non-employee directors were not included in the acceleration. Because these options had exercise prices in excess of the market value of Cantel common stock on June 24, 2005, and therefore were not fully achieving our original objectives of incentive compensation and employee retention, we expect the acceleration may have a positive effect on employee morale, retention and perception of option value. The acceleration eliminated any future compensation expense we would otherwise recognize in our income statement with respect to these options with the August 1, 2005 implementation of SFAS 123R. The compensation expense, after tax, related to this acceleration totaled approximately $3,400,000. If such acceleration did not occur, we would have recognized additional compensation expense, net of tax, of approximately $315,000 and $630,000 during the three and six months ended January 31, 2006, respectively, based on the fair value of the options granted at grant date over the original vesting period.

6

Most of our stock options are subject to graded vesting in which portions of the option award vest at different times during the vesting period, as opposed to awards that vest at the end of the vesting period. We recognize compensation expense for options subject to graded vesting using the straight-line basis, reduced by estimated forfeitures. Total unrecognized stock-based compensation expense related to total nonvested stock options was $1,032,000 at January 31, 2006 with a remaining weighted average period of 20 months over which such expense is expected to be recognized.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option valuation model with the following assumptions for options granted during the three and six months ended January 31, 2006 and 2005:

	Three Months Ended		Six Months Ended
Black-Scholes Option	January 31,		January 31,
Valuation Assumptions	2006	2005	2006	2005
Dividend yield	0.0%	0.0%	0.0%	0.0%
Expected volatility (1)	0.518	0.429 to 0.435	0.518 to 0.535	0.429 to 0.435
Risk-free interest rate (2)	4.00% to 4.29%	3.53% to 3.71%	4.00% to 4.33%	3.35% to 3.71%
Expected lives (in years) (3)	4 to 5	3 to 5	4 to 5	3 to 5

(1) Volatility was based on historical closing prices of our Common Stock.

(2) The 5 year U.S. Treasury rate at the date of grant.

(3) Based on historical exercise behavior.

Additionally, all options were considered to be non-deductible for tax purposes in the valuation model, except for options granted during the six months ended January 31, 2006 and 2005 under the 1998 Director’s Plan and certain options under the 1997 Employee Plan. Such non-qualified options were tax-effected using the Company’s estimated U.S. effective tax rate at the time of grant. For the three and six months ended January 31, 2006, the weighted average fair value of all options granted was $8.53 and $9.31, respectively. For the three and six months ended January 31, 2005, the weighted average fair value of all options granted was $7.32 and $7.13, respectively. The aggregate intrinsic value (i.e. the excess market price over the exercise price) of all options exercised was approximately $598,000 and $1,478,000 for the three and six months ended January 31, 2006, respectively, and $3,427,000 and $3,825,000 for the three and six months ended January 31, 2005, respectively.

7

A summary of stock option activity follows:

			Weighted
	Number of		Average
	Shares		Exercise Price
Outstanding at July 31, 2005	2,708,493		$	11.35
Granted	34,625		19.19
Canceled	(44,448	)	7.54
Exercised	(136,513	)	8.42
Outstanding at January 31, 2006	2,562,157		$	11.67
Exercisable at July 31, 2005	2,065,895		$	11.81
Exercisable at January 31, 2006	2,193,138		$	11.77

Upon exercise of stock options, we typically issue new shares of our Common Stock (as opposed to using treasury shares).

If certain criteria are met when an option is exercised, the Company is allowed a deduction on its income tax return. Accordingly, we account for such income tax deductions as additional capital and as a reduction of income taxes payable. For the three and six months ended January 31, 2006, options exercised resulted in an $829,000 income tax deduction.

At July 31, 2005 (prior to the adoption of SFAS 123R), we presented all tax benefits of deductions resulting from the exercise of stock options as operating cash flows in the condensed consolidated statements of cash flows. Beginning August 1, 2005, we changed our cash flow presentation in accordance with SFAS 123R which requires the cash flows resulting from excess tax benefits to be classified as financing cash flows. For the six months ended January 31, 2006, $621,000 in excess tax benefits were shown as financing cash flows in our consolidated statements of cash flow. Excess tax benefits arise when the ultimate tax deduction for tax purposes is greater than the tax benefit on stock compensation expense which was determined based upon the award’s fair value.

The following table summarizes additional information related to stock options outstanding at January 31, 2006:

	Options Outstanding					Options Exercisable
			Weighted					Weighted
			Average					Average
			Remaining	Weighted				Remaining	Weighted
	Number		Contractual	Average		Number		Contractual	Average
Range of Exercise	Outstanding		Life	Exercise		Exercisable		Life	Exercise
Prices	at January 31, 2006		(Months)	Price		At January 31, 2006		(Months)	Price
$2.27- $5.16	654,750		28	$	3.02	654,750		28	$	3.02
$7.00- $14.70	968,630		27	$	9.26	683,987		24	$	9.30
$15.23 - $29.49	938,777		48	$	20.20	854,401		48	$	20.44
$2.27- $29.49	2,562,157		35	$	11.67	2,193,138		34	$	11.77
Total Intrinsic Value	$	16,949,496				$	14,662,060

8

A summary of our stock option plans follows:

1997 Employee Plan

A total of 3,750,000 shares of Common Stock was originally reserved for issuance or available for grant under our 1997 Employee Stock Option Plan, as amended, which expires on October 15, 2007. Options under this plan:

•  are granted at the market price at the time of the grant,

•  are granted primarily as incentive stock options (although non-incentive stock options are permitted),

•  are usually exercisable in three or four equal annual installments contingent upon being employed by the Company during that period, and

•  typically expire five years from the date of the grant.

This plan was amended in December 2003 to permit the grant of options that do not qualify as incentive stock options. At January 31, 2006, options to purchase 1,840,251 shares of Common Stock were outstanding under the 1997 Employee Plan and 607,291 shares were available for grant. In July 2005, we accelerated the vesting of certain unvested and “out-of-the-money” stock options, as more fully described above.

1991 Directors’ Plan

A total of 450,000 shares of Common Stock was originally reserved for issuance or available for grant under our 1991 Directors’ Stock Option Plan, which expired in fiscal 2001. All options outstanding at January 31, 2006 under this plan do not qualify as incentive stock options, have a term of ten years and are fully exercisable. At January 31, 2006, options to purchase 75,375 shares of Common Stock were outstanding. No additional options will be granted under this plan.

1998 Directors’ Plan

A total of 450,000 shares of Common Stock was originally reserved for issuance or available for grant under our 1998 Directors’ Stock Option Plan, as amended. Options under this plan:

•  are granted to directors at the market price at the time of grant,

•  are granted automatically to each newly appointed or elected director to purchase 15,000 shares,

•  are granted annually on the last business day of our fiscal year to each member of our Board of Directors to purchase 1,500 shares. (Assuming the individual is still a member of the Board of Directors, 50% are exercisable on the first anniversary of the grant of such options and 50% are exercisable on the second anniversary of the grant of such options.),

•  are granted quarterly to each member of our Board of Directors to purchase 750 shares (except for directors employed by the Company) who are in attendance at that quarter’s regularly scheduled Board of Directors meeting (100% are exercisable immediately),

•  have a term of ten years if granted prior to July 31, 2000 or five years if granted on or after July 31, 2000, and

9

•  do not qualify as incentive stock options.

At January 31, 2006, options to purchase 266,250 shares of Common Stock were outstanding under the 1998 Directors’ Plan and 112,875 shares were available for grant.

Non-plan options

We also have 380,281 non-plan options outstanding at January 31, 2006 which have been granted at the market price at the time of grant and expire up to a maximum of ten years from the date of grant. These non-plan options do not qualify as incentive stock options.

Note 3.Acquisitions

Crosstex

On August 1, 2005, we acquired Crosstex, a privately held company founded in 1953 and headquartered in Hauppauge, New York. Crosstex is a leading manufacturer and reseller of single-use infection control products used principally in the dental market. Crosstex products include face masks, patient towels and bibs, self-sealing sterilization pouches, tray covers, sterilization packaging accessories, surface barriers including eyewear, aprons and gowns, disinfectants and deodorizers, germicidal wipes, hand care products, gloves, sponges, cotton products, cups, needles and syringes, scalpels and blades, and saliva evacuators and ejectors.

Under the terms of Stock Purchase Agreements with the five stockholders of Crosstex, pursuant to which we acquired all of the issued and outstanding capital stock of Crosstex, we paid an aggregate purchase price of approximately $77,794,000, comprised of approximately $69,794,000 in cash consideration and 384,821 shares of Cantel common stock (valued at $6,786,000) to the former Crosstex shareholders, and transaction costs of $1,214,000. The purchase price included the retirement of bank debt and certain other liabilities of Crosstex. In addition, there is a further $12,000,000 potential earnout payable to the sellers of Crosstex over three years based on the achievement by Crosstex of certain targets of earnings before interest and taxes.

A registration statement covering the resale of the 384,821 shares issued to the selling stockholders was declared effective by the Securities and Exchange Commission on November 15, 2005. Subject to the conditions and limitations described in the Stock Purchase Agreements with the selling stockholders, we have agreed that if the average sales price for any such shares sold by a selling stockholder during the four month period following November 15, 2005 is less than $17.635 per share, we will pay to such selling stockholder an amount equal to the product of (A) the difference between the $17.635 and the average sales price and (B) the number of shares sold by the selling stockholder. As of March 7, 2006, the selling stockholders have sold an aggregate of 156,700 shares; if none of the remaining 228,121 shares are sold by March 14, 2006, then the aggregate payment to the selling shareholders would be approximately $27,000 based upon the shares sold to date, which would be recorded as a reduction to additional capital.

In conjunction with the acquisition, on August 1, 2005 we amended our existing credit facilities, as discussed in note 9 to our condensed consolidated financial statements, to fund a substantial portion of the cash consideration paid in the acquisition and transaction costs. We borrowed $68,300,000 for the acquisition and utilized existing cash for the remaining cash

10

requirements. Additionally, we incurred debt issuance costs of approximately $1,426,000, of which $160,000 of third-party costs was recorded in general and administrative expenses during the three months ended October 31, 2005 in accordance with applicable accounting rules. The remaining $1,266,000 of costs was recorded in other assets and is being amortized over the life of the credit facilities.

Since the acquisition and restated credit facilities were completed on the first day of fiscal 2006, the results of operations of Crosstex are included in our results of operations for the three and six months ended January 31, 2006 and are excluded from our results of operations for the three and six months ended January 31, 2005.

As a result of the August 1, 2005 acquisition of Crosstex, we added a new reporting segment known as Dental. As of January 31, 2006, this new segment had identifiable assets of $96,742,000, including $13,719,000 in long-lived assets. For the three and six months ended January 31, 2006, the Dental segment added the following to our condensed consolidated financial statements:

	Three Months Ended		Six Months Ended
	January 31, 2006		January 31, 2006
Net sales	$	13,108,000	$	26,235,000
Operating income	$	2,130,000	$	3,766,000
Capital expenditures	$	512,000	$	712,000
Depreciation and amortization	$	1,169,000	$	2,984,000

The segment operating income for the three and six months ended January 31, 2006 excludes non-recurring charges directly related to the acquisition which were incurred by us upon the closing of the acquisition. Such non-recurring charges include (i) debt issuance costs relating to the term loan facility of approximately $160,000 and (ii) incentive compensation for an officer of Cantel in the amount of approximately $345,000. The aggregate amount of such charges was approximately $505,000 (or $318,000, net of tax), and have been included within general corporate expenses in our segment presentation in note 12 to our condensed consolidated financial statements.

The reasons for the acquisition of Crosstex were as follows: (i) the complementary nature of the companies’ infection prevention and control products; (ii) the addition of a market leading company in a distinct niche in infection prevention and control; (iii) the increase in the percentage of our net sales derived from recurring consumables; (iv) the opportunity to utilize Crosstex as a sizeable platform to acquire additional companies in the healthcare consumables industry; (v) the expectation that the acquisition will be accretive to our earnings per share; and (vi) the opportunity for us to further expand our business into the design, manufacture and distribution of proprietary products. Such reasons constitute the significant factors contributing to a purchase price that will result in recognition of goodwill.

11

The purchase price was preliminarily allocated to the assets acquired and assumed liabilities based on estimated fair values as follows:

	Preliminary
	Allocation
Net Assets
Cash and cash equivalents	$	4,264,000
Accounts receivable, net	4,387,000
Inventories	7,291,000
Other current assets	543,000
Total current assets	16,485,000
Property and equipment, net	13,809,000
Non-amortizable intangible assets - trade names (indefinite life)	5,200,000
Amortizable intangible assets:
Non-compete agreements (6-year life)	1,800,000
Customer relationships (10-year life)	17,900,000
Branded products (10-year life)	8,700,000
Total amortizable intangible assets (9-year weighted average life)	28,400,000
Other assets	50,000
Current liabilities	(4,354,000		)
Noncurrent deferred income tax liabilities	(15,555,000		)
Net assets acquired	$	44,035,000

There were no in-process research and development projects acquired in connection with the acquisition. The excess purchase price of $33,759,000 was assigned to goodwill. Such goodwill, all of which is non-deductible for income tax purposes, has been included in our new Dental reporting segment. Included in cash and cash equivalents was $1,370,000 funded by the selling stockholders and utilized for the payment in August 2005 of current liabilities (included above and reflected within cash flows from investing activities in our condensed consolidated statement of cash flows for the six months ended January 31, 2006) directly resulting from the acquisition.

Selected consolidated statements of income data for the three and six months ended January 31, 2006 and comparable unaudited pro forma consolidated statements of income data for the three and six months ended January 31, 2005 (assuming that Crosstex was included in our results of operations as of the beginning of fiscal 2005) are as follows:

	Three Months Ended				Six Months Ended
	January 31,				January 31,
	2006		2005		2006		2005
Net sales	$	61,624,000	$	61,694,000	$	121,857,000	$	118,942,000
Net income	$	3,929,000	$	4,201,000	$	7,675,000	$	7,148,000
Earnings per share:
Basic	$	0.25	$	0.28	$	0.50	$	0.47
Diluted	$	0.24	$	0.25	$	0.47	$	0.44
Weighted average common shares:
Basic	15,487,000		15,167,000		15,447,000		15,091,000
Diluted	16,370,000		16,567,000		16,411,000		16,429,000

This pro forma information is provided for illustrative purposes only, and does not

12

necessarily indicate what the operating results of the combined company might have been had the acquisition actually occurred at the beginning of fiscal 2005, nor does it necessarily indicate the combined company’s future operating results.

In order to effect the unaudited pro forma consolidated statement of income data for the three and six months ended January 31, 2005, the operating results of Cantel for the three and six months ended January 31, 2005 were consolidated with the operating results of Crosstex for the three and six months ended October 31, 2004 of its fiscal year ended April 30, 2005. The results presented in the selected unaudited pro forma consolidated statements of income data for the three and six months ended January 31, 2005 have been prepared using the following assumptions: (i) cost of sales during the three months ended October 31, 2004 reflects a step-up in the cost basis of Crosstex inventories based upon the preliminary appraised value of such inventories; (ii) amortization of intangible assets and depreciation and amortization of property and equipment is based upon the preliminary appraised fair values and useful lives of such assets; (iii) interest expense includes interest on the senior bank debt at an effective interest rate of 6% per annum, amortization of a portion of the new debt issuance costs over the life of the credit facilities in accordance with applicable accounting rules and elimination of the historical interest expense of Crosstex; (iv) compensation for former owners have been decreased to be consistent with the terms of their new employment contracts; and (v) calculation of the income tax effects of the pro forma adjustments. All other operating results reflect actual performance.

The unaudited pro forma consolidated statement of income data for the three and six months ended January 31, 2005 does not reflect non-recurring charges directly related to the acquisition which were incurred by us upon the closing of the acquisition. Such non-recurring charges include (i) debt issuance costs relating to the term loan facility of approximately $160,000 and (ii) incentive compensation for an officer of Cantel in the amount of approximately $345,000. The aggregate amount of such charges was approximately $318,000, net of tax. If such charges had been included in the unaudited pro forma consolidated statement of income data, pro forma consolidated basic and diluted earnings per share would have been $0.45 and $0.42, respectively, for the six months ended January 31, 2005.

Note 4.Recent Accounting Pronouncements

In October 2005, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) 13-1, “Accounting for Rental Costs Incurred during a Construction Period” (“FSP 13-1”). FSP 13-1 requires rental costs associated with operating leases that are incurred during a construction period to be recognized as rental expense and included in income from continuing operations. FSP 13-1 is effective for the first reporting period beginning after December 15, 2005 and therefore will be effective for the beginning of our third quarter in fiscal 2006. We do not expect the adoption of FSP 13-1 to have a significant impact on our financial position or results of operations.

13

Note 5.Comprehensive Income

The Company’s comprehensive income for the three and six months ended January 31, 2006 and 2005 is set forth in the following table:

	Three Months Ended						Six Months Ended
	January 31,						January 31,
	2006			2005			2006			2005
Net income	$	3,929,000		$	3,875,000		$	7,675,000		$	6,982,000
Other comprehensive income (loss):
Unrealized loss on currency hedging, net of tax	(202,000		)	486,000			(567,000		)	(581,000		)
Unrealized gain on interest rate cap, net of tax	—			—			—			5,000
Foreign currency translation, net of tax	2,133,000			(351,000		)	3,892,000			2,748,000
Comprehensive income	$	5,860,000		$	4,010,000		$	11,000,000		$	9,154,000

Note 6.Financial Instruments

The Company accounts for derivative instruments and hedging activities in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”), as amended. SFAS 133 requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not designated as hedges must be adjusted to fair value through earnings. If the derivative is designated as a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in the fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of the change in fair value of a derivative that is designated as a hedge will be immediately recognized in earnings.

Carsen purchases and pays for a substantial portion of its products in United States dollars and sells its products in Canadian dollars, and is therefore exposed to fluctuations in the rates of exchange between the United States dollar and the Canadian dollar. In order to hedge against the impact of such currency fluctuations on the purchases of inventories, Carsen enters into foreign currency forward contracts on firm purchases of such inventories in United States dollars. These foreign currency forward contracts have been designated as cash flow hedge instruments. Total commitments for such foreign currency forward contracts amounted to $14,075,000 (United States dollars) at January 31, 2006 and cover a substantial portion of Carsen’s projected purchases of inventories through July 2006.

In addition, changes in the value of the euro against the United States dollar affect our results of operations because a portion of the net assets of Minntech’s Netherlands subsidiary are denominated and ultimately settled in United States dollars but must be converted into its functional euro currency. In order to hedge against the impact of fluctuations in the value of the euro relative to the United States dollar, we enter into short-term contracts to purchase euros forward, which contracts are generally one month in duration. These short-term contracts have been designated as fair value hedge instruments. There was one such foreign currency forward contract amounting to €1,234,000 at January 31, 2006 which covers certain assets and liabilities

14

of Minntech’s Netherlands subsidiary which are denominated in United States dollars. Such contract expired on February 28, 2006. Under our credit facilities, such contracts to purchase euros may not exceed $12,000,000 in an aggregate notional amount at any time.

All of our foreign currency forward contracts are designated as hedges in accordance with SFAS 133. Recognition of gains and losses related to the foreign currency forward contracts is deferred within other comprehensive income until settlement of the underlying commitments, and realized gains and losses are recorded within cost of sales upon settlement. Gains and losses related to the hedging contracts to buy euros forward are immediately realized within general and administrative expenses due to the short-term nature of such contracts. At January 31, 2006, Carsen’s cash flow hedge instrument was recorded in accrued expenses and Minntech’s Netherlands subsidiary’s fair value hedge instrument was recorded in prepaid expenses and other current assets. We do not hold any derivative financial instruments for speculative or trading purposes.

Note 7.Intangibles and Goodwill

Our intangible assets which continue to be subject to amortization consist primarily of technology, customer relationships, non-compete agreements and patents. These intangible assets are being amortized on the straight-line method over the estimated useful lives of the assets ranging from 3-20 years and have a weighted average amortization period of 10 years as of January 31, 2006. Amortization expense related to intangible assets was $1,356,000 and $2,507,000 for the three and six months ended January 31, 2006, respectively, and $409,000 and $840,000 for the three and six months ended January 31, 2005, respectively. Intangible assets acquired in conjunction with the Crosstex acquisition are more fully described in note 3 to the condensed consolidated financial statements. Our intangible assets that have indefinite useful lives and therefore are not amortized consist of trademarks and tradenames.

15

The Company’s intangible assets consist of the following:

	January 31, 2006
			Accumulated
	Gross		Amortization			Net
Intangible assets with finite lives:
Customer relationships	$	23,346,000	$	(3,540,000	)	$	19,806,000
Brand names	8,700,000		(435,000		)	8,265,000
Technology	8,582,000		(2,435,000		)	6,147,000
Non-compete agreements	1,969,000		(291,000		)	1,678,000
Patents and other registrations	314,000		(35,000		)	279,000
	42,911,000		(6,736,000		)	36,175,000
Trademarks and tradenames	8,781,000		—			8,781,000
Total intangible assets	$	51,692,000	$	(6,736,000	)	$	44,956,000

	July 31, 2005
			Accumulated
	Gross		Amortization			Net
Intangible assets with finite lives:
Customer relationships	$	5,287,000	$	(2,203,000	)	$	3,084,000
Technology	8,404,000		(2,034,000		)	6,370,000
Non-compete agreements	169,000		(113,000		)	56,000
Patents and other registrations	384,000		(39,000		)	345,000
	14,244,000		(4,389,000		)	9,855,000
Trademarks and tradenames	3,462,000		—			3,462,000
Total intangible assets	$	17,706,000	$	(4,389,000	)	$	13,317,000

Estimated amortization expense of our intangible assets for the remainder of fiscal 2006 and the next five years is as follows:

Six month period ending July 31, 2006	$	2,357,000
Fiscal 2007	4,651,000
Fiscal 2008	4,455,000
Fiscal 2009	4,134,000
Fiscal 2010	3,925,000
Fiscal 2011	3,750,000

Goodwill changed during fiscal 2005 and the six months ended January 31, 2006 as follows: 

											Water
						Endoscopy		Endoscope			Purification						Total
	Dialysis			Dental		and Surgical		Reprocessing			and Filtration			All Other			Goodwill
Balance, July 31, 2004	$	8,958,000		$	—	$	207,000	$	6,245,000		$	11,321,000		$	6,599,000		$	33,330,000
Adjustments primarily relating to income tax exposure of acquired businesses	(543,000		)	—		—		—			(285,000		)	(59,000		)	(887,000		)
Foreign currency translation	—			—		18,000		13,000			401,000			468,000			900,000
Balance, July 31, 2005	8,415,000			—		225,000		6,258,000			11,437,000			7,008,000			33,343,000
Acquisition of Crosstex	—			33,759,000		—		—			—			—			33,759,000
Foreign currency translation	—			—		17,000		(2,000		)	360,000			435,000			810,000
Balance, January 31, 2006	$	8,415,000		$	33,759,000	$	242,000	$	6,256,000		$	11,797,000		$	7,443,000		$	67,912,000

16

Note 8.Warranty

A summary of activity in the Company’s warranty reserves follows:

	Three Months Ended						Six Months Ended
	January 31,						January 31,
	2006			2005			2006			2005
Beginning balance	$	519,000		$	696,000		$	581,000		$	658,000
Provisions	154,000			245,000			328,000			485,000
Charges	(203,000		)	(178,000		)	(440,000		)	(385,000		)
Foreign currency translation	1,000			—			2,000			5,000
Acquisitions	—			—			—			—
Ending balance	$	471,000		$	763,000		$	471,000		$	763,000

The warranty provisions and charges during the three and six months ended January 31, 2006 and 2005 relate principally to the Company’s endoscope reprocessing products.

Note 9.Financing Arrangements

In conjunction with the acquisition of Crosstex, we entered into amended and restated credit facilities dated as of August 1, 2005 (the “2005 U.S. Credit Facilities”) with a consortium of United States lenders to fund the cash consideration paid in the acquisition and costs associated with the acquisition, as well as to modify our existing United States credit facilities. The 2005 U.S. Credit Facilities include (i) a six-year $40.0 million senior secured amortizing term loan facility and (ii) a five-year $35.0 million senior secured revolving credit facility. In addition, we agreed to repay the July 31, 2005 outstanding borrowings of $15,750,000 under our original term loan facility within ninety (90) days from the closing. In October 2005, such amount was repaid primarily through the repatriation of funds from our foreign subsidiaries. Amounts we repay under the term loan facility may not be re-borrowed. Additionally, we incurred debt issuance costs of approximately $1,426,000, of which $160,000 of third-party costs was recorded in general and administrative expenses during the three months ended October 31, 2005 in accordance with applicable accounting rules. The remaining $1,266,000 of costs was recorded in other assets and will be amortized over the life of the credit facilities.

Borrowings under the 2005 U.S. Credit Facilities bear interest at rates ranging from 0% to 0.75% above the lender’s base rate, or at rates ranging from 1.0% to 2.0% above the London Interbank Offered Rate (“LIBOR”), depending upon our consolidated ratio of debt to earnings before interest, taxes, depreciation and amortization, and as further adjusted under the terms of the 2005 U.S. Credit Facilities (“EBITDA”). At January 31, 2006, the lender’s base rate was 7.5% and the LIBOR rates ranged from 3.97% to 4.47%. The margins applicable to our outstanding borrowings at January 31, 2006 were 0.25% above the lender’s base rate and 1.5% above LIBOR. The majority of our outstanding borrowings were under LIBOR contracts at January 31, 2006. The 2005 U.S. Credit Facilities also provide for fees on the unused portion of our revolving credit facility at rates ranging from 0.20% to 0.40%, depending upon our consolidated ratio of debt to EBITDA.

The 2005 U.S. Credit Facilities require us to meet certain financial covenants and are secured by (i) substantially all of our U.S.-based assets (including assets of Cantel, Minntech,

17

Mar Cor and Crosstex) and (ii) our pledge of all of the outstanding shares of Minntech, Mar Cor and Crosstex and 65% of the outstanding shares of our foreign-based subsidiaries. We were in compliance with the financial covenants under the 2005 U.S. Credit Facilities at January 31, 2006.

We also have a $3,000,000 (United States dollars) Canadian-based senior secured revolving credit facility with a Canadian bank (the “Canadian Credit Facility”) available for Carsen’s future working capital requirements. The Canadian Credit Facility, which has a maturity date of July 31, 2006, provides for available borrowings based upon percentages of the eligible accounts receivable and inventories of Carsen and Biolab; bears interest at rates ranging from 0.13% to 1.38% above the lender’s base rate (which was 5.25% at January 31, 2006), or 1.75% to 3.0% above LIBOR, depending upon Carsen’s ratio of debt to EBITDA; requires us to meet certain financial covenants; and is secured by substantially all assets of Carsen and Biolab. As of January 31, 2006, we had no outstanding borrowings under the Canadian Credit Facility and we do not expect to have any significant borrowings during the remainder of fiscal 2006. We were in compliance with the financial covenants under the Canadian Credit Facility at January 31, 2006.

On January 31, 2006, we had $61,500,000 of outstanding borrowings under the 2005 U.S. Credit Facilities which consisted of $39,000,000 and $22,500,000 under the term loan facility and the revolving credit facility, respectively.

Aggregate annual required maturities of the 2005 U.S. Credit Facilities over the remainder of fiscal 2006 and the next five years are as follows:

Six month period ending July 31, 2006	$	1,000,000
Fiscal 2007	4,000,000
Fiscal 2008	6,000,000
Fiscal 2009	8,000,000
Fiscal 2010	10,000,000
Fiscal 2011	32,500,000
Ending balance	$	61,500,000

All of such maturing amounts reflect the repayment terms under the 2005 U.S. Credit Facilities. The amount maturing in fiscal 2011 includes the $22,500,000 outstanding at January 31, 2006 under the revolving credit facility since such amount is required to be repaid prior to the expiration date of this facility on August 1, 2010.

18

Note 10.Earnings Per Common Share

Basic earnings per common share are computed based upon the weighted average number of common shares outstanding during the period.

Diluted earnings per common share are computed based upon the weighted average number of common shares outstanding during the period plus the dilutive effect of common stock equivalents using the treasury stock method and the average market price of our Common Stock for the period.

The following table sets forth the computation of basic and diluted earnings per common share:

	Three Months Ended				Six Months Ended
	January 31,				January 31,
	2006		2005		2006		2005
Numerator for basic and diluted earnings per share:
Net income	$	3,929,000	$	3,875,000	$	7,675,000	$	6,982,000
Denominator for basic and diluted earnings per share:
Denominator for basic earnings per share - weighted average number of shares outstanding	15,487,275		14,782,348		15,446,887		14,706,332
Dilutive effect of options using the treasury stock method and the average market price for the period	882,297		1,400,105		963,664		1,338,156
Denominator for diluted earnings per share - weighted average number of shares and common stock equivalents	16,369,572		16,182,453		16,410,551		16,044,488
Basic earnings per share	$	0.25	$	0.26	$	0.50	$	0.47
Diluted earnings per share	$	0.24	$	0.24	$	0.47	$	0.44

Note 11.Income Taxes

The consolidated effective tax rate on income before income taxes was 39.3% and 38.4% for the six months ended January 31, 2006 and 2005, respectively. We have provided income tax expense for our United States operations at the statutory tax rate; however, actual payment of U.S. Federal income taxes reflects the benefits of the utilization of the Federal net operating loss carryforwards (“NOLs”) accumulated in the United States. Approximately $387,000 of NOLs remained at July 31, 2005 and were fully utilized during the three months ended October 31, 2005.

19

Our results of operations for the three and six months ended January 31, 2006 and 2005 also reflect income tax expense for our international subsidiaries at their respective statutory rates. Such international subsidiaries include our subsidiaries in Canada and Japan, which had effective tax rates during the six months ended January 31, 2006 of approximately 35.3% and 45.0%, respectively.

The higher overall effective tax rate for the six months ended January 31, 2006, as compared with the six months ended January 31, 2005, is principally due to the loss from operations at our Netherlands subsidiary for which no tax benefit was recorded, the recording of a partial income tax benefit relating to stock-based compensation during the six months ended January 31, 2006, and the geographic mix of pretax income, partially offset by a $200,000 release of a deferred tax liability related to the repatriation of foreign accumulated profits.

Note 12.Operating Segments

In accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” (“SFAS 131”), we have determined our reportable business segments based upon an assessment of product types, organizational structure, customers and internally prepared financial statements. The primary factors used by us in analyzing segment performance are net sales and operating income.

During fiscal 2005, as part of our acquisition integration plan, we combined our two water treatment businesses, Biolab and Mar Cor, and a portion of the non-medical filter business of Minntech’s filtration technologies group, to form a single business operation known as Mar Cor Purification. As a result of this restructuring, we have modified our reporting segments to reflect the way we manage, allocate resources and measure the performance of our business. Commencing with the fiscal year ended July 31, 2005, the operations of Mar Cor Purification, together with the portion of the non-medical filter business of Minntech’s filtration technologies group remaining with Minntech, are being reported in a new reporting segment, Water Purification and Filtration. The medical filter business of Minntech’s filtration technologies group is being reported in a new operating segment, Therapeutic Filtration, which is included in the All Other reporting segment. The Biolab and Mar Cor businesses were previously reported as the Water Treatment reporting segment, and Minntech’s entire filtration technologies group was previously reported as the Filtration and Separation reporting segment. All prior period segment results have been restated to reflect this change.

Since the acquisition of Crosstex was completed on the first day of fiscal 2006, the results of operations of Crosstex are included in the accompanying segment information for the three and six months ended January 31, 2006 and are excluded from the accompanying segment information for the three and six months ended January 31, 2005. The Crosstex acquisition added a new reporting segment known as Dental as more fully described below.

The Company’s segments are as follows:

Dialysis, which includes disinfection/sterilization reprocessing equipment, sterilants, supplies and concentrates related to hemodialysis treatment of patients with acute kidney failure or chronic kidney failure associated with end-stage renal disease. Additionally, this segment includes technical maintenance service on its products.

20

Dental, which includes single-use infection control products used principally in the dental market such as face masks, patient towels and bibs, self-sealing sterilization pouches, tray covers, sterilization packaging accessories, surface barriers including eyewear, aprons and gowns, disinfectants and deodorizers, germicidal wipes, hand care products, gloves, sponges, cotton products, cups, needles and syringes, scalpels and blades, and saliva evacuators and ejectors.

Endoscopy and Surgical, which includes diagnostic and therapeutic medical equipment such as flexible and rigid endoscopes, surgical equipment and related accessories that are sold to hospitals. Additionally, this segment includes technical maintenance service on its products.

Endoscope Reprocessing, which includes endoscope disinfection equipment and related accessories and supplies that are sold to hospitals, clinics and physicians. Additionally, this segment includes technical maintenance service on its products.

Water Purification and Filtration, which includes water purification equipment design and manufacturing, project management, installation, maintenance, deionization and mixing systems, as well as hollow fiber filter devices and ancillary products for high-purity fluid and separation applications for the medical, pharmaceutical, biotechnology, research, beverage and semiconductor industries. Additionally, this segment includes cold sterilant products used to disinfect high-purity water systems.

All Other

In accordance with quantitative thresholds established by SFAS 131, we have combined the Scientific, Specialty Packaging, and Therapeutic operating segments into the All Other reporting segment.

Scientific, which includes microscopes and high performance image analysis hardware and related accessories that are sold to educational institutions, hospitals and government and industrial laboratories, and industrial technology equipment such as borescopes, fiberscopes and video image scopes that are sold primarily to large industrial companies. Additionally, this segment includes technical maintenance service on its products.

Specialty Packaging, which includes specialized packaging for the safe transport of infectious and biological specimens, and compliance training services ranging from software and internet sessions to group seminars and private on-site programs.

Therapeutic Filtration, which includes hollow fiber filter devices and ancillary products for use in medical applications that are sold to biotech manufacturers and third-party distributors.

The increase in total assets at January 31, 2006 compared with July 31, 2005 was due principally to the acquisition of Crosstex, as more fully described in note 3 to the condensed consolidated financial statements.

21

The operating segments follow the same accounting policies used for our condensed consolidated financial statements as described in note 2 to the 2005 Form 10-K.

Information as to operating segments is summarized below:

	Three Months Ended						Six Months Ended
	January 31,						January 31,
	2006			2005			2006			2005
Net sales:
Dialysis	$	15,250,000		$	16,353,000		$	31,513,000		$	33,105,000
Dental	13,108,000			—			26,235,000			—
Endoscopy and Surgical	10,685,000			10,696,000			20,429,000			17,916,000
Endoscope Reprocessing	7,480,000			7,353,000			14,974,000			14,077,000
Water Purification and Filtration	9,046,000			7,845,000			17,026,000			14,219,000
All Other	6,055,000			7,289,000			11,680,000			15,561,000
Total	$	61,624,000		$	49,536,000		$	121,857,000		$	94,878,000
Operating Income:
Dialysis	$	1,473,000		$	1,881,000		$	3,990,000		$	4,153,000
Dental	2,130,000			—			3,766,000			—
Endoscopy and Surgical	2,843,000			2,623,000			5,145,000			4,254,000
Endoscope Reprocessing	990,000			1,222,000			2,161,000			2,360,000
Water Purification and Filtration	675,000			848,000			1,673,000			1,138,000
All Other	677,000			1,283,000			1,295,000			2,510,000
	8,788,000			7,857,000			18,030,000			14,415,000
General corporate expenses	(1,546,000		)	(1,239,000		)	(3,389,000		)	(2,424,000		)
Interest expense, net	(949,000		)	(313,000		)	(2,001,000		)	(664,000		)
Income before income taxes	$	6,293,000		$	6,305,000		$	12,640,000		$	11,327,000

Note 13.Legal Proceedings

In the normal course of business, the Company is subject to pending and threatened legal actions. It is our policy to accrue for amounts related to these legal matters if it is probable that a liability has been incurred and an amount of anticipated exposure can be reasonably estimated.

On January 27, 2006, the United States District Court, District of Minnesota, granted Minntech Corporation’s Motion for Summary Judgment in the previously reported antitrust lawsuit commenced by HDC Medical, Inc. in November 2003. As a result of the ruling, the complaint against Minntech, a wholly-owned subsidiary of Cantel, has been dismissed. In March 2006, HDC filed a Notice of Appeal with respect to the court’s ruling for Summary Judgment.

22

Note 14.Canadian Distribution Agreements

The majority of Carsen’s sales of endoscopy products and scientific products related to microscopy are distributed pursuant to an agreement with Olympus America Inc. (the “Olympus Agreement”), and the majority of Carsen’s sales of surgical products and scientific products related to industrial technology equipment are distributed pursuant to an agreement with Olympus Surgical & Industrial America, Inc. (the “Olympus Industrial Agreement”)(collectively the “Olympus Agreements”), under which Carsen has been granted the exclusive right to distribute the covered Olympus products in Canada. Carsen is subject to a minimum purchase requirement of $23,500,000 under the Olympus Agreement for the contract year ending March 31, 2006. There are no minimum purchase requirements under the Olympus Industrial Agreement.

In July 2005 we entered into an agreement with Olympus under which, effective July 31, 2006, Carsen will no longer serve as the Canadian distributor of Olympus products. Under the agreement, the Olympus Agreements will be extended to and expire on July 31, 2006 and will not be extended beyond such date. Carsen’s operations will remain an important contributor to our results of operations through the end of fiscal 2006.

Under the July 2005 agreement, Olympus will pay us $6,000,000 in cash in consideration for Carsen’s transfer to Olympus of customer lists, sales records, and certain other assets related to the sale and servicing of Olympus products and for Carsen’s release of Olympus’s contractual restriction on hiring Carsen personnel. In addition, we will assist Olympus in effecting a smooth transition of Carsen’s business of distributing and servicing Olympus products in Canada. The $6,000,000 payable by Olympus is due in three installments, $1,500,000 on August 1, 2005, $1,500,000 on January 31, 2006 and $3,000,000 on July 31, 2006. Both $1,500,000 installments have been received and are recorded as deferred revenue at January 31, 2006. However, the $6,000,000 will not be recognized until July 31, 2006, the date at which all of our obligations will be fulfilled, even though certain wind-down costs such as severance will be recorded throughout fiscal 2006. In addition, Olympus will acquire Carsen’s inventory of Olympus products as of July 31, 2006 at Carsen’s book value.

Under the agreement with Olympus, we have agreed not to manufacture, distribute, sell or represent for sale in Canada through July 31, 2007 any products that are competitive with the Olympus products covered by the Olympus Agreements.

In addition, we have recently reached an agreement in principle with Olympus for the sale of substantially all of Carsen’s non-Olympus related assets other than those related to its Medivators business and certain other smaller product lines. Subject to reaching a definitive agreement, the principal assets to be sold will include Carsen’s accounts receivable, real property leases and leasehold improvements, non-Olympus inventories and backlog orders related to acquired product lines, computer and software systems, equipment and machinery, telephone systems, and records related to the acquired assets. The purchase price for the additional assets being acquired by Olympus will be $4,000,000 in cash plus additional amounts for the non-Olympus inventories, accounts receivable, backlog orders and certain other assets, subject to certain adjustments to the purchase price, particularly those related to service and warranty obligations and certain employee benefits. However, there can be no assurance that the parties will enter into a definitive agreement.

23

Subject to entering into the definitive agreement referred to above with respect to our sale of additional assets to Olympus, net proceeds from the termination of Carsen’s operations are currently projected to be in excess of $20,000,000. Such net proceeds will consist of the $10,000,000 to be paid by Olympus and net proceeds from the sale of inventories, accounts receivable and backlog orders, less satisfaction of liabilities, severance costs and other wind-down costs. Management’s projection of net proceeds is an estimate based on inventories, accounts receivable, backlog orders and liabilities at January 31, 2006 and assumptions for potential wind-down costs, but without taking into account any Canadian or United States income tax implications.

The net sales and operating income attributable to Carsen’s business (inclusive of both Olympus and non-Olympus business, but exclusive of the sale of Medivators reprocessors) constitute the entire Endoscopy and Surgical reporting segment and Scientific operating segment, which is included within the All Other reporting segment.

If Olympus purchases the additional assets described above, then we will not continue any remaining non-Olympus product lines, with the exception of the Medivators endoscope reprocessors. We are currently evaluating various alternatives related to the continued distribution of Medivators products.

Operating segment information attributable to Carsen’s business is summarized below:

	Three Months Ended				Six Months Ended
	January 31,				January 31,
	2006		2005		2006		2005
Net sales:
Endoscopy and Surgical	$	10,685,000	$	10,696,000	$	20,429,000	$	17,916,000
Endoscope Reprocessing	785,000		792,000		1,184,000		1,415,000
Scientific (included in All Other)	3,256,000		4,032,000		5,828,000		9,216,000
Total	$	14,726,000	$	15,520,000	$	27,441,000	$	28,547,000
Operating income:
Endoscopy and Surgical	$	2,843,000	$	2,623,000	$	5,145,000	$	4,254,000
Endoscope Reprocessing	184,000		205,000		259,000		380,000
Scientific (included in All Other)	237,000		443,000		246,000		936,000
Total	$	3,264,000	$	3,271,000	$	5,650,000	$	5,570,000

During the three and six months ended January 31, 2006, total net sales of Carsen accounted for approximately 24% and 23%, respectively, of our consolidated net sales. Approximately 80% of Carsen’s net sales for the three and six months ended January 31, 2006 were attributable to its Olympus distribution and service businesses. Operating income of Carsen during the three and six months ended January 31, 2006 was approximately 37% and 31%, respectively, of our consolidated operating income before general corporate expenses and interest expense.

24

The following table shows the amount of severance recorded in the condensed consolidated statements of income for the three and six months ended January 31, 2006:

	Three Months Ended		Six Months Ended
	January 31, 2006		January 31, 2006
Cost of sales	$	9,000	$	9,000
Operating expenses:
Selling	90,000		171,000
General and administrative	111,000		233,000
Research and development	—		—
Total operating expenses	201,000		404,000
Total severance expense	$	210,000	$	413,000

25

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help you understand Cantel Medical Corp. The MD&A is provided as a supplement to and should be read in conjunction with our financial statements and the accompanying notes. Our MD&A includes the following sections:

Overview provides a brief description of our business and a summary of significant activity that has affected or may affect our results of operations and financial condition.

Results of Operations provides a discussion of the consolidated results of operations for the three and six months ended January 31, 2006 compared to the three and six months ended January 31, 2005.

Liquidity and Capital Resources provides an overview of our working capital, cashflows, financing, significant distribution agreements and foreign currency activities.

Critical Accounting Policies provides a discussion of our accounting policies that require critical judgments, assumptions and estimates.

Forward-Looking Statements provides a discussion of cautionary factors that may affect future results.

Overview

Cantel Medical Corp. is a leading provider of infection prevention and control products for the healthcare market. Our products include specialized medical device reprocessing systems for renal dialysis and endoscopy, dialysate concentrate and other dialysis supplies, disposable infection control products primarily for the dental industry, endoscopy and surgical products, water purification equipment, sterilants, disinfectants and cleaners, hollow fiber membrane filtration and separation products for medical and non-medical applications, and specialty packaging for infectious and biological specimens. We also sell scientific instrumentation products, provide technical maintenance for our products and offer compliance training services for the transport of infectious and biological specimens.

During fiscal 2005, as part of our acquisition integration plan, we combined our two water treatment businesses, Biolab and Mar Cor, and a portion of the non-medical filter business of Minntech’s filtration technologies group, to form a single business operation known as Mar Cor Purification. As a result of this restructuring, we have modified our reporting segments to reflect the way we manage, allocate resources and measure the performance of our business. Commencing with the fiscal year ended July 31, 2005, the operations of Mar Cor Purification, together with the portion of the non-medical filter business of Minntech’s filtration technologies group remaining with Minntech, are being reported in a new reporting segment, Water Purification and Filtration. The medical filter business of Minntech’s filtration technologies group is being reported in a new operating segment, Therapeutic Filtration, which is included in the All Other reporting segment. The Biolab and Mar Cor businesses were previously reported as the Water Treatment reporting segment, and Minntech’s entire filtration technologies group was previously reported as the Filtration and Separation reporting segment. All prior period segment results have been restated to reflect this change.

We currently operate our business through eight operating segments: Dialysis, Dental, Endoscopy and Surgical, Endoscope Reprocessing, Water Purification and Filtration, Scientific, Specialty Packaging and

26

Therapeutic Filtration. The Scientific, Specialty Packaging and Therapeutic Filtration operating segments are combined in the All Other reporting segment.

See our Annual Report on Form 10-K for the fiscal year ended July 31, 2005 (the “2005 Form 10-K”) and our condensed consolidated financial statements for additional financial information regarding our reporting segments.

Significant Activity

(i)The Olympus distribution agreements with Carsen will terminate on July 31, 2006, as more fully described elsewhere in this MD&A, “Business – Risk Factors” in the 2005 Form 10-K and note 14 to the condensed consolidated financial statements.

(ii)A stronger Canadian dollar against the United States dollar impacted our results of operations during the three and six months ended January 31, 2006 compared with the three and six months ended January 31, 2005, as more fully described elsewhere in this MD&A. The increase in value was approximately 3.7% and 5.9% for the three and six months ended January 31, 2006, respectively, as compared with the three and six months ended January 31, 2005, based upon average exchange rates reported by banking institutions.

(iii)A weaker euro against the United States dollar impacted our results of operations during the three and six months ended January 31, 2006 compared with the three and six months ended January 31, 2005, as more fully described elsewhere in this MD&A. The decrease in value was approximately 9.5% and 5.3% for the three and six months ended January 31, 2006, respectively, as compared with the three and six months ended January 31, 2005, based upon average exchange rates reported by banking institutions.

(iv)The dialysis industry has been undergoing significant consolidation which has adversely impacted the sale of some of our dialysis products and may continue to adversely affect our business, as more fully described elsewhere in this MD&A and in “Business - Risk Factors” in our 2005 Form 10-K.

(v)On August 1, 2005, which is the beginning of our fiscal 2006, we acquired Crosstex, as more fully described in note 3 to the condensed consolidated financial statements.

(vi)In conjunction with the Crosstex acquisition, we amended and restated our credit facilities on August 1, 2005, as more fully described elsewhere in this MD&A and in notes 3 and 9 to the condensed consolidated financial statements.

(vii)We changed our segment reporting, as more fully described elsewhere in this MD&A.

(viii)We adopted the new accounting policy for stock-based compensation and began recording such expense in our results of operations for the three and six months ended January 31, 2006, as more fully described elsewhere in

27

this MD&A and in note 2 to the condensed consolidated financial statements.

Results of Operations

The results of operations reflect the results of Cantel and its wholly-owned subsidiaries.

Since the Crosstex acquisition occurred on August 1, 2005, Crosstex is reflected in our results of operations for the three and six months ended January 31, 2006, and is not reflected in our results of operations for the three and six months ended January 31, 2005.

For the three and six months ended January 31, 2006 compared with the three and six months ended January 31, 2005, discussion herein of our pre-existing business refers to all of our reporting segments with the exception of Dental (since all of this reporting segment is related to the Crosstex acquisition). The following discussion should also be read in conjunction with our 2005 Form 10-K.

The following table gives information as to net sales and the percentage to total net sales accounted for by each of our reporting segments:

	Three Months Ended						Six Months Ended
	January 31,						January 31,
	2006			2005			2006			2005
	(Dollar amounts in thousands)						(Dollar amounts in thousands)
	$		%	$		%	$		%	$		%
Dialysis	$	15,250	24.8	$	16,353	33.1	$	31,513	25.9	$	33,105	34.9
Dental	13,108		21.3	—		—	26,235		21.5	—		—
Endoscopy and Surgical	10,685		17.3	10,696		21.6	20,429		16.8	17,916		18.9
Endoscope Reprocessing	7,480		12.1	7,353		14.8	14,974		12.3	14,077		14.8
Water Purification and Filtration	9,046		14.7	7,845		15.8	17,026		14.0	14,219		15.0
All Other	6,055		9.8	7,289		14.7	11,680		9.5	15,561		16.4
	$	61,624	100.0	$	49,536	100.0	$	121,857	100.0	$	94,878	100.0

Net Sales

Net sales increased by $12,088,000, or 24.4%, to $61,624,000 for the three months ended January 31, 2006 from $49,536,000 for the three months ended January 31, 2005. Net sales of our pre-existing business decreased by $1,020,000, or 2.1%, to $48,516,000 for the three months ended January 31, 2006 compared with the three months ended January 31, 2005. Net sales contributed by Crosstex for the three months ended January 31, 2006 were $13,108,000.

Net sales increased by $26,979,000, or 28.4%, to $121,857,000 for the six months ended January 31, 2006 from $94,878,000 for the six months ended January 31, 2005. Net sales of our pre-existing business increased by $744,000, or 0.8%, to $95,622,000 for the six months ended January 31, 2006 compared with the six months ended January 31, 2005. Net sales contributed by Crosstex for the six months ended January 31, 2006 were $26,235,000.

Net sales were positively impacted for the three and six months ended January 31, 2006, compared with the three and six months ended January 31, 2005, by approximately $615,000 and $1,827,000, respectively, due to the translation of Carsen’s and Biolab’s net sales using a stronger

28

Canadian dollar against the United States dollar. Carsen’s net sales are principally included in the Endoscopy and Surgical reporting segment and the Scientific operating segment. Biolab’s net sales are included in the Water Purification and Filtration reporting segment.

Increases in selling prices of our products did not have a significant effect on net sales for the three and six months ended January 31, 2006.

The decrease in net sales of our pre-existing business for the three months ended January 31, 2006 was principally attributable to decreases in sales of dialysis products, scientific products and therapeutic filtration products. This decrease in net sales was partially offset by an increase in sales of water purification and filtration products and services.

The increase in net sales of our pre-existing business for the six months ended January 31, 2006 was principally attributable to increases in sales of water purification and filtration products and services, endoscopy and surgical products and services, and endoscope reprocessing products and services. This increase in net sales was partially offset by decreases in sales of dialysis products, scientific products and therapeutic filtration products.

Sales of dialysis products and services decreased by 6.7% and 4.8% during the three and six months ended January 31, 2006, as compared with the three and six months ended January 31, 2005, primarily due to a decrease in demand from international customers for concentrate (a concentrated acid or bicarbonate used to prepare dialysate, a chemical solution that draws waste products from a patient’s blood through a dialyzer membrane during hemodialysis treatment) and Renatrons (dialyzer reprocessing equipment) both in the United States and internationally; and lower average selling prices for our Renalin (sterilant) product due to increased sales to large national chains that typically receive more favorable pricing.

The dialysis industry has been undergoing significant consolidation through the acquisition by certain major dialysis chains of smaller chains and independents. In October 2005, DaVita Inc. (“DaVita”), the second-largest dialysis chain in the United States, acquired Gambro AB’s United States dialysis clinic business, Gambro Healthcare, Inc. (“Gambro US”). DaVita and Gambro US are significant customers of our dialysis reuse products. The DaVita/Gambro US acquisition has resulted in greater buying power for the larger resulting entity and thereby a reduction in net sales and profit margins due to reduced average selling prices of our dialyzer reprocessing products. Additionally, this acquisition has resulted in the loss of some low margin concentrate business.

In addition, in May 2005, Fresenius Medical Care AG (“Fresenius”), the largest dialysis chain in the United States and a provider of single-use dialyzer products, announced that it entered into an agreement to acquire Renal Care Group, Inc. (“RCG”). RCG is a significant customer of our dialysis reuse products. If Fresenius’s acquisition is consummated, and if Fresenius converts all or substantially all of the dialysis clinics of RCG into single-use facilities, our sales of dialysis products will be adversely affected. Given the uncertainty of the post-acquisition operating strategies for Fresenius/RCG, we are currently unable to determine the timing and impact on our future sales of dialysis products and services.

Net sales contributed by the Scientific operating segment were $3,256,000 and $5,828,000, a decrease of $776,000 and $3,388,000, or 19.2% and 36.8%, for the three and six months ended January 31, 2006, respectively, compared with the three and six months ended January 31, 2005. The decrease in sales for the six months ended January 31, 2006 was due to a large sale of microscopes and related imaging products to a Canadian university during the three months ended

29

October 31, 2004. The decrease in sales of scientific products for the three and six months ended January 31, 2006 was also due to our customers experiencing a prolonged government funding process in Canada.

Net sales contributed by the Therapeutic Filtration operating segment were $1,551,000 and $3,409,000, a decrease of $646,000 and $651,000, or 29.4% and 16.0%, for the three and six months ended January 31, 2006, respectively, compared with the three and six months ended January 31, 2005. These reductions in sales were primarily due to a decrease in demand for our hemoconcentrator product (a device used to concentrate red blood cells and remove excess fluid from the bloodstream during open-heart surgery) both in the United States and internationally.

The increase in sales of water purification and filtration products and services of 15.3% and 19.7% for the three and six months ended January 31, 2006, respectively, compared with the three and six months ended January 31, 2005, was primarily due to increased demand in North America for our water purification and filtration equipment, which was partially attributable to the restructuring, strengthening, and consolidation of our sales and marketing organization.

The increase in sales of endoscopy and surgical products and services for the six months ended January 31, 2006 was primarily due to continued strong healthcare funding in Canada and the translation of Carsen’s net sales using a stronger Canadian dollar against the United States dollar. Net sales of endoscopy and surgical products and services increased by 14.0% in United States dollars as compared with 8.2% in their functional Canadian currency during the six months ended January 31, 2006 as compared with the six months ended January 31, 2005. Healthcare funding in Canada is dependent upon governmental appropriations. Canada has adopted a budget that provides for a significant increase in funding for healthcare. However, we cannot ascertain what impact the funding situation or Canada’s budget will have on future sales of endoscopy and surgical products.

The increase in sales of endoscope reprocessing products and services of 6.4% for the six months ended January 31, 2006, respectively, compared with the six months ended January 31, 2005, was primarily due to an increase in demand for our endoscope disinfection equipment in Europe, and disinfectants and product service both in the United States and internationally, which demand is attributable to the increased field population of equipment (including our Dyped endoscope disinfection equipment in Europe) and our ability to convert users of competitive disinfectants to our products.

Gross profit

Gross profit increased by $4,043,000, or 21.5%, to $22,864,000 for the three months ended January 31, 2006 from $18,821,000 for the three months ended January 31, 2005. Gross profit of our pre-existing business decreased by $754,000, or 4.0%, to $18,067,000 for the three months ended January 31, 2006 compared with the three months ended January 31, 2005. Gross profit contributed by Crosstex for the three months ended January 31, 2006 was $4,797,000.

Gross profit increased by $9,975,000, or 27.7%, to $46,011,000 for the six months ended January 31, 2006 from $36,036,000 for the six months ended January 31, 2005. Gross profit of our pre-existing business increased by $919,000, or 2.6%, to $36,955,000 for the six months ended January 31, 2006 compared with the six months ended January 31, 2005. Gross profit contributed by Crosstex for the six months ended January 31, 2006 was $9,056,000.

30

Gross profit as a percentage of net sales for the three months ended January 31, 2006 and 2005 was 37.1% and 38.0%, respectively. Gross profit as a percentage of net sales of our pre-existing business for the three months ended January 31, 2006 was 37.2%. Gross profit as a percentage of net sales for Crosstex for the three months ended January 31, 2006 was 36.6%.

Gross profit as a percentage of net sales for the six months ended January 31, 2006 and 2005 was 37.8% and 38.0%, respectively. Gross profit as a percentage of net sales of our pre-existing business for the six months ended January 31, 2006 was 38.6%. Gross profit as a percentage of net sales for Crosstex for the six months ended January 31, 2006 was 34.5%, which was adversely impacted by a $658,000 one-time purchase accounting charge related to Crosstex’ inventory during the three months ended October 31, 2005.

The lower gross profit percentage from our pre-existing business for the three months ended January 31, 2006, compared with the three months ended January 31, 2005, was primarily attributable to a lower gross profit percentage on our dialysis products due to lower average selling prices on concentrate, Renatron equipment and sterilants principally as a result of increased sales to large national chains that typically receive more favorable pricing, and unfavorable overhead absorption associated with the decrease in sales to large national chains and international customers. Additionally, gross profit percentage for the three months ended January 31, 2006 was adversely impacted by the sale of some large water purification and filtration systems which generally have lower margins.

The higher gross profit percentage from our pre-existing business for the six months ended January 31, 2006, compared with the six months ended January 31, 2005, was primarily attributable to favorable Canadian dollar exchange rates, which principally impact the Endoscopy and Surgical and the Water Purification and Filtration reporting segments, as well as the Scientific operating segment; the reduction of sales in our Scientific operating segment which typically have lower margins; and favorable sales mix in our Endoscope Reprocessing and Specialty Packaging reporting segments. Partially offsetting these increases in gross profit percentage were the factors explained above for the lower gross profit percentage from our pre-existing business for the three months ended January 31, 2006, compared with the three months ended January 31, 2005.

The favorable Canadian dollar exchange rates lowered Carsen’s, Biolab’s and Saf-T-Pak’s cost of inventory purchased from suppliers in the United States, and therefore decreased cost of sales and increased gross profit, by approximately $630,000 and $1,087,000 for the three and six months ended January 31, 2006, respectively, compared with the three and six months ended January 31, 2005. In addition, gross profit was positively impacted for the three and six months ended January 31, 2006, compared with the three and six months ended January 31, 2005, by approximately $217,000 and $660,000, respectively, due to the translation of Carsen’s, and Biolab’s gross profit using a stronger Canadian dollar against the United States dollar (which also impacts net sales and therefore has no impact on gross profit as a percentage of net sales).

Operating Expenses

Selling expenses increased by $280,000 to $6,094,000 for the three months ended January 31, 2006, from $5,814,000 for the three months ended January 31, 2005. For the six months ended January 31, 2006, selling expenses increased by $1,289,000 to $12,511,000, from $11,222,000 for the six months ended January 31, 2005. For the three and six months ended January 31, 2006, selling expenses increased principally due to the inclusion of $561,000 and $1,153,000, respectively, of Crosstex’ selling expenses; the translation of Carsen’s, Biolab’s and Saf-T-Pak’s

31

expenses using a stronger Canadian dollar against the United States dollar which resulted in an additional $87,000 and $271,000, respectively, of selling expenses; and $90,000 and $171,000, respectively, in severance expense relating to the termination of the Olympus distribution agreements. Partially offsetting the increase in selling expenses were decreases in sales and marketing personnel and commissions in our dialysis reporting segment in response to the consolidation of the dialysis industry since an increasing percentage of sales of our dialysis products are to major dialysis chains as compared to small chains and independent dialysis clinics.

Selling expenses as a percentage of net sales were 9.9% and 10.3% for the three and six months ended January 31, 2006, compared with 11.7% and 11.8% for the three and six months ended January 31, 2005. The decrease in selling expenses as a percentage of net sales was primarily attributable to the inclusion of the lower selling cost structure of the Crosstex operation and decreases in sales and marketing personnel and commissions in our dialysis reporting segment in response to the consolidation of the dialysis industry.

General and administrative expenses increased by $2,746,000 to $8,113,000 for the three months ended January 31, 2006, from $5,367,000 for the three months ended January 31, 2005. For the six months ended January 31, 2006, general and administrative expenses increased by $5,407,000 to $16,224,000, from $10,817,000 for the six months ended January 31, 2005. For the three and six months ended January 31, 2006, general and administrative expenses increased principally due to the inclusion of $2,106,000 and $4,137,000, respectively, of Crosstex’ general and administrative expenses (which Crosstex expenses include $740,000  and $1,480,000, respectively, of amortization associated with intangible assets); the recording of $217,000 and $531,000, respectively, of stock-based compensation expense during the three and six months ended January 31, 2006; $345,000 in incentive compensation during the three months ended October 31, 2005 directly related to the Crosstex acquisition; $160,000 in debt financing costs for the three months ended October 31, 2005 related to the amended and restated credit facilities; $111,000 and $233,000, respectively, for the three and six months ended January 31, 2006 in severance expense relating to the termination of the Olympus distribution agreements; and the translation of Carsen’s, Biolab’s and Saf-T-Pak’s expenses using a stronger Canadian dollar against the United States dollar which resulted in an additional $54,000 and $154,000, respectively, of general and administrative expenses for the three and six months ended January 31, 2006. Partially offsetting these increases were a decrease for the three and six months ended January 31, 2006 in incentive compensation of approximately $228,000 and $444,000, respectively, (which excludes the acquisition related incentive compensation described above) and a $225,000 decrease in bad debt expense during the three months ended October 31, 2005 due to the collection of several delinquent receivables.

General and administrative expenses as a percentage of net sales were 13.2% and 13.3% for the three and six months ended January 31, 2006, respectively, compared with 10.8% and 11.4% for the three and six months ended January 31, 2005. The increase in general and administrative expenses as a percentage of net sales was primarily attributable to the aforementioned factors.

Research and development expenses (which include continuing engineering costs) increased by $393,000 to $1,415,000 for the three months ended January 31, 2006, from $1,022,000 for the three months ended January 31, 2005. For the six months ended January 31, 2006, research and development expenses increased by $629,000 to $2,635,000, from $2,006,000 for the six months ended January 31, 2005. The increase in research and development expenses for the three and six months ended January 31, 2006 was primarily due to ongoing research and development expenses related to the Dyped endoscope reprocessor and specialty filtration.

32

Interest

Interest expense increased by $678,000 to $1,098,000 for the three months ended January 31, 2006, from $420,000 for the three months ended January 31, 2005. For the six months ended January 31, 2006 interest expense increased by $1,513,000 to $2,362,000, from $849,000 for the six months ended January 31, 2005. For the three and six months ended January 31, 2006, interest expense increased primarily due to the significant increase in average outstanding borrowings as a result of financing a portion of the purchase price of the August 1, 2005 acquisition of Crosstex.

Interest income increased by $42,000 to $149,000 for the three months ended January 31, 2006, from $107,000 for the three months ended January 31, 2005. For the six months ended January 31, 2006, interest income increased by $176,000 to $361,000, from $185,000 for the six months ended January 31, 2005. Interest income increased primarily due to an increase in average interest rates for the three and six months ended January 31, 2006 and a higher average cash balance for the three months ended October 31, 2005.

Income before income taxes

Income before income taxes decreased by $12,000 to $6,293,000 for the three months ended January 31, 2006, from $6,305,000 for the three months ended January 31, 2005. For the six months ended January 31, 2006, income before income taxes increased by $1,313,000 to $12,640,000, from $11,327,000 for the six months ended January 31, 2005.

Income taxes

The consolidated effective tax rate on income before income taxes was 39.3% and 38.4% for the six months ended January 31, 2006 and 2005, respectively. We have provided income tax expense for our United States operations at the statutory tax rate; however, actual payment of U.S. Federal income taxes reflects the benefits of the utilization of the Federal net operating loss carryforwards (“NOLs”) accumulated in the United States. Approximately $387,000 of NOLs remained at July 31, 2005 and were fully utilized during the three months ended October 31, 2005.

Our results of operations for the three and six months ended January 31, 2006 and 2005 also reflect income tax expense for our international subsidiaries at their respective statutory rates. Such international subsidiaries include our subsidiaries in Canada and Japan, which had effective tax rates during the six months ended January 31, 2006 of approximately 35.3% and 45.0%, respectively.

The higher overall effective tax rate for the six months ended January 31, 2006, as compared with the six months ended January 31, 2005, is principally due to the loss from operations at our Netherlands subsidiary for which no tax benefit was recorded, the recording of a partial income tax benefit relating to stock-based compensation during the six months ended January 31, 2006, and the geographic mix of pretax income, partially offset by a $200,000 release of a deferred tax liability related to the repatriation of foreign accumulated profits.

Stock-Based Compensation

On August 1, 2005, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 123, “Share-Based Payment (Revised 2004)” (“SFAS 123R”) using the modified

33

prospective method for the transition. Under the modified prospective method, stock compensation expense will be recognized for any option grant or stock award granted on or after August 1, 2005, as well as the unvested portion of stock options granted prior to August 1, 2005, based upon the award’s fair value. For fiscal 2005 and earlier periods, we have accounted for stock options using the intrinsic value method under which stock compensation expense is not recognized because we granted stock options with exercise prices equal to the market value of the shares at the date of grant.

The following table shows the allocation of total stock-based compensation expense recognized in the condensed consolidated statements of income for the three and six months ended January 31, 2006:

	Three Months Ended			Six Months Ended
	January 31, 2006			January 31, 2006
Cost of sales	$	13,000		$	38,000
Operating expenses:
Selling	39,000			97,000
General and administrative	217,000			531,000
Research and development	4,000			12,000
Total operating expenses	260,000			640,000
Stock-based compensation before income taxes	273,000			678,000
Income tax benefits	(66,000		)	(159,000		)
Total stock-based compensation expense, net of tax	$	207,000		$	519,000

Most of our stock options are subject to graded vesting in which portions of the option award vest at different times during the vesting period, as opposed to awards that vest at the end of the vesting period. We recognize compensation expense for options subject to graded vesting using the straight-line basis, reduced by estimated forfeitures. Total unrecognized stock-based compensation expense related to total nonvested stock options was $1,032,000 at January 31, 2006 with a remaining weighted average period of 20 months over which such expense is expected to be recognized.

As of January 31, 2006, we have recorded stock-based compensation in the amount of $678,000 as additional capital and the related income tax benefits of $159,000 (which pertain to options that do not qualify as incentive stock options) as long-term deferred income tax assets (which are netted with long-term deferred income tax liabilities) in our condensed consolidated balance sheet at that date.

If certain criteria are met when an option is exercised, the Company is allowed a deduction on its income tax return. Accordingly, we account for such income tax deductions as additional capital and as a reduction of income taxes payable. For the three and six months ended January 31, 2006, options exercised resulted in an $829,000 income tax deduction.

At July 31, 2005 (prior to the adoption of SFAS 123R), we presented all tax benefits of deductions resulting from the exercise of stock options as operating cash flows in the condensed consolidated statements of cash flows. Beginning August 1, 2005, we changed our cash flow presentation in accordance with SFAS 123R which requires the cash flows resulting from excess tax benefits to be classified as financing cash flows. For the six months ended January 31, 2006, $621,000 in excess tax benefits were shown as financing cash flows in our consolidated statements of cash flow. Excess tax benefits arise when the ultimate tax deduction for tax purposes is greater than the tax benefit on stock compensation expense which was determined based upon the award’s fair value.

34

Liquidity and Capital Resources

Working capital

At January 31, 2006, the Company’s working capital was $63,723,000, compared with $51,015,000 at July 31, 2005. This increase was primarily due to the acquisition of Crosstex, which contributed $9,752,000 in working capital at the date of acquisition.

Cash flows from operating activities

Net cash provided by operating activities was $8,706,000 and $7,997,000 for the six months ended January 31, 2006 and 2005, respectively. For the six months ended January 31, 2006, the net cash provided by operating activities was primarily due to net income, after adjusting for depreciation and amortization, and a decrease in accounts receivable (due to strong sales in the month of July 2005 which were subsequently collected), partially offset by an increase in inventories (due to planned increases in stock levels of certain products) and a decrease in income taxes payable (due to the timing of tax payments). For the six months ended January 31, 2005, the net cash provided by operating activities was primarily due to net income, after adjusting for depreciation and amortization, deferred income taxes and a decrease in inventories (which was primarily due to a large sale of microscopes and related imaging products to a Canadian university), partially offset by a decrease in accounts payable and accrued expenses and income taxes payable (due to the timing associated with payments).

Cash flows from investing activities

Net cash used in investing activities was $69,530,000 and $1,866,000 for the six months ended January 31, 2006 and 2005, respectively. For the six months ended January 31, 2006, the net cash used in investing activities was primarily for the acquisition of Crosstex and capital expenditures. For the six months ended January 31, 2005, the net cash used in investing activities was primarily for capital expenditures.

Cash flows from financing activities

Net cash provided by financing activities was $46,216,000 for the six months ended January 31, 2006, compared with net cash used in financing activities of $3,445,000 for the six months ended January 31, 2005. For the six months ended January 31, 2006, the net cash provided by financing activities was primarily attributable to borrowings under our United States credit facilities related to the acquisition of Crosstex and proceeds from the exercises of stock options, partially offset by repayments under these credit facilities. For the six months ended January 31, 2005, the net cash used in financing activities was primarily attributable to repayments under the credit facilities, partially offset by proceeds from the exercises of stock options.

Credit facilities

In conjunction with the acquisition of Crosstex, we entered into amended and restated credit facilities dated as of August 1, 2005 (the “2005 U.S. Credit Facilities”) with a consortium of United States lenders to fund the cash consideration paid in the acquisition and costs associated with the acquisition, as well as to modify our existing United States credit facilities. The 2005 U.S. Credit Facilities include (i) a six-year $40.0 million senior secured amortizing term loan facility and (ii) a five-year $35.0 million senior secured revolving credit facility. In

35

addition, we agreed to repay the July 31, 2005 outstanding borrowings of $15,750,000 under our original term loan facility within ninety (90) days from the closing. In October 2005, such amount was repaid primarily through the repatriation of funds from our foreign subsidiaries. Amounts we repay under the term loan facility may not be re-borrowed. Additionally, we incurred debt issuance costs of approximately $1,426,000, of which $160,000 of third-party costs was recorded in general and administrative expenses during the three months ended October 31, 2005 in accordance with applicable accounting rules. The remaining $1,266,000 of costs was recorded in other assets and will be amortized over the life of the credit facilities.

Borrowings under the 2005 U.S. Credit Facilities bear interest at rates ranging from 0% to 0.75% above the lender’s base rate, or at rates ranging from 1.0% to 2.0% above the London Interbank Offered Rate (“LIBOR”), depending upon our consolidated ratio of debt to earnings before interest, taxes, depreciation and amortization, and as further adjusted under the terms of the 2005 U.S. Credit Facilities (“EBITDA”). At February 28, 2006, the lender’s base rate was 7.5% and the LIBOR rates ranged from 4.11% to 4.96%. The margins applicable to our outstanding borrowings at February 28, 2006 were 0.25% above the lender’s base rate and 1.5% above LIBOR. All of our outstanding borrowings were under LIBOR contracts at February 28, 2006. The 2005 U.S. Credit Facilities also provide for fees on the unused portion of our revolving credit facility at rates ranging from 0.20% to 0.40%, depending upon our consolidated ratio of debt to EBITDA.

The 2005 U.S. Credit Facilities require us to meet certain financial covenants and are secured by (i) substantially all of our U.S.-based assets (including assets of Cantel, Minntech, Mar Cor and Crosstex) and (ii) our pledge of all of the outstanding shares of Minntech, Mar Cor and Crosstex and 65% of the outstanding shares of our foreign-based subsidiaries. We were in compliance with the financial covenants under the 2005 U.S. Credit Facilities at January 31, 2006.

We also have a $3,000,000 (United States dollars) Canadian-based senior secured revolving credit facility with a Canadian bank (the “Canadian Credit Facility”) available for Carsen’s future working capital requirements. The Canadian Credit Facility, which has a maturity date of July 31, 2006, provides for available borrowings based upon percentages of the eligible accounts receivable and inventories of Carsen and Biolab; bears interest at rates ranging from 0.13% to 1.38% above the lender’s base rate (which was 5.25% at February 28, 2006), or 1.75% to 3.0% above LIBOR, depending upon Carsen’s ratio of debt to EBITDA; requires us to meet certain financial covenants; and is secured by substantially all assets of Carsen and Biolab. As of February 28, 2006, we had no outstanding borrowings under the Canadian Credit Facility and we do not expect to have any significant borrowings during the remainder of fiscal 2006. We were in compliance with the financial covenants under the Canadian Credit Facility at January 31, 2006.

On January 31, 2006, we had $61,500,000 of outstanding borrowings under the 2005 U.S. Credit Facilities which consisted of $39,000,000 and $22,500,000 under the term loan facility and the revolving credit facility, respectively. On March 10, 2006, we had $58,000,000 of outstanding borrowings under the 2005 U.S. Credit Facilities which consisted of $39,000,000 and $19,000,000 under the term loan facility and the revolving credit facility, respectively.

36

Aggregate annual required maturities of the 2005 U.S. Credit Facilities over the remainder of fiscal 2006 and the next five years are as follows:

Six month period ending July 31, 2006	$	1,000,000
Fiscal 2007	4,000,000
Fiscal 2008	6,000,000
Fiscal 2009	8,000,000
Fiscal 2010	10,000,000
Fiscal 2011	32,500,000
Ending balance	$	61,500,000

All of such maturing amounts reflect the repayment terms under the 2005 U.S. Credit Facilities. The amount maturing in fiscal 2011 includes the $22,500,000 outstanding at January 31, 2006 under the revolving credit facility since such amount is required to be repaid prior to the expiration date of this facility on August 1, 2010.

Dyped note payable and other long-term liabilities

In conjunction with the Dyped acquisition on September 12, 2003, we issued a note with a face value of €1,350,000 ($1,505,000 using the exchange rate on the date of the acquisition). At January 31, 2006, approximately $1,303,000 of this note was outstanding using the exchange rate on January 31, 2006. Such note is non-interest bearing and has been recorded at its present value of $1,183,000 at January 31, 2006. The current portion of this note is recorded in accrued expenses and the remainder is recorded in other long-term liabilities.

Also included in other long-term liabilities are amounts due pursuant to deferred compensation arrangements for certain former Minntech directors and officers.

Operating leases

Aggregate future minimum commitments at January 31, 2006 under noncancelable operating leases for property and equipment are as follows:

Six month period ending July 31, 2006	$	1,383,000
Fiscal 2007	2,255,000
Fiscal 2008	1,773,000
Fiscal 2009	1,609,000
Fiscal 2010	983,000
Thereafter	2,893,000
Total lease commitments	$	10,896,000

Olympus-Carsen distribution agreements

The majority of Carsen’s sales of endoscopy products and scientific products related to microscopy are distributed pursuant to an agreement with Olympus America Inc. (the “Olympus Agreement”), and the majority of Carsen’s sales of surgical products and scientific products related to industrial technology equipment are distributed pursuant to an agreement with Olympus Surgical & Industrial America, Inc. (the “Olympus Industrial Agreement”)(collectively the “Olympus Agreements”), under which Carsen has been granted the exclusive right to distribute the covered Olympus products in Canada. Carsen is subject to a minimum purchase requirement of $23,500,000 under the Olympus Agreement for the contract year ending March 31, 2006. There are no minimum purchase requirements under the Olympus Industrial Agreement.

37

In July 2005 we entered into an agreement with Olympus under which, effective July 31, 2006, Carsen will no longer serve as the Canadian distributor of Olympus products. Under the agreement, the Olympus Agreements will be extended to and expire on July 31, 2006 and will not be extended beyond such date. Carsen’s operations will remain an important contributor to our results of operations through the end of fiscal 2006.

Under the July 2005 agreement, Olympus will pay us $6,000,000 in cash in consideration for Carsen’s transfer to Olympus of customer lists, sales records, and certain other assets related to the sale and servicing of Olympus products and for Carsen’s release of Olympus’s contractual restriction on hiring Carsen personnel. In addition, we will assist Olympus in effecting a smooth transition of Carsen’s business of distributing and servicing Olympus products in Canada. The $6,000,000 payable by Olympus is due in three installments, $1,500,000 on August 1, 2005, $1,500,000 on January 31, 2006 and $3,000,000 on July 31, 2006. Both $1,500,000 installments have been received and are recorded as deferred revenue at January 31, 2006. However, the $6,000,000 will not be recognized until July 31, 2006, the date at which all of our obligations will be fulfilled, even though certain wind-down costs such as severance will be recorded throughout fiscal 2006. In addition, Olympus will acquire Carsen’s inventory of Olympus products as of July 31, 2006 at Carsen’s book value.

Under the agreement with Olympus, we have agreed not to manufacture, distribute, sell or represent for sale in Canada through July 31, 2007 any products that are competitive with the Olympus products covered by the Olympus Agreements.

In addition, we have recently reached an agreement in principle with Olympus for the sale of substantially all of Carsen’s non-Olympus related assets other than those related to its Medivators business and certain other smaller product lines. Subject to reaching a definitive agreement, the principal assets to be sold will include Carsen’s accounts receivable, real property leases and leasehold improvements, non-Olympus inventories and backlog orders related to acquired product lines, computer and software systems, equipment and machinery, telephone systems, and records related to the acquired assets. The purchase price for the additional assets being acquired by Olympus will be $4,000,000 in cash plus additional amounts for the non-Olympus inventories, accounts receivable, backlog orders and certain other assets, subject to certain adjustments to the purchase price, particularly those related to service and warranty obligations and certain employee benefits. However, there can be no assurance that the parties will enter into a definitive agreement.

Subject to entering into the definitive agreement referred to above with respect to our sale of additional assets to Olympus, net proceeds from the termination of Carsen’s operations are currently projected to be in excess of $20,000,000. Such net proceeds will consist of the $10,000,000 to be paid by Olympus and net proceeds from the sale of inventories, accounts receivable and backlog orders, less satisfaction of liabilities, severance costs and other wind-down costs. Management’s projection of net proceeds is an estimate based on inventories, accounts receivable, backlog orders and liabilities at January 31, 2006 and assumptions for potential wind-down costs, but without taking into account any Canadian or United States income tax implications.

The net sales and operating income attributable to Carsen’s business (inclusive of both Olympus and non-Olympus business, but exclusive of the sale of Medivators reprocessors) constitute the entire Endoscopy and Surgical reporting segment and Scientific operating segment, which is included within the All Other reporting segment.

38

If Olympus purchases the additional assets described above, then we will not continue any remaining non-Olympus product lines, with the exception of the Medivators endoscope reprocessors. We are currently evaluating various alternatives related to the continued distribution of Medivators products.

Operating segment information attributable to Carsen’s business is summarized below:

	Three Months Ended				Six Months Ended
	January 31,				January 31,
	2006		2005		2006		2005
Net sales:
Endoscopy and Surgical	$	10,685,000	$	10,696,000	$	20,429,000	$	17,916,000
Endoscope Reprocessing	785,000		792,000		1,184,000		1,415,000
Scientific (included in All Other)	3,256,000		4,032,000		5,828,000		9,216,000
Total	$	14,726,000	$	15,520,000	$	27,441,000	$	28,547,000
Operating income:
Endoscopy and Surgical	$	2,843,000	$	2,623,000	$	5,145,000	$	4,254,000
Endoscope Reprocessing	184,000		205,000		259,000		380,000
Scientific (included in All Other)	237,000		443,000		246,000		936,000
Total	$	3,264,000	$	3,271,000	$	5,650,000	$	5,570,000

During the three and six months ended January 31, 2006, total net sales of Carsen accounted for approximately 24% and 23%, respectively, of our consolidated net sales. Approximately 80% of Carsen’s net sales for the three and six months ended January 31, 2006 were attributable to its Olympus distribution and service businesses. Operating income of Carsen during the three and six months ended January 31, 2006 was approximately 37% and 31%, respectively, of our consolidated operating income before general corporate expenses and interest expense.

The following table shows the amount of severance recorded in the condensed consolidated statements of income for the three and six months ended January 31, 2006:

	Three Months Ended		Six Months Ended
	January 31, 2006		January 31, 2006
Cost of sales	$	9,000	$	9,000
Operating expenses:
Selling	90,000		171,000
General and administrative	111,000		233,000
Research and development	—		—
Total operating expenses	201,000		404,000
Total severance expense	$	210,000	$	413,000

39

Minntech-Olympus distribution agreement

The Medivators Agreement grants Olympus the exclusive right to distribute the majority of our endoscope reprocessing products and related accessories and supplies in the United States and Puerto Rico. The Medivators Agreement expires on August 1, 2006. All equipment sold by Olympus pursuant to this agreement bears both the “Olympus” and “Medivators” trademarks.

The Medivators Agreement provides for minimum purchase requirements during each contract year, which if not met give us the option to terminate the agreement. Although sales to Olympus declined slightly during the contract year ended July 31, 2005, Olympus achieved its minimum purchase requirements in such contract year. Despite this decline, we believe that Olympus’ domestic distribution capabilities have historically provided us with the broadest distribution and profit potential for our endoscope reprocessing products.

With the Medivators Agreement due to expire on August 1, 2006, we have initiated discussions with Olympus regarding the potential renewal of the agreement. Concurrently, we will evaluate and determine whether to extend the agreement with Olympus, seek a new third party distributor, or directly undertake the distribution function after August 1, 2006. If we do not agree to renew the distribution agreement with Olympus or, if offered, Olympus fails to renew the agreement, we will then be required to engage a new distributor or establish our own direct distribution system in the United States.

Financing needs

During the six months ended January 31, 2006, we repatriated $15,000,000 of existing accumulated profits from our international subsidiaries. At January 31, 2006, we had a cash balance of $19,722,000, a significant portion of which was still held by foreign subsidiaries. In February 2006, we repatriated an additional $2,697,000. The decision to repatriate cash during fiscal 2006 was made in connection with the utilization of all of our remaining NOLs during the six months ended January 31, 2006.

We believe that our current cash position, anticipated cash flows from operations, and the funds available under our revolving credit facilities will be sufficient to satisfy our cash operating requirements for the foreseeable future based upon our existing operations. At March 10, 2006, approximately $19,000,000 was available under our revolving credit facilities (including $16,000,000 under our United States revolving credit facility).

Foreign currency

During the three and six months ended January 31, 2006 compared with the three and six months ended January 31, 2005, the average value of the Canadian dollar increased by approximately 3.7% and 5.9%, respectively, relative to the value of the United States dollar. Changes in the value of the Canadian dollar against the United States dollar affect our results of operations principally for the following reasons:

(i)Carsen purchases substantially all of its products in United States dollars and sells its products in Canadian dollars. The increase in the average value of the Canadian dollar, as explained above, lowered Carsen’s cost of inventory purchased and therefore decreased cost of sales and increased gross profit.

40

(ii)Biolab and Saf-T-Pak purchase a portion of their inventories in United States dollars and sell a significant amount of their products in United States dollars and therefore are exposed to realized foreign currency gains and losses upon payment of such payables and the collection of such receivables. Similarly, such United States denominated assets and liabilities must be converted into their functional Canadian currency when preparing their financial statements, which results in realized foreign exchange gains and losses. The increase in the average value of the Canadian dollar, as explained above, primarily resulted in gains for such liabilities and losses for such assets. Since Biolab and Saf-T-Pak had more assets than liabilities denominated in United States dollars, the increase in the average value of the Canadian dollar had an adverse effect on their results of operations for the three and six months ended January 31, 2006.

(iii)The results of operations of our Canadian subsidiaries are translated from their functional Canadian currency to United States dollars for purposes of preparing our consolidated financial statements. The increase in the average value of the Canadian dollar, as explained above, had an overall positive impact upon our results of operations due to translating the results of operations for the three and six months ended January 31, 2006 at a higher average currency exchange rate as compared with the average currency exchange rate used to translate the results of operations for the three and six months ended January 31, 2005.

During the three and six months ended January 31, 2006, such strengthening of the Canadian dollar relative to the United States dollar had an overall positive impact upon our results of operations.

Under our Canadian Revolving Credit Facility, we had a $35,000,000 (United States dollars) foreign currency hedging facility, which is available to hedge against the impact of such currency fluctuations on purchases of inventories. Total commitments for foreign currency forward contracts under this facility amounted to $11,800,000 (United States dollars) at February 28, 2006 and cover a substantial portion of Carsen’s projected purchases of inventories through July 2006, which is the end of the Olympus distribution agreements. These foreign currency forward contracts have been designated as cash flow hedge instruments. The weighted average exchange rate of the forward contracts open at February 28, 2006 was $1.2185 Canadian dollar per United States dollar, or $0.8207 United States dollar per Canadian dollar. The exchange rate published by the Wall Street Journal on February 28, 2006 was $1.1362 Canadian dollar per United States dollar, or $0.8801 United States dollar per Canadian dollar.

During the three and six months ended January 31, 2006 compared with the three and six months ended January 31, 2005, the value of the euro decreased by approximately 9.5% and 5.3%, respectively, relative to the value of the United States dollar. Changes in the value of the euro against the United States dollar affect our results of operations for the following reasons:

(i)Minntech’s Netherlands subsidiary maintains a portion of its cash in United States dollars, sells some of its products in United States dollars and pays various liabilities in United States dollars. Therefore, it is exposed to realized foreign currency gains and losses upon activity in such dollar cash accounts, collection of such receivables and payment of such liabilities. Similarly, such United States denominated assets and liabilities must be converted into their functional euro currency when preparing their financial statements, which results in realized foreign exchange gains and losses. The decrease in the average value of the euro, as explained above, primarily resulted in losses for such liabilities and gains for such assets. Since Minntech’s Netherlands subsidiary had

41

more assets than liabilities denominated in United States dollars, the decrease in the average value of the euro had an overall positive affect on our results of operations for the three and six months ended January 31, 2006.

(ii)The results of operations of Minntech’s Netherlands subsidiary are translated from its functional euro currency to United States dollars for the purpose of preparing our consolidated financial statements. The decrease in the average value of the euro, as explained above, had an overall positive impact upon our results of operations due to translating the three and six months ended January 31, 2006 results of operations (which had an overall loss) at a lower average currency exchange rate as compared with the average currency exchange rate used to translate the three and six months ended January 31, 2005 results of operations (which also had an overall loss).

During the three and six months ended January 31, 2006, such weakening of the euro relative to the United States dollar had an overall positive impact upon our results of operations.

In order to hedge against the impact of fluctuations in the value of the euro relative to the United States dollar on the conversion of such dollar denominated net assets into functional currency, we enter into short-term contracts to purchase euros forward, which contracts are generally one month in duration. These short-term contracts have been designated as fair value hedges. There was one foreign currency forward contract amounting to €1,252,000 at February 28, 2006 which covers certain assets and liabilities of Minntech’s Netherlands subsidiary which are denominated in United States dollars. Such contract expires on March 31, 2006. Under our credit facilities, such contracts to purchase euros may not exceed $12,000,000 in an aggregate notional amount at any time. During the three and six months ended January 31, 2006, such forward contracts were effective in offsetting most of the impact of the weakening of the euro on our results of operations.

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 133, as amended, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”), all of our foreign currency forward contracts are designated as hedges. Recognition of gains and losses related to the Canadian hedges is deferred within other comprehensive income until settlement of the underlying commitments, and realized gains and losses are recorded within cost of sales upon settlement. Gains and losses related to the hedging contracts to buy euros forward are immediately realized within general and administrative expenses due to the short-term nature of such contracts.

 For purposes of translating the balance sheet at January 31, 2006 compared to July 31, 2005, the value of the Canadian dollar increased by approximately 7.3% and the value of the euro decreased by approximately 0.1% compared to the value of the United States dollar. The total of these currency movements resulted in a foreign currency translation gain of $3,892,000 during the six months ended January 31, 2006, thereby increasing stockholders’ equity.

Changes in the value of the Japanese yen relative to the United States dollar during the three and six months ended January 31, 2006 compared to the three and six months ended January 31, 2005 did not have a significant impact upon either our results of operations or the translation of our balance sheet, primarily due to the fact that our Japanese subsidiary accounts for a relatively small portion of consolidated net sales, net income and net assets.

42

Inflation

Inflation has not significantly impacted our operations for the three and six months ended January 31, 2006 and 2005.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we continually evaluate our estimates. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements.

Revenue Recognition

Revenue on product sales (excluding certain sales of endoscope reprocessing equipment in the United States) is recognized as products are shipped to customers and title passes. The passing of title is determined based upon the FOB terms specified for each shipment. With respect to dialysis, therapeutic, specialty packaging and a portion of endoscope reprocessing products, shipment terms are generally FOB origin for common carrier and FOB destination when our distribution fleet is utilized (except for one large customer in dialysis whereby all products are shipped FOB destination). With respect to endoscopy and surgical, water purification and filtration, scientific products and dental products, shipment terms may be either FOB origin or destination. Customer acceptance for the majority of our product sales occurs at the time of delivery. In certain instances, primarily with respect to some of our water purification and filtration equipment and an insignificant amount of our sales of dialysis equipment and scientific products, post-delivery obligations such as installation, in-servicing or training are contractually specified; in such instances, revenue recognition is deferred until all of such conditions have been substantially fulfilled such that the products are deemed functional by the end-user. With respect to a portion of endoscopy and surgical, water purification and filtration and scientific product sales, equipment is sold as part of a system for which the equipment is functionally interdependent or the customer’s purchase order specifies “ship-complete” as a condition of delivery; revenue recognition on such sales is deferred until all equipment has been delivered.

With respect to a portion of endoscopy and surgical sales, we enter into arrangements whereby revenue is immediately recognized upon the transfer of equipment to customers who pay on a cost per procedure basis, subject to minimum monthly payments. Such arrangements are non-cancelable by the customer and provide for a bargain purchase option by the customer at the conclusion of the term. All direct costs related to these transactions are recorded at the time of revenue recognition. Some of such transactions also provide for future servicing of the equipment, which service revenue component is deferred and recognized over the period that

43

such services are provided. With respect to these multiple element arrangements, revenue is allocated to the equipment and service components based upon vendor specific objective evidence which principally includes comparable historical transactions of similar equipment and service sold as stand-alone components.

Sales of a majority of our endoscope reprocessing equipment to a third party distributor in the United States are recognized on a bill and hold basis as more fully described in notes 2 and 10 in the 2005 Form 10-K. Such sales satisfy each of the following criteria: (i) the risks of ownership have passed to the third party distributor; (ii) the third party distributor must provide a written purchase order committing to the purchase of specified units; (iii) the bill and hold arrangement was specifically requested by the third party distributor for the purpose of minimizing the impact of multiple shipments of the units; (iv) the third party distributor provides specific instructions for shipment to customers, and completed units held by us for the third party distributor generally do not exceed three months of anticipated shipments; (v) we have no further performance obligations with respect to such units; (vi) completed units are invoiced to the third party distributor with 30 day payment terms and such receivables are generally satisfied within such terms; and (vii) completed units are ready for shipment and segregated in a designated section of our warehouse reserved only for the third party distributor.

Revenue on service sales is recognized when repairs are completed at the customer’s location or when repairs are completed at our facilities and the products are shipped to customers. All shipping and handling fees invoiced to customers, such as freight, are recorded as revenue (and related costs are included within cost of sales) at the time the sale is recognized.

None of our sales, including the bill and hold sales arrangement, contain right-of-return provisions, and customer claims for credit or return due to damage, defect, shortage or other reason must be pre-approved by us before credit is issued or such product is accepted for return. No cash discounts for early payment are offered except with respect to a small portion of our sales of dialysis and dental products and certain prepaid packaging products. We do not offer price protection, although advance pricing contracts or required notice periods prior to implementation of price increases exist for certain customers with respect to many of our products. With respect to certain of our dialysis, endoscope reprocessing and dental customers, volume rebates and trade-in allowances are provided; such volume rebates and trade-in allowances are provided for as a reduction of sales at the time of revenue recognition and amounted to $393,000 and $482,000 for the three and six months ended January 31, 2006, respectively, and $266,000 and $457,000 for the three and six months ended January 31, 2005, respectively. Included in the volume rebates for the three and six months ended January 31, 2006 is approximately $300,000 and $600,000, respectively, in volume rebates as a result of the addition of dental products offset by the cancellation during the three months ended October 31, 2005 of a volume rebate program resulting from consolidation in the dialysis industry. Such allowances are determined based on estimated projections of sales volume and trade-ins for the entire rebate agreement periods. Trade-in allowances were not significant during the three and six months ended January 31, 2006 and 2005. If it becomes known that sales volume to customers will deviate from original projections, the volume rebate provisions originally established would be adjusted accordingly.

The majority of our dialysis products are sold to end-users; the majority of therapeutic filtration products, endoscope reprocessing products and services, and dental products are sold to third party distributors; the majority of endoscopy and surgical products and services are sold directly to hospitals; the majority of water purification and filtration products and services are sold directly and through third-party distributors to hospitals, dialysis clinics, pharmaceutical and

44

biotechnology companies and other end-users; scientific products and services are sold to hospitals, laboratories and other end-users; and specialty packaging products are sold to third-party distributors, medical research companies, laboratories, pharmaceutical companies, hospitals, government agencies and other end-users. Sales to all of these customers follow our revenue recognition policies.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable consist of amounts due to us from normal business activities. Allowances for doubtful accounts are reserves for the estimated loss from the inability of customers to make required payments. We use historical experience as well as current market information in determining the estimate. While actual losses have historically been within management’s expectations and provisions established, if the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Alternatively, if certain customers paid their delinquent receivables, reductions in allowances may be required (as was the case during the three months ended October 31, 2005).

Inventories

Inventories consist of products which are sold in the ordinary course of our business and are stated at the lower of cost (first-in, first-out) or market. In assessing the value of inventories, we must make estimates and judgments regarding reserves required for product obsolescence, aging of inventories and other issues potentially affecting the saleable condition of products. In performing such evaluations, we use historical experience as well as current market information. In one such evaluation in fiscal 2003, we determined that certain parts relating to our endoscope reprocessing equipment were obsolete, primarily due to design changes, resulting in an additional provision of approximately $300,000. With few exceptions, the saleable value of our inventories has historically been within management’s expectation and provisions established, however, rapid changes in the market due to competition, technology and various other factors could have an adverse effect on the saleable value of our inventories, resulting in the need for additional reserves.

Goodwill and Intangible Assets

Certain of our identifiable intangible assets, including customer relationships, brand names, technology, non-compete agreements and patents, are amortized on the straight-line method over their estimated useful lives which range from 3 to 20 years. Additionally, we have recorded goodwill and trademarks and trade names, all of which have indefinite useful lives and are therefore not amortized. All of our intangible assets and goodwill are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, and goodwill and intangible assets with indefinite lives are reviewed for impairment at least annually. Our management is primarily responsible for determining if impairment exists and considers a number of factors, including third-party valuations, when making these determinations. In performing a review for goodwill impairment, management uses a two-step process that begins with an estimation of the fair value of the related operating segments. The first step is a review for potential impairment, and the second step measures the amount of impairment, if any. In performing our annual review for indefinite lived intangibles, management compares the current fair value of such assets to their carrying values. With respect to amortizable intangible assets when impairment indicators are present, management would determine whether non-discounted cash flows would be sufficient to recover

45

the carrying value of the assets; if not, the carrying value of the assets would be adjusted to their fair value. On July 31, 2005, management concluded that none of our intangible assets or goodwill was impaired. While the results of these annual reviews have historically not indicated impairment, impairment reviews are highly dependent on management’s projections of our future operating results which management believes to be reasonable.

Long-lived assets

We evaluate the carrying value of long-lived assets including property, equipment and other assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. An assessment is made to determine if the sum of the expected future non-discounted cash flows from the use of the assets and eventual disposition is less than the carrying value. If the sum of the expected non-discounted cash flows is less than the carrying value, an impairment loss is recognized based on fair value. In one such review in July 2005, our results of operations were adversely impacted by a $338,000 impairment charge, which was recorded in general and administrative expenses, primarily related to the cancellation of a computer system installation due to the termination of Carsen’s Olympus distribution business on July 31, 2006. In addition, impairment charges of $55,000 and $153,000 were recorded during fiscal 2005 and fiscal 2004, respectively, pertaining to the closing of two dialyzer reprocessing centers. With few exceptions, our historical assessments of our long-lived assets have not differed significantly from the actual amounts realized. However, the determination of fair value requires us to make certain assumptions and estimates and is highly subjective, and accordingly, actual amounts realized may differ significantly from our estimate.

Warranties

We provide for estimated costs that may be incurred to remedy deficiencies of quality or performance of our products at the time of revenue recognition. Most of our products have a one year warranty, although a majority of our endoscope reprocessing equipment in the United States may carry a warranty period of up to fifteen months. We record provisions for product warranties as a component of cost of sales based upon an estimate of the amounts necessary to settle existing and future claims on products sold. The historical relationship of warranty costs to products sold is the primary basis for the estimate. A significant increase in third party service repair rates, the cost and availability of parts or the frequency of claims could have a material adverse impact on our results for the period or periods in which such claims or additional costs materialize. Management reviews its warranty exposure periodically and believes that the warranty reserves are adequate; however, actual claims incurred could differ from original estimates, requiring adjustments to the reserves. In one such review during fiscal 2003, our results of operations were adversely impacted by an additional charge of approximately $570,000 related to endoscope reprocessing equipment due to a component failure which required warranty service to many endoscope reprocessing units in the field. Management believes this situation was fully remedied in fiscal 2003.

Stock-Based Compensation

On August 1, 2005, we adopted SFAS No. 123R using the modified prospective method for the transition. Under the modified prospective method, stock compensation expense will be recognized for any option grant or stock award granted on or after August 1, 2005, as well as the unvested portion of stock options granted prior to August 1, 2005, based upon the award’s fair value. For fiscal 2005 and earlier periods, we have accounted for stock options using the intrinsic value method under which stock compensation expense is not recognized because we granted

46

stock options with exercise prices equal to the market value of the shares at the date of grant.

Most of our stock options are subject to graded vesting in which portions of the option award vest at different times during the vesting period, as opposed to awards that vest at the end of the vesting period. We recognize compensation expense for options subject to graded vesting using the straight-line basis, reduced by estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures are estimated based on historical experience.

The stock-based compensation expense recorded in our condensed consolidated financial statements may not be representative of the effect of stock-based compensation expense in future periods due to the level of options issued in past years (which level may not be similar in the future), assumptions used in determining fair value, and estimated forfeitures. We estimate the fair value of each option grant on the date of grant using the Black-Scholes option valuation model. The determination of fair value using an option-pricing model is affected by our stock price as well as assumptions regarding a number of subjective variables. These variables include, but are not limited to, the expected stock price volatility over the term of the option grant (which is determined by using the historical closing prices of our Common Stock), the expected dividend yield (which is expected to be 0%), and the expected weighted average option lives (which is based on historical exercise behavior). If factors change and we employ different assumptions in the application of SFAS 123R in future periods, the compensation expense that we record under SFAS 123R may differ significantly from what we have recorded in the current period.

Costs Associated with Exit or Disposal Activities

We recognize costs associated with exit or disposal activities, such as costs to terminate a contract, the exit or disposal of a business, or the early termination of a leased property, by recognizing the liability at fair value when incurred, except for certain one-time termination benefits, such as severance costs, for which the period of recognition begins when a severance plan is communicated to employees.

Inherent in the calculation of liabilities relating to exit and disposal activities are significant management judgments and estimates, including estimates of termination costs, employee attrition, and the interest rate used to discount certain expected net cash payments. Such judgments and estimates are reviewed by us on a regular basis. The cumulative effect of a change to a liability resulting from a revision to either timing or the amount of estimated cash flows is recognized by us as an adjustment to the liability in the period of the change.

Although we have historically recorded minimal charges associated with exit or disposal activities, we believe that certain exit costs, including severance, will be incurred in the future related to the expiration of Carsen’s Olympus Agreements.

Legal Proceedings

In the normal course of business, we are subject to pending and threatened legal actions. We record legal fees and other expenses related to litigation as incurred. Additionally, we assess, in consultation with our counsel, the need to record a liability for litigation and contingencies on a case by case basis. Amounts are accrued when we, in consultation with counsel, determine that a liability has been incurred and an amount of anticipated exposure can be reasonably estimated.

47

Income Taxes

We recognize deferred tax assets and liabilities based on differences between the financial statement carrying amounts and the tax basis of assets and liabilities. Deferred tax assets and liabilities also include items recorded in conjunction with the purchase accounting for business acquisitions. We regularly review our deferred tax assets for recoverability and establish a valuation allowance, if necessary, based on historical taxable income, projected future taxable income, and the expected timing of the reversals of existing temporary differences. Although realization is not assured, management believes it is more likely than not that the recorded deferred tax assets will be realized. Additionally, deferred tax liabilities are regularly reviewed to confirm that such amounts are appropriately stated. Such a review considers known future changes in various effective tax rates, principally in the United States. If the United States effective tax rate were to change in the future, our items of deferred tax could be materially affected. All of such evaluations require significant management judgments.

It is our policy to establish reserves for exposures as a result of an examination by tax authorities. We establish the reserves based primarily upon management’s assessment of exposure associated with acquired companies and permanent tax differences. The tax reserves are analyzed periodically (at least annually) and adjustments are made, as events occur to warrant adjustment to the reserves. The majority of our income tax reserves originated from acquisitions; therefore, changes to such reserves, if any, would be adjusted through goodwill.

Business Combinations

Acquisitions require significant estimates and judgments related to the fair value of assets acquired and liabilities assumed.

Certain liabilities are subjective in nature. We reflect such liabilities based upon the most recent information available. In conjunction with our acquisitions, such subjective liabilities principally include certain income tax and sales and use tax exposures, including tax liabilities related to our foreign subsidiaries. The ultimate settlement of such liabilities may be for amounts which are different from the amounts recorded.

Other Matters

We do not have any off balance sheet financial arrangements.

Forward Looking Statements

This quarterly report on Form 10-Q contains “forward-looking statements” as that term is defined under the Private Securities Litigation Reform Act of 1995 and releases issued by the Securities and Exchange Commission (the “SEC”) and within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements are based on current expectations, estimates, or forecasts about our businesses, the industries in which we operate, and the beliefs and assumptions of management; they do not relate strictly to historical or current facts. We have tried, wherever possible, to identify such statements by using words such as “expect,” “anticipate,” “goal,” “project,” “intend,” “plan,” “believe,” “seek,”  “may,” “could,” and variations of such words and similar expressions. In addition, any statements that refer to predictions or projections of our future financial performance, anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking

48

statements. Readers are cautioned that these forward-looking statements are only predictions about future events, activities or developments and are subject to numerous risks, uncertainties, and assumptions that are difficult to predict including, among other things, the following:

•the expiration on July 31, 2006 of the distribution agreements of our Carsen subsidiary covering its sale and service of Olympus products in Canada, which will result in the loss of a significant portion of our net sales, operating income and net income after July 31, 2006

•the increasing market share of single-use dialyzers relative to reuse dialyzers

•the potentially adverse impact of consolidation of dialysis providers

•our dependence on a concentrated number of distributors for our dental consumables

•our dependence on a single distributor in the United States for our endoscope reprocessing products and the short-term nature of the agreement with such distributor

•our growth may be dependent on acquiring new businesses and successfully integrating and operating such businesses

•our reliance on certain raw materials that have experienced price increases that may not always be passed on to our customers; recent hurricane damage to resin suppliers has resulted in product shortages and price increases

•the uncertain outcome of a lawsuit filed against us that alleges violations of federal antitrust laws

•foreign currency exchange rate and interest rate fluctuations

You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider the foregoing items to be a complete list of all potential risks or uncertainties. See “Risk Factors” in our 2005 Form 10-K for a discussion of the above risk factors and certain additional risk factors that you should consider before investing in the shares of our common stock.

All forward-looking statements herein speak only as of the date of this Form 10-Q. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

For these statements, we claim the protection of the safe harbor for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Foreign Currency Market Risk

A portion of our products are imported from the Far East and Western Europe. Minntech and Crosstex both sell a portion of their products outside of the United States and Minntech’s Netherlands subsidiary sells a portion of its products outside of the European Union. Consequently, our business could be materially affected by the imposition of trade barriers, fluctuations in the rates of exchange of various currencies, tariff increases and import and export restrictions, affecting the United States, Canada and the Netherlands.

49

Carsen imports a substantial portion of its products from the United States and pays for such products in United States dollars. Additionally, a portion of Biolab’s and Saf-T-Pak’s inventories are purchased in the United States and a significant amount of their sales are to customers in the United States. The businesses of our Canadian subsidiaries (Carsen, Biolab and Saf-T-Pak) could be materially and adversely affected by the imposition of trade barriers, fluctuations in the rate of currency exchange, tariff increases and import and export restrictions between the United States and Canada. Additionally, the financial statements of our Canadian subsidiaries are translated using the accounting policies described in note 2 to the 2005 Form 10-K. Fluctuations in the rates of currency exchange between the United States and Canada had an overall positive impact during the three and six months ended January 31, 2006, compared with the three and six months ended January 31, 2005, upon our results of operations and stockholders’ equity, as described in our MD&A.

In order to hedge against the impact of such currency fluctuations on the purchases of inventories, Carsen enters into foreign currency forward contracts on firm purchases of such inventories in United States dollars. These foreign currency forward contracts have been designated as cash flow hedge instruments. Total commitments for such foreign currency forward contracts amounted to $14,075,000 (United States dollars) at January 31, 2006 and cover a substantial portion of Carsen’s projected purchases of inventories through July 2006.

 Changes in the value of the euro against the United States dollar affect our results of operations because a portion of the net assets of Minntech’s Netherlands subsidiary are denominated and ultimately settled in United States dollars but must be converted into its functional euro currency. Additionally, financial statements of the Netherlands subsidiary are translated using the accounting policies described in note 2 to the 2005 Form 10-K. Fluctuations in the rates of currency exchange between the European Union and the United States had an overall positive impact for the three and six months ended January 31, 2006, compared to the three and six months ended January 31, 2005, upon our results of operations, and had an adverse impact upon stockholders’ equity, as described in our MD&A.

In order to hedge against the impact of fluctuations in the value of the euro relative to the United States dollar on the conversion of such dollar denominated net assets into functional currency, we enter into short-term contracts to purchase euros forward, which contracts are generally one month in duration. These short-term contracts have been designated as fair value hedge instruments. There was one such foreign currency forward contract amounting to €1,234,000 at January 31, 2006 which covers certain assets and liabilities of Minntech’s Netherlands subsidiary which are denominated in United States dollars. Such contract expired on February 28, 2006. Under our credit facilities, such contracts to purchase euros may not exceed $12,000,000 in an aggregate notional amount at any time. During the three and six months ended January 31, 2006, such forward contracts were effective in offsetting most of the impact of the weakening of the euro on our results of operations.

The functional currency of Minntech’s Japan subsidiary is the Japanese yen. Changes in the value of the Japanese yen relative to the United States dollar during the three and six months ended January 31, 2006 and 2005 did not have a significant impact upon either our results of operations or the translation of the balance sheet, primarily due to the fact that our Japanese subsidiary accounts for a relatively small portion of consolidated net sales, net income and net assets.

50

Interest Rate Market Risk

We have credit facilities for which the interest rate on outstanding borrowings is variable. Therefore, interest expense is principally affected by the general level of interest rates in the United States and Canada. During the three and six months ended January 31, 2006, all of our outstanding borrowings were under the 2005 U.S. Credit Facilities.

Market Risk Sensitive Transactions

Additional information related to market risk sensitive transactions is contained in Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in the Company’s 2005 Form 10-K.

ITEM 4.CONTROLS AND PROCEDURES.

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified by the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

We, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report on Form 10-Q. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer each concluded that the our disclosure controls and procedures are effective in providing reasonable assurance that information required to be disclosed by us in reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the SEC.

We have evaluated our internal controls over financial reporting and determined that no changes occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting, except as described below.

Changes in Internal Control

On August 1, 2005, which was the first day of fiscal 2006, we acquired Crosstex, as more fully described in note 3 to the condensed consolidated financial statements and in the MD&A. During the three and six months ended January 31, 2006, Crosstex represented a material portion of our sales, net income and net assets. In conjunction with the due diligence performed by us in connection with this acquisition, we determined that the overall internal control environment of Crosstex contained a number of significant deficiencies, some of which rise to the level of material weaknesses. Some of the more significant internal control weaknesses included the lack of segregation of duties, the need to hire a principal financial and accounting officer, numerous limitations with respect to the management information systems, lack of application of GAAP in certain aspects of financial reporting, and substandard monthly closing procedures, all of which represent a partial list of internal control deficiencies.

51

We believe that by the end of fiscal 2006, we will be able to remedy the majority of the more significant internal control weaknesses at Crosstex. In order to achieve these objectives, we took a number of steps including hiring, during the period covered by this report, a principal financial and accounting officer at Crosstex in October 2005, formalizing the monthly closing procedures and timing, and ensuring consistent and complete application of GAAP. Additionally, we have implemented a number of additional internal control procedures designed to ensure the completeness and accuracy of reported financial information, including periodic physical inventories, monthly account analyses and quarter-end field reviews by representatives of Cantel’s financial and accounting staff. We are relying extensively on detect controls with respect to reported month-end financial information until such time that appropriate prevent controls can be implemented. We are currently in the process of evaluating the management information systems at Crosstex with a view toward replacement of the existing systems during fiscal 2007. Since the acquisition, significant improvements have already been made in the overall Crosstex internal control environment and will continue to be made throughout the remainder of fiscal 2006.

During February 2006, we completed remediation efforts related to improving segregation of duties and access controls in the general information technology processes at our Minntech subsidiary.

52

PART II - OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

See Part I, Item 1. – Note 13 above.

ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On December 20, 2005, the Company held its Annual Meeting of Stockholders for the fiscal year ended July 31, 2005. At the meeting, stockholders voted for the election of ten members of the Company’s Board of Directors to serve until the next annual meeting and until their successors are duly elected and qualified. Stockholders also voted for the approval of an amendment to the Company’s Certificate of Incorporation to increase the number of authorized shares of common stock from 20,000,000 to 30,000,000 and for the ratification of Ernst & Young LLP to serve as the Company’s independent registered public accounting firm for the fiscal year ending July 31, 2006.

A tabulation of the number of votes cast for, against and withhold, as well as the number of abstentions as to each matter voted on, is set forth below. There were no broker non-votes.

1.Election of Directors

	For	Withhold Authority
Robert L. Barbanell	14,405,564	380,958
Alan R. Batkin	14,426,717	359,805
Joseph M. Cohen	14,266,765	519,757
Charles M. Diker	14,407,864	378,658
Darwin C. Dornbush	14,371,923	414,599
Spencer Foreman, M.D.	14,265,912	520,610
Alan J. Hirschfield	14,214,675	571,847
Elizabeth McCaughey	14,448,507	338,015
James P. Reilly	14,410,038	376,484
Bruce Slovin	14,409,520	377,002

2.Amendment of Certificate of Incorporation

For	Against	Abstain
14,396,613	382,113	7,794

3.Ratification of Independent Registered Public Accounting Firm

For	Against	Abstain
14,727,293	54,331	4,898

53

ITEM 6.EXHIBITS

31.1	– Certification of Principal Executive Officer.
31.2	– Certification of Principal Financial Officer.
32	– Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

54

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CANTEL MEDICAL CORP.
Date: March 13, 2006
	By:	/s/ James P. Reilly
		James P. Reilly, President
		and Chief Executive Officer
		(Principal Executive Officer)
	By:	/s/ Craig A. Sheldon
		Craig A. Sheldon,
		Senior Vice President and
		Chief Financial Officer (Principal
		Financial and Accounting Officer)
	By:	/s/ Steven C. Anaya
		Steven C. Anaya,
		Vice President and Controller

55

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, James P. Reilly, President and Chief Executive Officer, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Cantel Medical Corp.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: March 13, 2006
By:	/s/ James P. Reilly
James P. Reilly, President and Chief
Executive Officer (Principal Executive Officer)

1

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

I, Craig A. Sheldon, Senior Vice President and Chief Financial Officer, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Cantel Medical Corp.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: March 13, 2006
By:	/s/ Craig A. Sheldon
Craig A. Sheldon, Senior Vice President and
Chief Financial Officer (Principal Financial and Accounting Officer)

1

EX-32

Exhibit 32

CERTIFICATION

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(SUBSECTIONS (a) AND (b) OF SECTION 1350, CHAPTER 63 OF

TITLE 18, UNITED STATES CODE)

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of Title 18, United States Code), the undersigned officers of Cantel Medical Corp. (the “Company”), do hereby certify with respect to the Quarterly Report of the Company on Form 10-Q for the quarter ended January 31, 2006 as filed with the Securities and Exchange Commission (the “Form 10-Q”) that, to the best of their knowledge:

1.The Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  March 13, 2006

/s/ James P. Reilly

James P. Reilly

President and Chief Executive Officer

(Principal Executive Officer)

/s/ Craig A. Sheldon

Craig A. Sheldon

Senior Vice President and Chief

Financial Officer

(Principal Financial and Accounting Officer)

1