<PAGE>
FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from__________to__________
Commission File Number 0-1561
REUTER MANUFACTURING, INC. (f/k/a GREEN ISLE ENVIRONMENTAL SERVICES, INC.)
--------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Minnesota 41-0780999
- ------------------------------ -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
410 - 11th Avenue South, Hopkins, Minnesota 55343
- ------------------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
612/935-6921
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(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X . No. .
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As of November 8, 1995 there were outstanding 3,191,520 shares of the
registrant's common stock, par value $.18-3/4 per share.
Traditional Small Business Disclosure Format (check one)
Yes X . No. .
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PART I. FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS.
REUTER MANUFACTURING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $2,703,830 $2,539,601 $8,754,793 $9,405,080
Less:
Cost of sales 2,176,610 1,957,794 6,785,040 7,222,069
Depreciation 150,442 153,096 448,921 458,126
------------- ------------- ------------- -------------
GROSS PROFIT 376,778 428,711 1,520,832 1,724,885
Selling, general and administrative expenses 520,356 425,156 1,667,494 1,350,936
Depreciation 28,751 22,291 84,311 67,131
------------- ------------- ------------- -------------
OPERATING INCOME (LOSS) (172,329) (18,736) (230,973) 306,818
Other income (expenses):
Interest income 2,951 2,764 7,572 7,527
Interest expense (106,490) (89,974) (302,044) (276,606)
Management fees 30,000 30,000 90,000 90,000
Other, net 25,383 41,068 67,160 32,360
------------- ------------- ------------- -------------
TOTAL OTHER EXPENSE (48,156) (16,142) (137,312) (146,719)
------------- ------------- ------------- -------------
INCOME (LOSS) FROM CONTINUING OPERATIONS (220,485) (34,878) (368,285) 160,099
------------- ------------- ------------- -------------
Discontinued Operations:
Gain (loss) from discontinued waste
processing operations (540,131) 1,014,634 (1,617,809) (183,066)
------------- ------------- ------------- -------------
NET INCOME (LOSS) ($760,616) $979,756 ($1,986,094) ($22,967)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net income (loss) per common share data:
Income (loss) from continuing operations ($0.07) ($0.01) ($0.11) $0.05
Income (loss) from discontinued operations (0.17) 0.32 (0.51) (0.06)
------------- ------------- ------------- -------------
NET INCOME (LOSS) PER SHARE ($0.24) $0.31 ($0.62) ($0.01)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average number of shares outstanding 3,191,520 3,191,520 3,191,520 3,191,520
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
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REUTER MANUFACTURING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------------ ---------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $1,340 $209,192
Investments, restricted 250,000 250,000
Accounts receivable, net of allowances of
$15,770 at September 30, 1995 and $20,685 at
December 31, 1994 1,235,994 1,387,124
Inventories 1,287,516 917,329
Other current assets 10,837 23,828
Other assets held for sale 50,000 50,000
------------------ ---------------
TOTAL CURRENT ASSETS 2,835,687 2,837,473
Net property, plant and equipment 4,257,884 4,425,257
Other assets 469,168
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TOTAL ASSETS $7,562,739 $7,262,730
------------------ ---------------
------------------ ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Debt of Eden Prairie facility guaranteed by parent company,
including accrued interest of $2,735,524 and $1,117,716
at September 30, 1995 and December 31, 1994, respectively $18,243,887 $16,626,079
Current maturities of long-term debt 161,361 151,981
Borrowings under line of credit 1,915,974 2,063,477
Accounts payable, trade 849,624 602,340
Accrued expenses 849,454 613,157
------------------ ---------------
TOTAL CURRENT LIABILITIES 22,020,300 20,057,034
Long-term debt, less current maturities 352,972 267,385
Other long-term liabilities 480,259 243,009
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, par value $.01 per share;
authorized 2,500,000 shares; none issued
Common stock, par value $.1875 per share;
authorized 9,000,000 shares; issued and
outstanding: 3,191,520 shares at
September 30, 1995 and December 31, 1994 598,410 598,410
Additional paid-in capital 13,710,596 13,710,596
Accumulated deficit (29,599,798) (27,613,704)
------------------ ---------------
TOTAL STOCKHOLDERS' DEFICIT (15,290,792) (13,304,698)
------------------ ---------------
Total Liabilities and Stockholders' Equity (Deficit) $7,562,739 $7,262,730
------------------ ---------------
------------------ ---------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
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REUTER MANUFACTURING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents For the Nine Months Ended September 30,
- ---------------------------------------------------------------------------------------------------------------
1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($1,986,094) ($22,967)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 592,208 525,364
Gain on sales of assets (9,636) (147,611)
Provision for uncollectible receivables 7,907
Provision for (adjustment of) writedown and phase-out
costs for assets of discontinued operations held for sale (1,794,534)
Provision for writedown of other assets held for sale
and inventories 15,000 187,144
Changes in operating assets and liabilities:
Accounts receivable 143,224 (185,308)
Inventories (385,186) 436,952
Other assets (20,153) 50,710
Accounts payable 247,284 (445,876)
Accrued expenses (primarily interest) 1,791,354 1,745,747
- ---------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 395,908 349,621
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment 35,124 389,450
Cash paid to purchase Sollami product line (195,000)
Additions to property, plant and equipment (165,324) (200,306)
- ---------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Investing Activities (325,200) 189,144
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (131,057) (91,035)
Proceeds from short-term borrowings 8,758,977 9,312,971
Repayment of short-term borrowings (8,906,480) (9,701,793)
- ---------------------------------------------------------------------------------------------------------------
Net Cash Used by Financing Activities (278,560) (479,857)
- ---------------------------------------------------------------------------------------------------------------
Net Increase (decrease) in Cash and
Cash Equivalents (207,852) 58,908
Cash and Cash Equivalents, Beginning of Period 209,192 321,963
- ---------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Period $1,340 $380,871
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid for interest $299,460 $4,050,147
Noncash investing and financing activities:
Purchase of equipment in exchange for notes payable 226,024 93,411
Proceeds from sale of EPR, Inc. assets paid directly to
EPR, Inc. lender 3,768,809
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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Reuter Manufacturing, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
1. FINANCIAL STATEMENTS:
The unaudited consolidated financial statements of Reuter Manufacturing,
Inc. (f/k/a Green Isle Environmental Services, Inc.), and Subsidiaries (the
Company) for the three and nine month periods ended September 30, 1995 and
1994 reflect, in the opinion of management, all adjustments (which include
only normal recurring adjustments except as described below) necessary to
fairly state the results of the operations (including discontinued
operations) for the interim period. The consolidated results of operations
for any interim period are not necessarily indicative of results expected
for the full year. The unaudited consolidated interim financial statements
should be read in conjunction with the consolidated financial statements
and notes thereto contained in the Company's 1994 Form 10-KSB.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates
and assumptions that affect the reported amount of assets and
liabilities, disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
2. SELECTED BALANCE SHEET INFORMATION:
Inventories:
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
---------- ---------
<S> <C> <C>
Raw material and supplies $ 309,434 $ 340,631
Work in process 978,082 576,698
----------- ----------
$ 1,287,516 $ 917,329
----------- ----------
----------- ----------
Property, plant & equipment:
Land and related improvements $ 206,995 $ 206,995
Building 3,044,442 2,980,608
Machinery and equipment 7,228,772 7,071,605
Office equipment 635,682 602,537
Molds, fixtures and tooling 31,869
Autos and trucks 42,112 42,112
----------- ----------
Total $11,189,872 $10,903,857
Less: accumulated depreciation 6,931,988 6,478,600
----------- ----------
$ 4,257,884 $ 4,425,257
----------- ----------
----------- ----------
</TABLE>
5
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2. SELECTED BALANCE SHEET INFORMATION (cont'd):
Other assets held for sale:
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
---------- -----------
<S> <C> <C>
Container manufacturing equipment $ 50,000 $ 50,000
Total $ 50,000 $ 50,000
----------- ----------
----------- ----------
Accrued Expenses:
Interest, excluding accrued interest
associated with Eden Prairie debt $ 30,827 $ 28,243
Payroll, benefits and related taxes 383,639 291,699
Legal and accounting 92,339 104,850
Accrued container warranty 125,000 140,000
Product acquisition expenses 76,285
Accrued retirement and consulting 49,393 38,496
Accrued real estate taxes 88,352
Other 3,619 9,869
----------- ----------
Total $ 849,454 $ 613,157
----------- ----------
----------- ----------
</TABLE>
3. DISCONTINUED OPERATIONS AND RELATED DEBT:
As described in Notes 2 and 3 of the Notes to Consolidated Financial
Statements in the 1994 Form 10-KSB, the Company ceased operations of its
Eden Prairie facility (EPR) effective January 1, 1994 and has undertaken a
formal plan to dispose of its other remaining waste processing operations.
The loss from discontinued operations in the third quarter of 1995 includes
accrued interest (including default rate interest) through September 30,
1995. The Company will continue to accrue interest in future periods
through the date of a final settlement of the debt. The loss from
discontinued operations for the three months ended September 30, 1995
consists of accrued interest of $ 540,131.
As previously announced, the Company closed on the sale of all of the
assets of EPR for $3.8 million on September 1, 1994. A gain of $1,914,534
on the sale of the EPR assets was recorded in the third quarter of 1994.
The net proceeds of $3,768,809 from the sale have been used to repay a
portion of the debt underlying the EPR facility. The Company has retained
all liabilities of EPR, including the balance of the loan underlying the
facility which is guaranteed by the Company.
As previously announced, on September 12, 1994, the Company entered into a
preliminary settlement agreement with the lender of the debt underlying EPR
whereby the lender agrees not to pursue its rights against the Company
under the parent guarantee of the EPR debt in return for the following:
6
<PAGE>
1. A Senior Subordinated Secured Note to the lender for $2,750,000 with
interest at 8% per year. Interest will be payable monthly on the
principal balance from time to time remaining unpaid. Principal
payments of $75,000 will be payable quarterly beginning in 1997 and
ending on July 1, 1999, when all outstanding principal and interest is
due.
2. A Junior Subordinated Secured Note to the lender for $1,000,000 with
interest to accrue at 8% per year; principal and interest will be paid
from excess cash flow from operations, if any, with all outstanding
principal and accrued interest due on July 1, 1999.
3. A Net Operating Loss Sharing Agreement under which the Company will
make annual payments to the lender of an amount equal to any tax
savings related to the use of up to $15,000,000 in net operating loss
carryforwards.
The Company has also preliminarily agreed to issue to the lender, a
warrant to purchase 3,178,780 shares of Common Stock, exercisable only
in the event of an "ownership change" with respect to the Company for
purposes of Section 382(g) (1) of the Internal Revenue Code of 1986,
as amended. The ownership change would effectively eliminate the net
operating loss sharing Agreement obligation ((3) above) and result in
the effective contribution of any remaining balance of the NOL Sharing
Agreement obligation to contributed capital (shareholders' equity).
Management is currently negotiating definitive agreements with the lender,
although there can be no assurance that a definitive agreement will be
reached.
4. ACQUISITION OF PRODUCT LINE:
On January 9, 1995, the Company purchased the assets, inventory, patents
and patent applications, trademarks and goodwill associated with the Rotary
Vane Actuator business of The Sollami Company. The purchase price was
$326,154 plus contingent payments equal to 8% of net sales made each month,
for the 48 months beginning in February 1995, of rotary vane actuators and
related parts. The total cumulative guaranteed minimum contingent payments
are $295,000, with scheduled amounts due in each of the 4 years. To the
extent cumulative monthly contingent payments do not equal the guaranteed
minimum contingent payment for any 12 month period, the Company will be
required to make an additional payment sufficient to achieve the guaranteed
minimum payment for that year. The excess of acquisition cost over amounts
assigned to the net identifiable assets acquired (goodwill) is being
amortized on a straight line basis over fifteen years. Other identifiable
intangible assets include value assigned to patents, and a covenant not to
compete. Values assigned to patents are carried at cost less accumulated
amortization calculated on a straight line basis over their estimated
useful lives, which range from seven to fourteen years. The value assigned
to the covenant not
7
<PAGE>
to compete is being amortized on a straight line basis over seven years.
5. ASSET-BASED SHORT-TERM FINANCING ARRANGEMENT:
In January 1995, the Company amended its loan and security agreement
with its asset based lender. The key elements to the amendment include
reducing the short-term demand line of credit to $4,500,000, increasing
interest on borrowings to prime plus 3.75%, and increasing available
borrowing by $125,000 by increasing the advance rate on the certificate
of deposit which partially collateralizes borrowings under the line of
credit. Funds available to the Company pursuant to terms of the line of
credit agreement are dependent upon the level of eligible accounts
receivable and plant and equipment, as defined. In October 1995, the
Company amended its loan and security agreement again in order to obtain
additional availability due to the low revenue levels for the third
quarter and anticipated lower than budget projected revenue levels for
the fourth quarter of 1995. The Company has obtained additional
availability through a reload of the term loan associated with the line
of credit. Under the new agreement, the Company received approximately
$300,000 in additional borrowing capacity. The terms of the agreement
call for a new term loan in the amount of $1,007,200 to be amortized
over a period of 60 months, and a one year extension of the loan
agreement. All other terms and conditions of the loan agreement remain
the same as set forth above. The Company is again negotiating with its
asset based lender to obtain additional relief during the fourth quarter
of 1995 because of low revenue levels from the Company's two major
medical customers. The revenue levels from these two major customers
are projected to pick up beginning in the first quarter of 1996 based on
firm orders. The Company is in violation of certain financial and
technical covenants of this agreement and a cross-default covenant due
to the defaults described in Notes 6 and 6(a) of the Notes to the
Consolidated Financial Statements in the Company's 1994 Form 10-KSB. As
a result of these default conditions, the lender may, at its sole
discretion declare the Company in default, discontinue making advances
to the Company and demand immediate repayment of borrowings under the
line of credit. If the lender will continue making advances to the
Company, additional borrowing capacity under this line of credit is
approximately $69,000 at November 8, 1995.
8
<PAGE>
6. SALE OF REUTER RECYCLING OF FLORIDA, INC.:
On October 26, 1995, the Company closed the sale of Reuter Recycling
of Florida, Inc. The Company had entered into an agreement effective June
1, 1995, to sell all of the stock of Reuter Recycling of Florida, Inc.,
which had been pledged by the Company to the construction lender of Reuter
Recycling of Florida, Inc., to an unrelated third party. As discussed in
Note 4 to the Consolidated Financial Statements contained in the 1994 Form
10-KSB, because Reuter Recycling of Florida, Inc. had previously been
deconsolidated from the Company's consolidated financial statements and the
Company will receive no proceeds from the sale, the transaction will have
no impact on the Company's financial position or results of operations.
The management agreement between Green Isle and Reuter Recycling of
Florida, Inc. was terminated upon the close of the sale.
7. RECLASSIFICATION:
Certain reclassification have been made to the 1994 consolidated financial
statements in order to conform with the September 30, 1995 presentation.
These reclassification did not change the Company's previously reported
financial position or results of operations.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS
CONTINUING MANUFACTURING OPERATIONS:
Continuing operations consist primarily of the Company's precision
manufacturing business, which manufactures and assembles medical
devices and other precision manufactured parts on a contract basis,
and is developing proprietary products for manufacturing and
sale. The Company has sold most of the equipment used in its plastics
manufacturing operations and substantially all plastics manufacturing
ceased effective August, 1994.
The Company's net revenues from continuing operations for the third
quarter of 1995 increased by approximately 6.5% from the same period
in 1994. The Company's net revenues for the nine months ended
September 30, 1995 were $8,754,793 compared to $9,405,080 for the same
period in 1994, a decrease of approximately 6.9%. The increase in
revenues for the third quarter of 1995 over the revenues for the same
period for 1994 was attributable to revenues from sales of the rotary
vane actuators and sales of Company proprietary products that did not
exist during the third quarter of 1994. The decrease in revenues for
the nine months ended September 30, 1995 from the same period in 1994
was due primarily to the elimination of sales to Seagate Technology,
Inc. ("Seagate"), which effectively ceased after the first quarter of
1994 coupled with reduced sales from the plastics manufacturing
operations which effectively ceased in August 1994.
Gross profit was 13.9% of net sales for the third quarter of 1995
compared to 16.9% of net sales for the third quarter of 1994. Gross
profit was 17.4% and 18.3% for the nine month periods ended
September 30, 1995 and September 30, 1994, respectively. The lower
gross profit for the quarter ended September 30, 1995 was primarily
due to under absorbed burden that is volume related, along with
increases in manufacturing supplies used in the production of
industrial and proprietary products. The decrease in gross profit for
the nine month period ended September 30, 1995 as compared to the
same period for 1994 was mostly volume related. Medical product
sales from the Company's two principal customers accounted for over
72% of net sales in the third quarter of 1995 compared to 78% of net
sales in the third quarter of 1994. For the nine months ended
September 30, 1995, medical product sales from these two customers
accounted for 72% of net sales compared to 58% of net sales for the
same period in 1994.
10
<PAGE>
Selling, general and administrative expenses were $549,107 for the
third quarter of 1995 compared to $447,447 for the same period in
1994. Selling, general and administrative expenses for the nine
months ended September 30, 1995, were $1,751,805 compared to
$1,418,067 for the same period in 1994. The increase in these
expenses is primarily due to substantial legal and accounting costs
related to pursuing restructuring of the debt underlying the EPR
facility and higher selling expenses related to marketing of
proprietary products (primarily oil centrifuge units).
Other expense for the third quarter of 1995 increased approximately
$32,000 from the same period in 1994, primarily due to an increase
in interest expense resulting from increases in the prime rate,
coupled with lower other income during the third quarter of 1995.
Other expense for the nine months ending September 30 1995 was
$137,312 compared to $146,719 for the nine months ending September
30, 1994. The decrease was attributable to the Company renting
excess warehouse space beginning in 1995 and gains on the sale of
various assets sold during 1995.
The Company had no taxable income, and accordingly, recorded no
provision for income taxes during the quarters ended September 30,
1995 and 1994.
During the third quarter of 1995, the Company's loss from continuing
operations was $220,485 or $.07 per share compared to a loss from
continuing operations of $34,878 or $.01 per share for the same period
in 1994. For the nine months ended September 30, 1995, the loss from
continuing operations was $368,285 or $.11 per share compared to
income from continuing operations of $160,099 or $.05 per share for
the same period in 1994. In summary, the loss from continuing
operations for the first nine months of 1995 compared to the income in
1994 is attributable to revenue reductions (phaseout of revenues from
Seagate and reduced plastics revenues), staffing increases to enhance
development and marketing of proprietary products (oil centrifuges and
rotary vane actuators), and substantial professional expenses related
to the continuing debt restructuring of the debt underlying the EPR
facility that is guaranteed by the Company.
DISCONTINUED WASTE PROCESSING OPERATIONS:
As described in Notes 2 and 3 of the Notes to Consolidated Financial
Statements in the Company's 1994 Form 10-KSB, the Company undertook a
formal plan to dispose of its remaining waste processing and recycling
operation located in Eden Prairie, Minnesota during the fourth quarter
of 1993. The Company wrote-down the carrying value of this facility
to its estimated net realizable value, which resulted in a charge
against earnings of $10,800,000 in 1993. The Eden Prairie facility
ceased operations effective January 1, 1994 and on September 1, 1994
the
11
<PAGE>
Company closed on the sale of all of the assets of EPR, Inc., a
wholly owned subsidiary of the Company ("EPR") for approximately $3.8
million.
The proceeds from the sale of the assets of EPR have been used to
repay a portion of the debt originally underlying the EPR facility.
The Company retained all liabilities of EPR, including the balance of
the loan underlying the facility (the "EPR loan") which is guaranteed
by the Company. The loss from discontinued operations during the third
quarter of 1995 consists of continuing interest accruals of $540,131
related to the underlying debt. This accrual does not include an
accrual for estimated interest that will be incurred on the debt
underlying the EPR loan between October 1, 1995 and the date of final
settlement, due to uncertainty of the timing of the ultimate
settlement. As described in Note 3 "Discontinued Operations and
Related Debt" in this Form 10-QSB, the Company entered into a
preliminary settlement agreement with the lender of the debt
underlying EPR on September 12, 1994. Management is currently
negotiating definitive agreements with the lender, although there can
be no assurance that a definitive agreement will be reached. If final
settlement cannot be reached, management may elect to seek protection
under U.S. bankruptcy laws.
LIQUIDITY AND CAPITAL RESOURCES:
The Company currently has negative working capital and is in
payment and technical default of terms of the EPR loan and is in
violation of certain covenants of its demand line of credit
agreement. The Company had a cash balance of $1,340 at September
30, 1995 compared to a cash balance of $209,192 at December 31, 1994.
The decrease in cash was primarily due to the purchase of a product
line of rotary vane actuators coupled with substantial outlays of
cash for professional services related to the continuing debt
restructuring of the debt underlying the EPR facility that is
guaranteed by the Company. The Company had a working capital
deficit of $19,184,613 at September 30, 1995, compared to a working
capital deficit of $17,219,561 at December 31, 1994. The current
ratio was .13 and .14 at September 30, 1995 and December 31, 1994,
respectively. The working capital deficit includes the Eden
Prairie debt because the entire remaining balance of this loan has
been classified as a short-term liability as a result of the
payment, technical and other defaults described in Notes 2 and 6 of
the Notes to the Consolidated Financial Statements included in the
Company's 1994 Form 10-KSB. Until the restructuring agreement with
the lender to EPR is finalized, under the terms of the original
loan agreement, and as a result of the payment and technical
defaults, the lender has the right to demand repayment of the
entire outstanding balance of the loan. In addition, the lender
can demand payment of the default interest rate which is 2% higher
than the stated interest rate of 11.85%. Interest accruals reflecting
the incremental charge for the higher default rate have been
established since 1992.
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<PAGE>
The Company has a $4.5 million line of credit arrangement with an
asset based lender which is collateralized by assets associated
with the manufacturing operations. The Company generally borrows
funds up to the maximum available because the line of credit
agreement has a minimum borrowing requirement of $2.75 million upon
which the Company pays interest. Funds available to the Company
pursuant to terms of the line of credit agreement are dependent
upon the level of eligible accounts receivable and plant and
equipment, as defined. The Company is in violation of certain
financial and technical covenants contained in this line of credit
agreement, which could result in the lender discontinuing advances
and demanding repayment of all outstanding borrowings. Due to the
default conditions discussed above and borrowing limits related to
available collateral, it is possible that the Company will not be
able to borrow sufficient amounts against this line to meet all the
operating cash needs of the Company. In addition, there can be no
assurance that the asset based lender will continue to disregard
these covenant violations in the future. If the lender takes any
action to reduce the availability of funds to the Company, there
may not be sufficient liquidity to continue operations. As of
November 8, 1995, the Company had borrowed approximately $2,761,000
and had additional availability of approximately $69,000 under this
line.
The Company had positive cash flow from operations for the nine months
ended September 30, 1995 and September 30, 1994. However, its ability
to meet its continuing manufacturing operations cash flow requirements
during the remainder of 1995 and beyond, is dependent on continuing
adequate sales and margins in the manufacturing business. Management
expects a need for capital expenditures to support equipment upgrading
and growth in the manufacturing division. Any future expenditures
will depend on cash availability. In addition to cash flow
from operations, the Company expects to seek needed capital through
employee, vendor and other asset based lending arrangements.
In summary, the Company currently has negative working capital and
is in default under the terms of two outstanding loan agreements.
Either of these two lenders could, at any time, demand full payment
of the underlying debt, which the Company would be unable to
satisfy. The Company's cash flow from operations may not be
sufficient to meet the Company's general operating needs. The
Company is experiencing near term liquidity problems due to the
reduced shipping requirements of the Company's two major medical
customers. The Company is actively negotiating with its asset
based lender and is working with employees and vendors to
ameliorate this short term situation. In the event that the Company
cannot generate sufficient cash flow to meet its commitments, it
may be forced to seek protection under U.S. Bankruptcy laws.
13
<PAGE>
PART II - OTHER INFORMATION
Item 3. Defaults upon Senior Security
See Footnote 3 to Notes to the Consolidated Financial Statements and
Management's Discussion and Analysis, included in Item 1 and 2 of this
report on Form 10-QSB, for a description of the status of the defaults
on the loan underlying the Eden Prairie facility and the Company's
line of credit, which is incorporated herein by reference.
Arrearage (interest and principal) on the Eden Prairie debt as of
November 8, 1995, was approximately $7,000,000.
As of November 8, 1995, the Company had borrowed approximately
$2,761,000 and had additional availability of approximately $69,000
under its line of credit agreement.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REUTER MANUFACTURING, INC.
------------------------------------------------
(Registrant)
Date: November 8, 1995 By: /s/ James W. Taylor
---------------- ----------------------------------
James W. Taylor
President, Chief Executive Officer and Chief
Financial Officer (principal executive and
financial officer)
Date: November 8, 1995 By: /s/ William H. Johnson
---------------- ----------------------------------
William H. Johnson
Vice President, Controller and Secretary
(principal accounting officer)
15
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,340
<SECURITIES> 0
<RECEIVABLES> 1,235,994
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0
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