<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 March 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from to
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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
------------------------------------------------
(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. .
--- ---
As of May 2, 1996 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. .
--- ---
1
<PAGE>
PART I. FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS.
REUTER MANUFACTURING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the three months ended
March 31,
1996 1995
---------- ----------
<S> <C> <C>
Net sales $2,719,912 $2,980,774
Less:
Cost of sales 2,149,379 2,219,212
Depreciation 149,276 149,170
---------- ----------
GROSS PROFIT 421,257 612,392
Selling, general and administrative expenses 483,705 553,135
Depreciation 28,559 26,955
---------- ----------
OPERATING (LOSS) INCOME (91,007) 32,302
Other income (expenses):
Interest income 9,524 2,275
Interest expense (101,843) (93,985)
Management fees 30,000
Other, net (2,647) 26,612
---------- ----------
TOTAL OTHER EXPENSE (94,966) (35,098)
---------- ----------
LOSS FROM CONTINUING OPERATIONS (185,973) (2,796)
---------- ----------
Discontinued Operations:
Loss from discontinued waste processing operations,
primarily accrued interest during elongated debt
settlement negotiations (538,408)
---------- ----------
NET LOSS ($185,973) ($541,204)
---------- ----------
---------- ----------
Net loss per common share data:
Loss from continuing operations ($0.06)
Loss from discontinued operations ($0.17)
---------- ----------
NET LOSS PER SHARE ($0.06) ($0.17)
---------- ----------
---------- ----------
Weighted average number of shares outstanding 3,191,520 3,191,520
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE>
REUTER MANUFACTURING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 34,572 $ 101,048
Investments, restricted 250,000 250,000
Accounts receivable, net of allowances of $15,000
at March 31, 1996 and December 31, 1995 1,336,603 1,248,697
Inventories 1,511,704 1,301,105
Other current assets 106,695 72,784
------------ ------------
TOTAL CURRENT ASSETS 3,239,574 2,973,634
Property, plant and equipment, net 3,924,803 4,082,318
Intangible assets, net 434,207 446,365
------------ ------------
TOTAL ASSETS $ 7,598,584 $ 7,502,317
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Debt of Eden Prairie facility guaranteed by
parent company, including accrued interest
of $3,275,656 at March 31, 1996 and
December 31, 1995 $ 18,784,019 $ 18,784,019
Current maturities of long-term debt 231,838 259,734
Borrowings under asset-based line of credit 2,745,832 2,589,575
Accounts payable, trade 704,791 530,991
Accrued expenses 737,313 714,872
------------ ------------
TOTAL CURRENT LIABILITIES 23,203,793 22,879,191
Long-term debt, less current maturities 465,701 495,715
Other long-term liabilities 187,306 199,654
Commitments and contingencies
STOCKHOLDERS' EQUITY (DEFICIENCY):
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
March 31, 1996 and December 31, 1995 598,410 598,410
Additional paid-in capital 13,710,596 13,710,596
Accumulated deficit (30,567,222) (30,381,249)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) (16,258,216) (16,072,243)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY) $ 7,598,584 $ 7,502,317
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
REUTER MANUFACTURING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Increase (decrease) in cash For the three months ended
March 31,
--------------------------------
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($185,973) ($541,204)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 177,835 176,125
Amortization of intangible assets 12,158 18,669
Gain on sales of assets (10,000)
Sanwa interest accrued during elongated
debt settlement negotiations 538,408
Provision for inventory obsolescence 15,000 15,000
Changes in operating assets and liabilities,
net of effects from business acquisitions:
Accounts receivable (87,906) (422,844)
Inventories (225,599) (261,097)
Other assets (33,911) (23,282)
Accounts payable 173,800 274,159
Accrued expenses 60,782 101,635
Accrued retirement (12,348) (12,425)
Other liabilities (38,341) (53,866)
----------- -----------
Net cash used in operating activities (144,503) (200,722)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 10,000
Acquisition of Sollami product line (210,980)
Additions to property, plant and equipment (20,320) (75,355)
----------- -----------
Net cash used in investing activities (20,320) (276,335)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (57,910) (40,059)
Proceeds from short-term borrowings 2,784,443 3,061,638
Repayment of short-term borrowings (2,628,186) (2,571,817)
----------- -----------
Net cash provided by financing activities 98,347 449,762
----------- -----------
Net decrease in cash (66,476) (27,295)
Cash beginning of period 101,048 209,192
----------- -----------
Cash end of period $ 34,572 $ 181,897
----------- -----------
----------- -----------
Supplemental disclosure of cash flow information:
Cash paid for interest $ 101,843 $ 91,401
Noncash investing and financing activities:
Purchase of Sollami in exchange for future
minimum payments 423,226
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
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 month periods ended March 31, 1996 and 1995 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 1995 Form 10-KSB.
USE OF ESTIMATES:
The preparation of the Company's consolidated 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 periods. The most
significant areas which require the use of management's estimates relate to
allowances for doubtful accounts receivable, inventory obsolescence, and
the accrual for container warranty. Actual results could differ from those
estimates.
2. SELECTED BALANCE SHEET INFORMATION:
Inventories:
March 31, December 31,
1996 1995
---------- ------------
Raw materials and supplies $ 395,341 $ 297,067
Work-in-process 1,116,363 1,004,038
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$1,511,704 $1,301,105
---------- ----------
---------- ----------
5
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3. EDEN PRAIRIE FACILITY ASSETS SALE AND JANUARY 24, 1996 RESTRUCTURING OF
UNDERLYING DEBT GUARANTEE:
As described in Notes 2 and 3 of the notes to consolidated financial
statements in the Company's 1995 Form 10-KSB, on January 24, 1996, the
Company and Sanwa Business Credit Corporation (Sanwa) entered into a Loan
and Security Agreement (the Loan Agreement) to restructure the Company's
guarantee of the debt obligation underlying the Eden Prairie Facility (EPR
Facility), which included the following documents: a Senior Subordinated
Secured Promissory Note in the amount of $2,780,000; a Junior Subordinated
Secured Promissory Note in the amount of $1,000,000; a Mortgage, Assignment
of Leases and Rents, Security Agreement and Financing Statement; a Patent
Security Agreement; a $6,000,000 Income Sharing Agreement; and a Common
Stock Warrant Agreement (collectively, the Loan Documents). The
restructuring is subject to an escrow arrangement whereby the restructuring
agreement can be rescinded should the Company seek protection under U.S.
Bankruptcy laws on or before May 29, 1996. Pursuant to the Loan Agreement,
Sanwa agreed to restructure the Company's obligations to guarantee
repayment of a loan from Sanwa to EPR, Inc., into three separate
obligations as follows:
(a) The $2,780,000 term loan, evidenced by a Senior Subordinated Secured
Promissory Note in the amount of $2,780,000, executed by the Company in
favor of Sanwa. The note bears interest at the rate of 8% per year and
provides for 12 consecutive quarterly payments of $75,000 plus accrued
interest and a final payment of any unpaid principal and accrued interest
on December 31, 1999.
(b) The $1,000,000 term loan, evidenced by a Junior Subordinated Secured
Promissory Note in the amount of $1,000,000, executed by the Company in
favor of Sanwa. The note bears interest at the rate of 8% per year and
provides for quarterly payments of principal and interest, to the extent
that the Company generates cash flow after payment of certain indebtedness
and capital expenditures, and a final payment of any unpaid principal and
accrued interest on December 31, 1999.
(c) The Income Sharing Agreement, whereby the Company is required to make
payments to Sanwa in an amount equal to 40% of the Company's income before
taxes (prior to a change in control), less cash interest payments made by
the Company under the Senior Subordinated Secured Promissory Note.
However, if a change in control occurs, as defined, the Company is required
to make payments to Sanwa in an amount equal to the percentage of the
long-term tax-exempt rate, as defined in Section 382(f) of the Internal
Revenue Code of 1986, as amended, times the Company's income before taxes,
less cash interest payments made by the Company under the Senior
Subordinated Secured Promissory Note. The Income Sharing Agreement remains
in effect until the Company has made total payments of $6,000,000 under the
agreement, or effectively lapses on December 31, 2010, whichever is
earlier.
6
<PAGE>
EDEN PRAIRIE FACILITY ASSETS SALE AND JANUARY 24, 1996 RESTRUCTURING OF
UNDERLYING DEBT GUARANTEE, CONTINUED:
The Company's obligations under the Loan Documents are collateralized by a
security interest in substantially all of the Company's assets. The
security interest granted to Sanwa is subordinate to the security interest
previously granted in connection with the Asset-Based Short-Term Financing
Agreement (see Note 7 of the Company's 1995 10-KSB).
The Company also granted Sanwa a contingent stock purchase warrant to
purchase up to 3,178,780 shares of common stock of the Company for an
aggregate purchase price of $10 (see Note 8 of the Company's 1995 10-KSB).
The warrant is exercisable only following the occurrence of an "ownership
change" in respect of the Company, as defined in Section 382(g)(1) of the
Internal Revenue Code of 1986, as amended. The warrant expires upon
payment in full by the Company of all amounts due under the Income Sharing
Agreement.
In addition, the Company and Sanwa entered into separate Standstill
Agreements with the Company's Chief Executive Officer (the CEO) and its
Chairman of the Board of Directors (the Chairman) who, under the Standstill
Agreements, agreed not to, directly or indirectly, acquire, dispose of, or
exercise any option or other right to acquire any capital stock or option
of the Company. The Standstill Agreements remain in effect until the
earlier of (a) the expiration of the Income Sharing Agreement, (b) the
death of the CEO or the Chairman, or (c) the occurrence of an "ownership
change" in respect of the Company, as defined in Section 382(g)(1) of the
Internal Revenue Code of 1986, as amended.
As a result of the Sanwa Standstill Agreements described above, the Company
has entered into an agreement (the Management Standstill Agreement) with
the CEO and the Chairman whereby, under a predetermined formula, these two
individuals can earn up to an aggregate $600,000 based on increases in the
market value of shares they hold, that they are unable to trade based on
the provisions of the Sanwa Standstill Agreement.
Should the restructured guarantee be rescinded, the Company's obligation to
guarantee repayment of the loan from Sanwa to EPR, Inc. will remain in
effect, and the lender could foreclose the loan and exercise its rights
under the guarantee agreement.
The Company is currently operating under the terms and conditions of the
new restructured agreement and is awaiting release of the documents from
escrow, scheduled for May 29, 1996, at which time the transaction will be
recognized for book purposes. The unaudited proforma consolidated balance
sheets included in the Company's 1995 annual report on Form 10-KSB has been
presented as if the January 24, 1996 restructuring of the Company's debt
guarantee associated with the debt of the Eden Prairie facility was
completed and effective (including the lapse of the 100 day escrow
7
<PAGE>
EDEN PRAIRIE FACILITY ASSETS SALE AND JANUARY 24, 1996 RESTRUCTURING OF
UNDERLYING DEBT GUARANTEE, CONTINUED:
arrangement) on December 31, 1995. The Company paid interest to Sanwa in
the amount of $56,218 for the first quarter of 1996 pursuant to the terms
of the new restructured agreement.
4. ASSET-BASED SHORT-TERM FINANCING ARRANGEMENT:
The Company is in violation of certain financial and technical covenants of
the Asset-Based short-term financing agreement and a cross-default covenant
due to the defaults described in Note 7 of the notes to the consolidated
financial statements in the Company's 1995 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 $159,576 at May 2,
1996.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS
GENERAL:
As discussed in more detail in Notes 2 and 3 to the consolidated financial
statements, in the Company's 1995 Form 10-KSB, at December 31, 1995, the
Company continued to guarantee indebtedness of EPR, Inc. a wholly owned
subsidiary of the Company ("EPR"), to Sanwa Business Credit Corporation
("Sanwa") in the amount of approximately $18.9 million (the "EPR Loan").
EPR ceased operations on January 1, 1994 and had no operations or assets on
December 31, 1995.
As more fully described in Note 3 to the consolidated financial statements
included in this Report on Form 10-QSB, in January 1996, the Company and
Sanwa entered into a series of agreements (the "Restructuring Agreements"),
pursuant to which Sanwa agreed to restructure the Company's obligations to
guarantee repayment of the EPR Loan. The Restructuring Agreements are
subject to an escrow arrangement whereby Sanwa has the right to rescind
the transaction should the Company seek protection under U.S. Bankruptcy
Laws on or before May 29, 1996. Pursuant to the Restructuring Agreements,
Sanwa agreed to restructure the Company's obligations to guarantee the EPR
Loan into three separate obligations: a term loan in the amount of
$2,780,000, a term loan in the amount of $1,000,000, and payment
obligations under an Income Sharing Agreement which generally requires the
Company to make payments to Sanwa in an amount equal to 40% of its pre-tax
income, if any, less cash interest payments made by the Company under the
$2,780,000 term loan. The Income Sharing Agreement remains in effect until
the Company has made total payments of $6,000,000 under the agreement or
December 31, 2010, whichever is earlier. As set forth in the Company's
December 31, 1995, unaudited pro forma consolidated balance sheet,
presented as if the Restructuring Agreements were effective on December 31,
1995, the Company's previous obligation under the guarantee of the EPR Loan
was reduced from approximately $18.9 million to approximately $12.0
million. The Company also granted Sanwa a warrant to purchase up to
3,178,780 shares of Common Stock of the Company for an aggregate purchase
price of $10.00, which will become exercisable if there is a change in
control of the Company as defined in Section 382(g)(1) of the Internal
Revenue Code of 1986, as amended. In addition, the Company and Sanwa
entered into separate Standstill Agreements with each of James Taylor, the
Chief Executive Officer and a Director of the Company, and Edward E.
Strickland, the Chairman of the Board of Directors of the Company, under
which Mr. Taylor and Mr. Strickland have agreed not to, directly or
indirectly, acquire, dispose of, or exercise any option or other right to
acquire any capital stock or options of the Company. As a result of the
Sanwa Standstill Agreements described above, the Company has agreed to pay
these individuals, under a predetermined
9
<PAGE>
formula, up to an aggregate of $600,000 based on the increases in the
market value of the shares of Common Stock of the Company that they hold
and are unable to trade due to the Sanwa Standstill Agreements.
CONTINUING MANUFACTURING OPERATIONS:
Continuing operations consist primarily of the precision machining
business, which manufactures and assembles medical devices and other
precision machined parts on a contract basis. The Company also
manufactures proprietary products (oil centrifuges and rotary vane
actuators). The Company ceased its plastics manufacturing operations
during 1994 and has sold most of the equipment used in its plastics
manufacturing operations. The Company currently has no involvement in the
waste processing business.
The Company's net revenues from continuing operations for the first quarter
of 1996 decreased by approximately 8.8% from the same period in 1995. The
Company's net revenues for the three months ended March 31, 1996 were
$2,719,912 compared to $2,980,774 for the same period in 1995. The
decrease in revenues was due primarily to reduced sales to one of the
Company's major medical customers, whose product demand decreased because
they had adequate inventory levels to satisfy their customer requirements.
The loss of revenues from this one customer was partially offset by
increased revenues from other new medical product customers. Revenues from
the Company's two major medical product customers were $1,774,662 or 65% of
net revenues for the first quarter of 1996, compared to revenues of
$2,177,572 or 73% of net revenues for the same period in 1995. Medical
product orders substantially increased during March and April 1996, and
rotary vane actuator volume continued its positive growth during these
months. Oil centrifuge sales were still flat, but ongoing development work
is in process with two large customers. In addition, orders for industrial
parts are increasing steadily with significant business coming in from an
existing major customer. To the extent that the foregoing comments are
forward-looking, they are as usual, subject to specific future events which
could cause actual results to differ materially from the foregoing forward-
looking statements.
Gross profit was 15.5% of net sales for the first quarter of 1996, compared
to 20.5% of net sales for the first quarter of 1995. The decrease in gross
profit for the quarter ended March 31, 1996, was primarily due to an under-
utilization of facilities during the first quarter of 1996, along with
staff increases in the engineering department to provide product
development services and support for new and existing customers.
Selling, general and administrative expenses were $512,264, or 18.8% of net
revenues for the first quarter of 1996, compared to $580,090, or 19.5% of
net revenues for the same period in 1995. The decrease in these expenses
of approximately $68,000 is primarily due to a reduction in legal and
accounting costs of approximately $26,000, related to pursuing
restructuring of the debt underlying the EPR facility. The Company also
had lower administrative expenses of approximately $16,000 for travel and
10
<PAGE>
corporate insurance. In addition, selling expenses, primarily auto and
travel, were approximately $26,000 less in the first quarter of 1996 as
compared to the first quarter of 1995.
During the first quarter of 1996, the Company had an operating loss from
continuing operations of $91,007, compared to operating income from
continuing operations of $32,302 for the same period in 1995. The
operating loss from continuing operations for the first quarter of 1996 was
due to lower revenues as discussed above, coupled with lower gross margins
due to product mix and volume considerations. The loss was partially
offset by reductions in selling, general and administrative expenses,
primarily in the area of professional fees and also reductions in corporate
travel and insurance.
The Company had a loss from continuing operations of $185,973, or $.06 per
share for the first quarter of 1996, compared to a loss from continuing
operations of $2,796 or $.001 per share for the same period in 1995. The
first quarter 1996 loss from continuing operations resulted from the
reasons stated above, along with higher interest expense, lower gains on
asset sales and reduced management fee income for managing the waste
processing facility (Reuter Recycling of Florida, Inc.), which as described
in Notes 3 and 4 to the consolidated financial statements in the Company's
1995 Form 10-KSB, was sold in October 1995.
The Company had no taxable income, and accordingly, recorded no provision
for income taxes during the quarters ended March 31, 1996 and 1995.
The effect of inflation on the Company's consolidated results has not been
significant.
DISCONTINUED WASTE PROCESSING OPERATIONS:
As described in Notes 2 and 3 of the notes to consolidated financial
statements in the Company's 1995 Form 10-KSB, the Company ceased operation
of its EPR facility effective January 1, 1994, sold all assets of EPR
effective September 1, 1994, and on January 24, 1996, entered into an
agreement to restructure its guarantee of the debt obligation underlying
the EPR facility.
Losses from discontinued operations were $0 and $538,408 for the periods
ending March 31, 1996 and 1995, respectively. There was no additional
accrual of losses associated with financing underlying discontinued
operations for the first quarter of 1996, due to the signing of a debt
restructuring agreement on January 24, 1996, associated with the loan
guarantee, since , as discussed in Note 3 of this 10-QSB, the Company is
currently operating under the terms and conditions of the restructured
agreement. The loss from discontinued operations for the quarter ending
March 31, 1995, consists of accrued interest on the EPR note guaranteed by
the Company.
11
<PAGE>
NET LOSS:
The net loss for the quarter ended March 31, 1996 was $185,973 or $.06 per
share, compared to a net loss of $541,204 or $.17 per share for the quarter
ended March 31, 1995. The improvement is due to not accruing interest on
the EPR loan (as discussed above) during 1996.
LIQUIDITY AND CAPITAL RESOURCES:
At March 31, 1996, the working capital deficit includes the remaining
balance of the Company's guarantee of the EPR Loan, including associated
accrued default interest, in addition to the indebtedness under the asset-
based short-term financing arrangement. Debt associated with these
agreements has been classified as a current liability due to ongoing
covenant violations disclosed in notes 2 and 7 of the Company's 1995 Form
10-KSB. The Company had a working capital deficit of $19,964,219 at March
31, 1996, compared to a working capital deficit of $19,905,557 at December
31, 1995. The current ratio at March 31, 1996 was .14, compared to .13 at
December 31, 1995. If the restructuring of the debt guarantee had been
recognized during the first quarter of 1996, the Company's working capital
deficit and current ratio at March 31, 1996, would have been $5,262,600 and
.38, respectively. The unaudited proforma consolidated balance sheets
included in the Company's 1995 annual report on Form 10-KSB, were presented
as if the January 24, 1996 restructuring of the Company's debt guarantee
associated with the debt of the Eden Prairie facility was completed and
effective (including the lapse of the 100 day escrow arrangement) on
December 31, 1995.
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 the 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 May 2, 1996, the Company had borrowed approximately
$3,010,225 and if the lender agrees to advance funds, had additional
availability of approximately $159,576 under this line of credit.
12
<PAGE>
The Company had negative cash flow from operations for the three months
ended March 31, 1996 of $144,503, compared to negative cash flow from
operations of $200,722 for the three months ended March 31, 1995, all
funded under the asset-based line of credit. The Company's ability to meet
its continuing manufacturing operations cash flow requirements during the
remainder of 1996 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. Near term capital commitments for new
manufacturing equipment total approximately $150,000. Any future
expenditures will depend on cash availability. In addition to cash flows
from operations, if any, the Company expects to seek needed capital through
bank financing or asset-based lending arrangements. However, there can be
no assurance that the Company will be able to obtain such financing, or
obtain financing on terms that are satisfactory to the Company.
In summary, the Company currently has negative working capital and is
in default under the terms of its asset-based short-term financing
arrangement and, as a result of this default, is in default under the new
Loan Agreement with Sanwa. Either of these two lenders could, at any time,
demand full payment of the underlying debt, which the Company would be
unable to satisfy, in which case the Company may be forced to seek
protection under U.S. Bankruptcy laws. The Company is currently waiting
for the Loan Agreement with Sanwa to be released from escrow, scheduled for
May 29, 1996, and is also attempting to obtain waivers for the previously
discussed debt covenant violations, however, there can be no assurance that
the Company will be able to obtain such waivers.
13
<PAGE>
PART II - OTHER INFORMATION
Item 3. Defaults upon Senior Security
See Footnotes 3 and 4 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 May
2, 1996, was approximately $7,000,000.
As of May 2, 1996, the Company had borrowed approximately $3,010,000 and
had additional availability of approximately $160,000 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: May 2, 1996 By: /s/ James W. Taylor
----------------------------------------
James W. Taylor
President, Chief Executive Officer and Chief
Financial Officer (principal executive and
financial officer)
Date: May 2, 1996 By: /s/ William H. Johnson
----------------------------------------
William H. Johnson
Vice President, Controller and Secretary
(principal accounting officer)
15
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 34,572
<SECURITIES> 0
<RECEIVABLES> 1,336,603
<ALLOWANCES> 0
<INVENTORY> 1,511,704
<CURRENT-ASSETS> 3,239,574
<PP&E> 11,212,393
<DEPRECIATION> 7,287,591
<TOTAL-ASSETS> 7,598,584
<CURRENT-LIABILITIES> 23,203,793
<BONDS> 0
0
0
<COMMON> 598,410
<OTHER-SE> 13,710,596
<TOTAL-LIABILITY-AND-EQUITY> 7,598,584
<SALES> 2,719,912
<TOTAL-REVENUES> 2,719,912
<CGS> 2,298,655
<TOTAL-COSTS> 2,810,919
<OTHER-EXPENSES> 94,966
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 101,843
<INCOME-PRETAX> (185,973)
<INCOME-TAX> 0
<INCOME-CONTINUING> (185,973)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (185,973)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> 0
</TABLE>
