<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
[ ] 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 0-1561
REUTER MANUFACTURING, 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
- ------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (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 August 13, 1998, there were 4,909,996 shares of the registrant's $.1875
par value Common Stock outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION.
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS.
- -----------------------------
REUTER MANUFACTURING, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
For the three months ended For the six months ended
June 30, June 30,
1998 1997 1998 1997
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $3,046,450 $5,713,985 $6,704,570 $10,731,410
Cost of sales 2,893,766 3,876,188 6,173,624 7,357,439
----------- ---------- ---------- -----------
GROSS PROFIT 152,684 1,837,797 530,946 3,373,971
Selling, general and administrative expenses 563,152 916,550 1,236,742 1,660,995
----------- ---------- ---------- -----------
OPERATING INCOME (LOSS) (410,468) 921,247 (705,796) 1,712,976
----------- ---------- ---------- -----------
Other income (expense):
Interest expense (166,481) (91,141) (323,804) (221,229)
Other, net 2,196 2,858 15,894 4,005
----------- ---------- ---------- -----------
TOTAL OTHER EXPENSE, NET (164,285) (88,283) (307,910) (217,224)
----------- ---------- ---------- -----------
INCOME (LOSS) BEFORE PROVISION FOR INCOME
TAXES (574,753) 832,964 (1,013,706) 1,495,752
Provision for income taxes (17,492) (31,411)
----------- ---------- ---------- -----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (574,753) 815,472 (1,013,706) 1,464,341
Extraordinary item - gain on debt restructuring 3,431,052 3,431,052
----------- ---------- ---------- -----------
NET INCOME (LOSS) ($ 574,753) $4,246,524 ($1,013,706) $ 4,895,393
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
REUTER MANUFACTURING, INC.
STATEMENTS OF OPERATIONS
(CONTINUED)
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
For the three months ended For the six months ended
June 30, June 30,
1998 1997 1998 1997
---------- --------- --------- ----------
<S> <C> <C> <C> <C>
BASIC NET INCOME (LOSS) PER SHARE:
Income (loss) per share before
extraordinary item ($0.12) $0.18 ($0.21) $0.38
Extraordinary item 0.77 0.89
-------- ------ -------- ------
NET INCOME (LOSS) PER SHARE ($0.12) $0.95 ($0.21) $1.27
-------- ------ -------- ------
-------- ------ -------- ------
DILUTED NET INCOME (LOSS) PER SHARE:
Income (loss) per share before
extraordinary item ($0.12) $0.17 ($0.21) $0.36
Extraordinary item 0.73 0.84
-------- ------ -------- ------
NET INCOME (LOSS) PER SHARE ($0.12) $0.90 ($0.21) $1.20
-------- ------ -------- ------
-------- ------ -------- ------
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING:
Basic 4,865,721 4,473,785 4,864,645 3,846,344
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted 4,865,721 4,712,435 4,864,645 4,063,221
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
REUTER MANUFACTURING, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
1998 December 31,
(Unaudited) 1997
----------- ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash $ 206,144 $ 113,234
Receivables, net of allowance of $25,000
at June 30, 1998 and December 31, 1997 1,705,872 1,894,419
Inventories 1,607,675 1,979,661
Other current assets 89,260 99,612
---------- ----------
TOTAL CURRENT ASSETS 3,608,951 4,086,926
Property, plant and equipment, net 4,387,427 4,624,678
Intangible assets, net 394,223 435,207
---------- ----------
TOTAL ASSETS $8,390,601 $9,146,811
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Asset-based line of credit and term obligations, bank $5,667,542 $5,313,512
Current maturities of long-term equipment financing 239,934 222,022
Accounts payable, trade 647,538 692,125
Accrued expenses 704,636 695,011
---------- ----------
TOTAL CURRENT LIABILITIES 7,259,650 6,922,670
Long-term equipment financing, less current maturities 685,254 740,507
Other long-term liabilities 61,745 88,496
Commitments and contingencies
STOCKHOLDERS' EQUITY:
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: 4,869,496 shares at June 30, 1998 and
4,863,496 shares at December 31, 1997, respectively 913,031 911,906
Additional paid-in capital 17,769,522 17,768,127
Accumulated deficit (18,298,601) (17,284,895)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 383,952 1,395,138
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $8,390,601 $9,146,811
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
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REUTER MANUFACTURING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
For the six months ended June 30,
- -----------------------------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($1,013,706) $ 4,895,393
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Extraordinary item - gain on debt restructuring (3,431,052)
Depreciation 420,500 397,652
Amortization of intangible assets 40,984 24,318
Gain on sales of assets (2,415)
Provision for uncollectible accounts receivable 5,000
Provision for writedown of inventories (40,000) 155,000
Changes in operating assets and liabilities:
Receivables 188,547 (380,851)
Inventories 411,986 (378,263)
Other current assets 10,352 8,114
Accounts payable, trade (44,587) 192,946
Accrued expenses 9,625 185,277
Other long-term liabilities (26,751) (27,829)
- -----------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (43,050) 1,643,290
- -----------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (111,965) (354,997)
Proceeds from sale of assets 13,500
- -----------------------------------------------------------------------------------------------
Net cash used in investing activities (111,965) (341,497)
- -----------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term equipment financing (108,625) (4,526,244)
Proceeds from asset-based line of credit 7,286,102 10,133,104
Repayment of asset-based line of credit and term
obligations, bank (6,932,072) (10,358,974)
Net proceeds from Private Placement of common stock 4,151,780
Proceeds from exercise of stock options 2,520 19,570
- -----------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 247,925 (580,764)
- -----------------------------------------------------------------------------------------------
Net increase in cash 92,910 721,029
Cash, beginning of year 113,234 74,980
- -----------------------------------------------------------------------------------------------
Cash, end of period $ 206,144 $ 796,009
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid for interest $313,394 $ 222,570
Noncash investing and financing activities:
Purchase of equipment in exchange for notes payable 71,284 448,296
Settlement of debt obligation in exchange for common stock 124,982
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
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Reuter Manufacturing, Inc.
Notes to Financial Statements
(Unaudited)
1. FINANCIAL STATEMENTS:
The unaudited financial statements of Reuter Manufacturing, Inc. (the
"Company") for the three and six month periods ended June 30, 1998 and
1997, reflect, in the opinion of management, all adjustments (which include
only normal recurring adjustments), necessary to fairly state the financial
position at June 30, 1998, and the results of operations and cash flows for
the reported periods. The results of operations for any interim period are
not necessarily indicative of results expected for the full year. The
December 31, 1997, balance sheet data was derived from audited financial
statements, but does not include all disclosures required by generally
accepted accounting principles. These unaudited interim financial
statements should be read in conjunction with the financial statements and
related notes for the year ended December 31, 1997, which were included in
the Company's 1997 Annual Report on Form 10-KSB.
EARNINGS PER SHARE:
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share," and has disclosed basic
and diluted net income (loss) per share for the quarters ended June 30,
1998 and 1997, in accordance with this standard. The Company incurred a
net loss for the three and six months ended June 30, 1998, and excluded
common equivalent shares from the diluted earnings per share computation as
their effect is anti-dilutive. If the Company generates income from
operations in future periods the impact of common equivalent shares may be
dilutive. The Company generated income from operations for the three
and six months ended June 30, 1997, and the calculation for diluted
earnings per share included 238,650 and 216,877, respectively, of stock
options. At June 30, 1998, the Company had 439,000 stock options and
50,000 stock purchase warrants outstanding, which may be dilutive in future
periods.
2. SIGNIFICANT CUSTOMERS:
Sales to the Company's two largest customers were $1,651,434 or 54.2% of
net sales for the second quarter of 1998, compared to net sales of
$4,540,555 or 79.5% of net sales for the comparable period in 1997. Sales
to the Company's two largest customers were $3,831,479 or 57.1% of net
sales and $8,424,041 or 78.5% of net sales for the six months ended June
30, 1998 and 1997, respectively. Accounts receivable concentrations
associated with the Company's two largest customers represented 39.8% and
3.3%, respectively, of June 30, 1998 accounts receivable. Inventory
concentrations of work in process produced to customer specifications for
the Company's two largest customers at June 30, 1998, was $542,417.
6
<PAGE>
3. ASSET-BASED LINE OF CREDIT AMENDMENT:
Due to the deterioration in the Company's financial performance, on June
18, 1998, the Company signed an amendment to its lending agreement (the
"agreement") with U.S. Bancorp (the "Bank"), which increased the interest
rate on all borrowings by .90%. Effective June 1, 1998, interest now
accrues on the unpaid balance of the notes and revolving line of credit at
the Bank's Reference Rate plus 2.25%. The interest accrues on any
outstanding over-advances, as defined by the agreement, at the Bank's
Reference Rate plus 3.4%. All other terms and conditions of the agreement
remained the same. On June 30, 1998, the Company had borrowed $275,000
subject to the over advance rate. As of August 13, 1998, the Company had
borrowed approximately $5,400,000 and had additional availability of
approximately $300,000 under the agreement.
7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company is principally engaged in the business of contract
manufacturing of precision machined products and assemblies. The Company
manufactures, among other items, close tolerance bearing-related assemblies for
the medical device industry, oil centrifuges and rotary vane actuators.
The Company's poor performance in the three and six months ended June 30,
1998, was due principally to decreased revenues from the Company's largest
customer resulting from reductions in sales of one of their blood centrifuges,
which, in the prior year was being produced and shipped in large quantities.
Based on information from this customer, the Company expects that the customer's
inventory correction on the blood centrifuge unit will continue to result in
decreased revenues from the customer for the remainder of 1998, and probably
will continue sometime into the first quarter of 1999. This customer continues
to order and take delivery of other items. The level of sales the Company
experienced during the first six months of the year is expected to remain
relatively consistent for the remainder of 1998, due to the continuing softness
in medical product volume and a several month delay in the introduction of a new
product by a large engine customer. The Company's strong efforts to attract
industrial and cryogenic product volume may result in some improvement toward
the end of 1998. Due to the slow volume and its impact on cash, the Company is
exploring additional cash conservation and generation actions. The Company has
taken corrective action to deal with the decreased sales volume, including a
layoff of approximately 25% of its work force, expense monitoring, negotiations
with the Company's largest vendors, and other cost saving measures. The Company
is also aggressively pursuing additional customers and new business to help
offset the reduction in the sales volume.
RESULTS OF OPERATIONS
The Company's net sales for the second quarter of 1998 decreased by
approximately 46.7% or $2,667,535 from the comparable period in 1997 The
decrease in net sales for the second quarter of 1998, compared to the same
quarter for 1997, was due primarily to decreased sales of medical products to
the Company's largest customer and a slight decrease in industrial product
sales, which were partially offset by increased sales of proprietary products.
Sales from the medical, industrial, and tradename product lines were $2,081,966,
$732,917 and $231,567, respectively, for the second quarter of 1998, compared to
$4,797,674, $786,254 and $130,057, respectively, for the comparable period in
1997. The Company's net sales for the six months ended June 30, 1998, were
$6,704,570, compared to $10,731,410 for the comparable period in 1997, a
decrease of 37.5%. The decrease in net sales for the six month period ended
June 30,
8
<PAGE>
1998, compared to the same period in 1997, was due primarily to decreased
sales of medical products to the Company's largest customer, which was
partially offset by increased sales of industrial and proprietary products.
Sales from the medical, industrial, and tradename product lines for the six
month period ended June 30, 1998 were $4,314,163, $1,912,325, and $478,082,
respectively, compared to $9,020,103, $1,447,812, and $263,495, respectively,
for the comparable period in 1997. Sales to the Company's largest medical
product customer were $1,248,211 or 41.0% of net sales, for the second
quarter of 1998, compared to $4,303,038 or 75.3% of net sales, for the
comparable period in 1997. The Company's largest customer accounted for
$2,786,204 or 41.6% of net sales for the six month period ended June 30,
1998, compared to $7,765,344 or 72.4% of net sales for the comparable period
in 1997.
Gross profit declined to 5.0% in the second quarter of 1998, compared to
32.2% for the comparable period in 1997. Gross profit was 7.9% and 31.4% for
the six month periods ended June 30, 1998 and 1997, respectively. The decline
in gross profit for the three and six month periods ended June 30, 1998, was
primarily due to a significant decrease in higher margin medical product
business from the comparable periods in 1997. In addition, the Company was not
able to obtain operational efficiencies as a result of the significant decrease
in sales volume.
Selling, general and administrative expenses were $563,152 or 18.5% of net
sales for the second quarter of 1998, compared to $916,550 or 16.0% of net sales
for the comparable period in 1997. Selling, general and administrative expenses
were $1,236,742 or 18.4% of net sales for the six month period ended June 30,
1998, compared to $1,660,995 or 15.5% of net sales for the comparable period in
1997. For the second quarter ended June 30, 1998, the net decrease in these
expenses of approximately $353,000 is due in part to a decrease of approximately
$72,000 in selling related expenses. In addition, administrative expenses were
down approximately $281,000 for the second quarter of 1998, compared to the same
quarter of 1997, primarily due to decreases in benefit plan expenses resulting
from the Company's lack of profitability during the three months ended June 30,
1998, compared to the same period in 1997, and reductions in legal and
accounting fees, which were incurred during 1997 as a result of the Company's
debt restructuring. For the six months ended June 30, 1998, the net decrease in
selling, general and administrative expenses of approximately $424,000 is due in
part to a decrease of approximately $83,000 in selling related expenses.
Administrative expenses were down approximately $340,000 for the six months
ended June 30, 1998, compared to the same period in 1997, primarily due to a
$267,000 decrease in benefit plan expenses resulting from the Company's lack of
profitability during the six months ended June 30, 1998, compared to the same
period in 1997, and reductions in legal and accounting fees, which were incurred
during 1997 as a result of the Company's debt restructuring.
In the second quarter of 1998, the Company had an operating loss of
$410,468, compared to operating income of $921,247 in the comparable period of
1997. During the six months ended June 30, 1998, the Company had an operating
loss of $705,796, compared to operating income of $1,712,976 in the comparable
period of 1997. The operating losses in the three and six month periods ended
June 30, 1998, compared to the operating income for the comparable periods in
1997, were due to a reduction in sales of higher margin medical products
9
<PAGE>
as discussed above, along with a decrease in operational efficiencies as a
result of the decreased sales volume.
Other expense, net, increased $76,002 for the second quarter of 1998
compared to the comparable period in 1997. For the six month period ended June
30, 1998, other expense, net, increased $90,686 from the comparable period in
1997. The increase for both the three and six month periods ended June 30,
1998, resulted primarily from higher interest expense due to interest associated
with the U.S. Bancorp (f/k/a U.S. Bank National Association) agreement, which
was entered into on December 3, 1997, and increased utilization of the Company's
asset-based short-term financing arrangement. Interest expense increased
$75,340 and $102,575, respectively, for the three and six month periods ended
June 30, 1998, from the comparable periods in 1997.
The Company was not profitable during the six months ended June 30, 1998,
and consequently did not record a provision for income taxes for the three or
six month periods ended June 30, 1998. However, the Company was profitable
during the six months ended June 30, 1997, but generally does not pay regular
income taxes because of the availability of its net operating loss
carryforwards. The Company is, however, generally subject to alternative
minimum tax under the Internal Revenue Code of 1986, as amended (the "Code"),
because only 90% of the net operating loss carryforward is allowed as a
deduction before arriving at the alternative minimum taxable income. Therefore,
10% of the Company's taxable income is generally subject to the flat alternative
minimum tax rate of 21%. The Company recorded a provision for income taxes of
$17,492 and $31,411 during the three and six-month periods ended June 30, 1997,
respectively. This provision was reversed in a subsequent quarter during 1997,
due to the Company generating additional tax deductions as a result of the
timing of the deduction of certain costs associated with the Company's 1996 and
1997 Sanwa debt restructuring transactions and ultimate settlement, since such
costs were deducted for tax reporting purposes in 1997.
The effect of inflation on the Company's results has not been significant.
The net loss for the second quarter of 1998 was $574,753 or $.12 per share
(basic and diluted basis), compared to net income of $4,246,524 or $.95 per
share ($.90 per share on a diluted basis) for the second quarter of 1997. The
net loss for the six month period ended June 30, 1998 was $1,013,706 or $.21 per
share (basic and diluted basis), compared to net income of $4,895,393 or $1.27
per share ($1.20 per share on a diluted basis), for the comparable period in
1997. The net loss for the three and six month periods ended June 30, 1998,
compared to the net income for the comparable periods in 1997, was due primarily
to the recognition of an extraordinary item - gain on debt restructuring of
$3,431,052 or $.77 per share ($.73 per share on a diluted basis) for the three
months ended June 30, 1997, and $.89 per share ($.84 per share on a diluted
basis) for the six months ended June 30, 1997. The net loss for 1998 was also
caused by the loss from operations for the three and six month periods ended
June 30, 1998, as discussed above.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had a working capital deficit of $3,650,699,
compared to a working capital deficit of $2,835,744 at December 31, 1997. The
current ratio was .50 at June 30, 1998, compared to .59 at December 31, 1997.
The increase in the working capital deficit is principally due to an increase in
borrowings under the Company's asset-based line of credit and term obligations,
due to decreases in net sales and cash flows from operating activities during
the six months ended June 30, 1998. In December 1997, the Company entered into
a new financing agreement with a new asset-based lender. The financing
agreement is comprised of a revolving line of credit and three term notes (the
"credit facilities"). Although the term notes have scheduled repayment dates,
the term notes may be due upon demand in the event that the asset-based lender
demands repayment under the asset-based line of credit. Accordingly, the
Company has classified all of the amounts under the credit facilities at
December 31, 1997 and June 30, 1998, as a current liability. On June 18, 1998,
the Company signed an amendment to its lending agreement (the "Agreement") with
U.S. Bancorp (the "Bank"), which increased the interest rate on all borrowings
by .90%. Effective June 1, 1998, interest now accrues on the unpaid balance of
the notes and revolving line of credit at the Bank's Reference Rate plus 2.25%.
The interest accrues on any outstanding over-advances, as defined by the
agreement, at the Bank's Reference Rate plus 3.4%. All other terms and
conditions of the Agreement remained the same.
The Company had negative cash flows from operations of $43,050 for the six
months ended June 30, 1998, compared to positive cash flows from operations of
$1,643,290 for the comparable period in 1997. The negative cash flows from
operations for the first six months of 1998 was due primarily to lower sales
volume, and a decrease in sales of higher margin medical products, while fixed
overhead costs remained relatively constant. The Company's ability to meet its
continuing cash flow requirements is dependent on achieving adequate sales and
margins from its operations.
The Company is still experiencing a decrease in sales from the Company's
largest customer, resulting from reductions in sales of one of their blood
centrifuges, which, in the prior year, was being produced and shipped in large
quantities. Based on information from this customer, the Company expects that
the customer's inventory correction on the blood centrifuge unit will result in
decreased sales to the customer for the remainder of 1998 and probably will
continue sometime into the first quarter of 1999. This customer, continues to
order and take delivery of other items. The level of sales the Company
experienced during the first six months of the year is expected to remain
relatively consistent for the remainder of 1998, due to the continuing softness
in medical product volume and a several month delay in the introduction of a new
product by a large engine customer. The Company's strong efforts to attract
industrial and cryogenic product volume may result in some improvement toward
the end of 1998. Due to the slow volume and its impact on cash, the Company is
exploring additional cash conservation and generation actions. There can be no
assurance that sales to the Company's largest customer will
11
<PAGE>
return to expected or previous levels. The Company's future success is
dependent on its ability to obtain additional work during the schedule
reduction period and maintain adequate margins on sales. In addition, the
Company's continuing inability to generate sufficient positive cash flows
from operations would result in the Company being unable to meet debt service
requirements.
Net cash used in investing activities was $111,965 for the six months
ended June 30, 1998, compared to cash used in investing activities of $341,497
for the comparable period in 1997. The decrease was due primarily to a
reduction in capital expenditures during the first six months of 1998.
Net cash provided by financing activities was $247,925 for the six months
ended June 30, 1998, compared to cash used in financing activities of $580,764
for the comparable period in 1997. The cash provided by financing activities
during the six months ended June 30, 1998, was primarily due to increased
borrowings under the Company's asset-based line of credit to fund operating
activities. The Company made principal payments of $108,625 toward financed
equipment debt for the six months ended June 30, 1998. At June 30, 1998, the
Company had borrowed approximately $275,000 under its over-advance facility
which accrues interest at the Bank's reference rate plus 3.4%. Although the
Company was able to obtain sufficient funds under its asset-based financing
arrangement to meet its operating needs during the six months ended June 30,
1998, there can be no assurance that the Company will continue to obtain
sufficient funds under its asset-based line of credit facilities in future
periods. As of August 13, 1998, the Company had borrowed approximately
$5,400,000, including $250,000 under the over-advance facility, and had
additional availability of approximately $300,000 under its asset-based line of
credit financing arrangement.
The Company began conducting an internal review of its computer systems
in May 1997, to identify the systems that could be affected by the "Year
2000" issue. This internal review is still in progress, and the Company is
developing an implementation plan to resolve the issue. The Year 2000
problem is the result of computer programs being written using two digits
rather than four to define the applicable year. Any of the Company's
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000, resulting in miscalculations. The
Company presently believes that, with modifications to existing software and
hardware, and conversions to new software, the Year 2000 problem will not
pose significant operational problems for the Company's computer systems.
The Company has set an objective to have all systems Year 2000 compliant by
the second quarter of 1999, at a budgeted expense of approximately $50,000,
although there is no assurance that this amount will be adequate to address
the matter on a timely basis. Failure of the Company's and/or third parties'
computer systems could have a material adverse impact on the operations of
the Company.
Except for the historical financial information reported above, this
Form 10-QSB contains forward-looking statements that involve risk and
uncertainties, including the risks associated with establishing new or
improving existing relationships with customers of the Company, business
development activities, anticipated financial performance, strong efforts to
12
<PAGE>
attract new business and similar matters. In addition, the Company has a
high concentration of business with one major customer and reductions in
scheduled shipments to this customer have been the primary reason for the
losses generated for the six months ended June 30, 1998. There can be no
assurance that this customer or other customers who have reduced or delayed
shipments will resume shipments at expected or historical levels. Because of
these uncertainties, actual results could differ materially from those
reflected in the forward-looking statements.
13
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On April 20, 1998, the Company held its Annual Meeting of Shareholders. The
following matters were voted on at the annual meeting:
(a) The following directors were elected to serve until the Annual Meeting of
Shareholders to be held in 2001:
<TABLE>
<CAPTION>
Director Votes For Votes Against
-------- --------- -------------
<S> <C> <C>
James W. Taylor 3,560,319 11,200
M. Karen Gilles 3,546,750 24,769
</TABLE>
(b) An amendment to the Company's 1991 Stock Option Plan increasing the number
of shares from 500,000 to 700,000 was approved with 3,102,294 shares
voting in favor, 357,051 shares voting against, 85,648 shares abstaining
and 26,526 broker non-votes.
(c) The selection of PricewaterhouseCoopers, LLP as the Company's independent
auditors for the year ending December 31, 1998 was ratified with 3,542,231
shares voting in favor, 11,059 shares voting against, 18,229 shares
abstaining and zero broker non-votes.
Item 5. Other Information
Pursuant to recent amendments to the proxy rules under the Securities
Exchange Act of 1934, as amended, the Company's stockholders are hereby
notified that the deadline for providing the Company timely notice of any
stockholder proposal to be submitted outside of the Rule 14a-8 process for
consideration at the Company's 1998 Annual Meeting of Stockholders is January
25, 1998.
14
<PAGE>
Item 6. Exhibits and Reports
(a) Exhibits
<TABLE>
<CAPTION>
ITEM NO. DESCRIPTION METHOD OF FILING
- -------- ----------- ----------------
<S> <C> <C>
27.1 Financial Data Schedule Filed herewith electronically.
for the six months ended
June 30, 1998
27.2 Restated Financial Data Filed herewith electronically.
Schedule for the Years
ended December 31, 1995,
and 1996, and Quarters
ended March 31, June 30
and September 30, 1996
27.3 Restated Financial Data Filed herewith electronically.
Schedule for the Quarters
ended March 31, June 30
and September 30, 1997
</TABLE>
(b) Reports on Form 8-K.
There were no reports on Form 8-K which were filed during the second
quarter of 1998.
15
<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: August 14, 1998 By: /s/ Michael J. Tate
--------------- ----------------------------
Michael J. Tate
President, Chief Executive Officer and Chief
Financial Officer (principal executive and
financial officer)
Date: August 14, 1998 By: /s/ William H. Johnson
--------------- ----------------------------
William H. Johnson
Vice President, Controller and Secretary
(principal accounting officer)
16
<PAGE>
REUTER MANUFACTURING, INC.
EXHIBIT TO QUARTERLY
REPORT ON FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
ITEM NO. DESCRIPTION METHOD OF FILING
-------- ----------- ----------------
<S> <C> <C>
27.1 Financial Data Schedule Filed herewith electronically.
for the six months ended
June 30, 1998
27.2 Restated Financial Data Filed herewith electronically.
Schedule for the Years
ended December 31, 1995,
and 1996, and Quarters
ended March 31, June 30
and September 30, 1996
27.3 Restated Financial Data Filed herewith electronically.
Schedule for the Quarters
ended March 31, June 30
and September 30, 1997
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 206,144
<SECURITIES> 0
<RECEIVABLES> 1,705,872
<ALLOWANCES> 0
<INVENTORY> 1,607,675
<CURRENT-ASSETS> 3,608,951
<PP&E> 12,944,121
<DEPRECIATION> 8,556,694
<TOTAL-ASSETS> 8,390,601
<CURRENT-LIABILITIES> 7,259,650
<BONDS> 0
0
0
<COMMON> 913,031
<OTHER-SE> 17,769,522
<TOTAL-LIABILITY-AND-EQUITY> 8,390,601
<SALES> 3,046,450
<TOTAL-REVENUES> 3,046,450
<CGS> 2,893,766
<TOTAL-COSTS> 3,456,918
<OTHER-EXPENSES> 164,285
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 166,481
<INCOME-PRETAX> (574,753)
<INCOME-TAX> 0
<INCOME-CONTINUING> (574,753)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (574,753)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> (.12)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C> <C> <C> <C>
<C>
<PERIOD-TYPE> YEAR YEAR 3-MOS 3-MOS
3-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996 DEC-31-1996 DEC-31-1996
DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996 JAN-01-1996 APR-01-1996
JUL-01-1996
<PERIOD-END> DEC-31-1995 DEC-31-1996 MAR-31-1996 JUN-30-1996
SEP-30-1996
<CASH> 101,048 74,980 34,572 17,110
174,996
<SECURITIES> 0 0 0 0
0
<RECEIVABLES> 1,248,697 1,839,367 1,336,603 1,573,214
1,802,875
<ALLOWANCES> 0 0 0 0
0
<INVENTORY> 1,301,105 1,766,040 1,511,704 1,720,375
1,854,576
<CURRENT-ASSETS> 2,973,634 3,959,524 3,239,574 3,589,331
4,096,722
<PP&E> 11,192,073 11,980,272 11,212,393 11,229,857
11,451,619
<DEPRECIATION> 7,109,755 7,783,531 7,287,590 7,453,352
7,615,761
<TOTAL-ASSETS> 7,502,317 8,533,996 7,598,584 7,787,884
8,342,469
<CURRENT-LIABILITIES> 22,879,191 8,767,846 23,203,793 8,790,059
8,783,895
<BONDS> 0 0 0 0
0
0 0 0 0
0
0 0 0 0
0
<COMMON> 598,410 601,504 598,410 598,410
599,722
<OTHER-SE> 13,710,596 13,713,582 13,710,596 13,710,596
13,711,374
<TOTAL-LIABILITY-AND-EQUITY> 7,502,317 8,533,996 7,598,584 7,787,884
8,342,469
<SALES> 11,052,058 14,174,211 2,719,912 3,359,688
4,038,677
<TOTAL-REVENUES> 11,052,058 14,174,211 2,719,912 3,359,688
4,038,677
<CGS> 9,185,374 10,656,078 2,298,655 2,570,054
2,819,112
<TOTAL-COSTS> 11,443,916 13,001,812 2,810,919 3,214,868
3,423,253
<OTHER-EXPENSES> 217,747 402,827 94,966 88,083
87,537
<LOSS-PROVISION> 0 0 0 0
0
<INTEREST-EXPENSE> 403,627 455,567 101,843 100,991
104,629
<INCOME-PRETAX> (2,767,545) 769,572 (185,973) 56,737
527,887
<INCOME-TAX> 0 20,000 0 0
0
<INCOME-CONTINUING> (609,605) 749,572 (185,973) 56,737
527,887
<DISCONTINUED> (2,157,940) 0 0 0
0
<EXTRAORDINARY> 0<F1> 7,249,018<F1> 0<F1> 7,249,018<F1>
0<F1>
<CHANGES> 0 0 0 0
0
<NET-INCOME> (2,767,545) 7,998,590 (185,973) 7,305,755
527,887
<EPS-PRIMARY> (.87) 2.50 (.06) 2.29
.17
<EPS-DILUTED> (.87) 1.52 (.06) 1.82
.08
<FN>
<F1>EXTRAORDINARY ITEM-GAIN ON DEBT RESTRUCTURING
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 APR-01-1997 JUL-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 218,884 796,009 118,757
<SECURITIES> 0 0 0
<RECEIVABLES> 2,331,377 2,215,218 1,235,472
<ALLOWANCES> 0 0 0
<INVENTORY> 1,928,165 1,989,303 2,087,942
<CURRENT-ASSETS> 4,776,359 5,271,553 3,723,763
<PP&E> 11,879,090 12,461,990 12,697,394
<DEPRECIATION> 7,722,078 7,890,693 8,104,121
<TOTAL-ASSETS> 9,318,943 10,216,263 8,772,735
<CURRENT-LIABILITIES> 9,093,330 4,962,587 3,935,874
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 603,707 902,322 905,296
<OTHER-SE> 13,716,024 17,709,096 17,590,232
<TOTAL-LIABILITY-AND-EQUITY> 9,318,943 10,216,263 8,772,735
<SALES> 5,017,425 5,713,985 3,692,689
<TOTAL-REVENUES> 5,017,425 5,713,985 3,692,689
<CGS> 3,481,251 3,876,188 3,111,560
<TOTAL-COSTS> 4,225,696 4,792,738 3,771,028
<OTHER-EXPENSES> 128,941 88,283 56,038
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 130,088 91,141 115,125
<INCOME-PRETAX> 662,788 832,964 (134,377)
<INCOME-TAX> 13,919 17,492 0
<INCOME-CONTINUING> 648,869 815,472 (102,966)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0<F1> 3,431,052<F1> 0<F1>
<CHANGES> 0 0 0
<NET-INCOME> 648,869 4,246,524 (102,966)
<EPS-PRIMARY> .20 .95 (.02)
<EPS-DILUTED> .10 .90 (.02)
<FN>
<F1>EXTRAORDINARY ITEM - GAIN ON DEBT RESTRUCTURING
</FN>
</TABLE>
