-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DU3d11WIxcCt/NuPVqzQKBMzkmg+/TfyX1qcbiFkJc2LsExZEZOcQmRnNjkujN/1 H4VSW1JxmdtwEXWUWLsw3g== 0000897101-96-000653.txt : 19960830 0000897101-96-000653.hdr.sgml : 19960830 ACCESSION NUMBER: 0000897101-96-000653 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960813 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: RECOVERY ENGINEERING INC CENTRAL INDEX KEY: 0000818203 STANDARD INDUSTRIAL CLASSIFICATION: 3580 IRS NUMBER: 411557115 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-21232 FILM NUMBER: 96611129 BUSINESS ADDRESS: STREET 1: 2229 EDGEWOOD AVE S CITY: MINNEAPOLIS STATE: MN ZIP: 55426 BUSINESS PHONE: 6125411313 MAIL ADDRESS: STREET 1: 2229 EDGEWOOD AVENUE SOUTH CITY: MINNEAPOLIS STATE: MN ZIP: 55426 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the period ended June 30, 1996 Commission File Number 0-21232 - - ---------------------------------- ------------------------------ RECOVERY ENGINEERING, INC. (Exact name of registrant as specified in its charter) Minnesota 41-1557115 State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation organization) 2229 Edgewood Avenue S. Minneapolis, MN 55426 (Address of principal executive offices) Registrant's telephone number, including area code: (612) 541-1313 Not applicable (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___ APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. Common Stock, $.01 Par Value -- 4,321,275 shares as of June 30, 1996 RECOVERY ENGINEERING, INC. INDEX PART I. FINANCIAL INFORMATION Page No. Item 1. Financial Statements: Balance Sheets June 30, 1996 and December 31, 1995............................... 3 Statements of Operations Three and six month periods ended June 30, 1996 and 1995.......... 4 Statements of Cash Flows Six months ended June 30, 1996 and 1995........................... 5 Notes to Financial Statements..................................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................... 7 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders............... 9 Item 6. Exhibits and Reports on Form 8-K.................................. 9 Signatures........................................................ 10 RECOVERY ENGINEERING, INC. BALANCE SHEETS (In thousands, except share data)
June 30, December 31, 1996 1995 -------- -------- ASSETS (Unaudited) Current assets: Cash and cash equivalents $ -- $ 1,291 Marketable securities -- 1,022 Accounts receivable (net of allowance of $144 for 1996 and $57 for 1995) 5,262 4,196 Inventory 5,782 6,173 Refundable income taxes 35 1,177 Prepaid expenses 471 321 Deferred income taxes 63 63 -------- -------- Total Current Assets 11,613 14,243 Property and equipment: Tooling 5,311 4,449 Equipment and fixtures 5,916 4,587 -------- -------- 11,227 9,036 Less accumulated depreciation 2,455 1,870 -------- -------- 8,772 7,166 Deferred income taxes 1,512 1,512 Patents 1,594 1,523 Less accumulated amortization 872 822 -------- -------- 722 701 -------- -------- Total assets $ 22,619 $ 23,622 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,617 $ 2,912 Bank line of credit 2,560 -- Accrued expenses 1,574 1,280 -------- -------- Total current liabilities 6,751 4,192 Shareholders' equity: Common stock, $.01 par value: Authorized shares -- 100,000,000 Issued and outstanding shares: 1996 - 4,321,275 and 1995 - 4,256,723 43 42 Additional paid-in capital 20,194 20,114 Retained earnings (deficit) (4,369) (726) -------- -------- Total shareholders' equity 15,868 19,430 -------- -------- Total liabilities and shareholders' equity $ 22,619 $ 23,622 ======== ========
See accompanying notes. RECOVERY ENGINEERING, INC. STATEMENTS OF OPERATIONS (Unaudited - in thousands, except per share amounts)
Three months ended Six months ended June 30, June 30, -------- -------- 1996 1995 1996 1995 -------- -------- -------- -------- Net sales $ 6,598 $ 3,608 $ 13,038 $ 8,816 Cost of products sold 4,076 2,142 8,062 4,875 -------- -------- -------- -------- Gross profit 2,522 1,466 4,976 3,941 Operating expenses: Selling, general and administrative 3,810 2,567 7,516 4,408 Research and development 402 383 1,071 811 -------- -------- -------- -------- 4,212 2,950 8,587 5,219 -------- -------- -------- -------- Loss from operations (1,690) (1,484) (3,611) (1,278) Other income (expense): Interest income 2 181 14 368 Interest expense (38) -- (40) -- Other income (expense) 4 (3) (6) -- -------- -------- -------- -------- (32) 178 (32) 368 -------- -------- -------- -------- Loss before income taxes (1,722) (1,306) (3,643) (910) Income tax benefit -- (405) -- (282) -------- -------- -------- -------- Net loss $ (1,722) $ (901) $ (3,643) $ (628) ======== ======== ======== ======== Net loss per share $ (.40) $ (.21) $ (.85) $ (.15) ======== ======== ======== ======== Weighted average number of common shares outstanding 4,319 4,243 4,290 4,225 ======== ======== ======== ========
See accompanying notes. RECOVERY ENGINEERING, INC. STATEMENTS OF CASH FLOWS (Unaudited - in thousands) Six months ended June 30 ------- 1996 1995 ------- ------- Operating activities Net loss $(3,643) $ (628) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 635 350 Deferred income taxes -- 96 Provision for losses on accounts receivable 87 22 Changes in operating assets and liabilities: Accounts receivable (1,153) 1,156 Inventory 391 (1,955) Prepaid expenses (150) (704) Accounts payable (295) (41) Accrued expenses 294 (58) Refundable income taxes 1,142 -- ------- ------- Net cash used in operating activities (2,692) (1,762) Investing activities Purchase of property and equipment (2,191) (1,907) Purchase of marketable securities -- (2,582) Sale of marketable securities 1,022 3,503 Purchase of patents (71) (71) ------- ------- Net cash used in investing activities (1,240) (1,057) Financing activities Net proceeds from bank line of credit 2,560 -- Exercise of stock options and warrants 81 1,034 ------- ------- Net cash provided by financing activities 2,641 1,034 ------- ------- Decrease in cash and cash equivalents (1,291) (1,785) Cash and cash equivalents at beginning of period 1,291 5,913 ------- ------- Cash and cash equivalents at end of period $ -- $ 4,128 ======= ======= See accompanying notes. RECOVERY ENGINEERING, INC. NOTES TO FINANCIAL STATEMENTS (Unaudited) June 30, 1996 Note A -- Basis of Presentation The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 1996 are not necessarily indicative of the results that may be expected for the year ended December 31, 1996, or any other period. For further information, refer to the financial statements and footnotes thereto for the year ended December 31, 1995 included in the Company's latest annual report on Form 10-K. Note B -- Inventory The components of inventory consist of the following: June 30, December 31, 1996 1995 ---------- ---------- Raw materials $3,093,000 $3,562,000 Work in process 122,000 303,000 Finished products 2,567,000 2,308,000 ---------- ---------- $5,782,000 $6,173,000 ========== ========== Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Second Quarter Ended June 30, 1996) RESULTS OF OPERATIONS: The report contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ significantly from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, changes in the Company's materials costs, new product introductions by the Company or its competitors, and changes in general conditions in the market for household goods. Net sales increased 83% for the three months and 48% for the six months ended June 30, 1996, compared to the same periods in the prior year. The increases were the result of contributions from our PUR Self-Monitoring Water FilterJ for the household market. Sales of household water filters increased nearly four-fold in the second quarter of 1996, versus the same period in 1995. Price increases did not have a significant impact on net sales for the six months ended June 30, 1996 or 1995. Gross margins were 38.2% for both the second quarter and year-to-date, 1996, versus 40.6% and 44.7% for the same periods in 1995, respectively. The decrease in gross margins was primarily due to lower margins on the OEM product line and unabsorbed overhead costs. With increased volume, continued reduction in materials costs, and automation of the PUR FM series unit production line, the Company expects higher gross margins throughout the remainder of the year. Selling, general and administrative expenses increased for the quarter ended June 30, 1996 and year-to-date, compared to the same periods last year. This increase reflects increased sales and marketing expense related to the continued roll-out of the household drinking water system products in the U.S. Selling expenses are expected to continue to be well above 1995 levels throughout the remainder of the year, to support the continued roll-out of the household drinking water systems and product line extensions. Research and development expense increased by 5% and 32% for the second quarter and year-to-date 1996, respectively, compared to the same periods in 1995, reflecting the Company's continued emphasis on product development. Development of product line extensions and other new products will require continued emphasis and increased spending on research and development in 1996. Other income (expense) was ($32,000) for the second quarter and year-to-date 1996, compared to $178,000 and $368,000 for the same periods the prior year, due primarily to decreased interest income corresponding to decreased balances of cash, cash equivalents and marketable securities and the incurrance of short-term debt. The Company's effective income tax rate was 0% for the three months ended June 30, 1996 and year-to-date compared to 31% for the same periods in 1995. The Company has a $1,512,000 tax benefit related to losses incurred in 1995. The Company has recorded a valuation allowance for the tax benefit related to the current net operating loss. In 1995, research and development tax credits and reduced tax rates from the Company's foreign sales corporation and tax exempt interest on certain investments in the current year, caused the effective rates to be below the statutory level. LIQUIDITY AND CAPITAL RESOURCES: Cash used in operations was $2,692,000 for the six months ended June 30, 1996, compared to $1,762,000 for the same period in 1995. In 1996, net loss as well as increased accounts receivable related to strong second quarter sales, partially offset by the collection of an income tax refund were the primary components of cash used in operation. In 1995, net loss and increased inventory levels to support the projected sales growth and an inventory increase related to military contract delays offset cash received through collection of receivables. Capital expenditures were $2,191,000 for the six months ended June 30, 1996, compared to $1,907,000 for the same period the prior year. The capital expenditures were used primarily to purchase tooling and manufacturing equipment for both years. Increased expenditures in 1996 for tooling and manufacturing equipment purchases are associated with new product introductions and an increase in overall production capacity. At June 30, 1996, the Company had available an $8 million credit facility secured by equipment, inventory and receivables. The Company had borrowed $2,560,000 under this facility at June 30, 1996, compared to $0 at December 31, 1995. Subsequent to June 30, 1996, the Company received $15 million from a private placement of convertible notes. The notes bear interest at a rate of five percent and are convertible into one million shares of common stock. The Company used a portion of the proceeds from these notes to repay and close the existing bank line of credit. Management believes that anticipated cash flows from operations, and the proceeds from the convertible note will provide sufficient capital resources for current operations and planned product introductions. The Company has not paid cash dividends. The Board of Directors currently intends to retain all earnings for expansion of the Company's business. PART II OTHER INFORMATION Item 1. Legal Proceedings The Company from time to time is involved in various legal proceedings arising in the normal course of business, none of which is expected to result in any material loss to the Company. Item 2. Changes in securities Not applicable Item 3. Defaults upon Senior Securities Not applicable Item 4. Submission of Matters to a Vote of Security Holders The Company's Annual Meeting of Shareholders was held on April 25, 1996. The following matters were submitted to a vote of the shareholders at the Annual Meeting: Election of Directors. The following persons were elected to serve as directors, for a term of one year: John R. Albers John E. Gherty Brian F. Sullivan William D. Thompson William F. Wanner, Jr. Ronald W. Weber Richard J. Zeckhauser Approval of Proposal to Reincorporate the Company under the Laws of the State of Minnesota by merging the Company with and into a Newly Formed Minnesota Corporation. (2,188,407 votes FOR, 87,480 votes AGAINST, and 8,707 votes ABSTAINED) Ratification of Appointment of Ernst & Young, LLP as Independent Auditors. (3,236,785 votes FOR, 17,114 votes AGAINST, and 4,908 votes ABSTAINED) Item 5. Other Information Not applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits See Exhibit Index on page following signature (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter covered by this Form 10-Q. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Recovery Engineering, Inc. (Registrant) Dated: August 12, 1996. /s/ Brian F. Sullivan Brian F. Sullivan President, Chief Executive Officer and Director (principal executive officer) Dated: August 12, 1996. /s/ Charles F. Karpinske Charles F. Karpinske Chief Financial Officer (principal financial and accounting officer) SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 EXHIBIT INDEX TO FORM 10-Q For the quarter ended Commission File No.: 0-21232 June 30, 1996 RECOVERY ENGINEERING, INC. Page Number in Sequential Numbering of All Pages Including Exhibits Exhibit 11 Statement re computation of loss per share 12 27 Financial data schedule 13 EX-11 2 EXHIBIT 11 RECOVERY ENGINEERING, INC. COMPUTATION OF LOSS PER SHARE
Three months ended Six months ended June 30, June 30, -------------------------- -------------------------- 1996 1995 1996 1995 ----------- ----------- ----------- ----------- Primary: Weighted average shares outstanding 4,319,000 4,243,000 4,290,000 4,225,000 Net effect of dilutive stock options and warrants -- based on treasury stock method using average market price -- -- -- -- ----------- ----------- ----------- ----------- Total 4,319,000 4,243,000 4,290,000 4,225,000 =========== =========== =========== =========== Net loss $(1,722,000) $ (901,000) $(3,643,000) $ (628,000) =========== =========== =========== =========== Per share amount $ (.40) $ (.21) $ (.85) $ (.15) =========== =========== =========== =========== Fully diluted: Weighted average shares outstanding 4,319,000 4,243,000 4,290,000 4,225,000 Net effect of dilutive stock options and warrants -- based on treasury stock method using ending market price, if higher than average market price -- -- -- -- ----------- ----------- ----------- ----------- Total 4,319,000 4,243,000 4,290,000 4,225,000 =========== =========== =========== =========== Net loss $(1,722,000) $ (901,000) $(3,643,000) $ (628,000) =========== =========== =========== =========== Per share amount $ (.40) $ (.21) $ (.85) $ (.15) =========== =========== =========== ===========
EX-27 3 FINANCIAL DATA SCHEDULE
5 6-MOS DEC-31-1996 JUN-30-1996 0 0 5,262 144 5,782 11,613 11,227 2,455 22,619 6,751 0 0 0 43 15,825 22,619 13,038 13,038 8,062 16,649 (8) 124 40 (3,643) 0 (3,643) 0 0 0 (3,643) (.85) (.85)
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