-----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, JBaGApippUNKSL4fSuMtrHXE4aTgkShrgyIAiFYF8cc4Ekn/XAYj9RLxtZ/oW+O/ eicuzA1/3f9+ugmK+2pWxQ== 0000897101-01-000066.txt : 20010129 0000897101-01-000066.hdr.sgml : 20010129 ACCESSION NUMBER: 0000897101-01-000066 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20010125 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REUTER MANUFACTURING INC CENTRAL INDEX KEY: 0000083490 STANDARD INDUSTRIAL CLASSIFICATION: LABORATORY APPARATUS & FURNITURE [3821] IRS NUMBER: 410780999 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-01561 FILM NUMBER: 1515231 BUSINESS ADDRESS: STREET 1: 410 11TH AVE SOUTH CITY: HOPKINS STATE: MN ZIP: 55343 BUSINESS PHONE: 6129356921 MAIL ADDRESS: STREET 1: 410 11TH AVENUE SOUTH CITY: HOPKINS STATE: MN ZIP: 55343 FORMER COMPANY: FORMER CONFORMED NAME: GREEN ISLE ENVIRONMENTAL SERVICES INC DATE OF NAME CHANGE: 19940210 FORMER COMPANY: FORMER CONFORMED NAME: REUTER INC DATE OF NAME CHANGE: 19920703 10QSB 1 0001.txt 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, 2000 [ ] 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) 952/935-6921 - -------------------------------------------------------------------------------- (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 ___. No _X_. As of January 24, 2001, there were 8,740,173 shares of the registrant's $.1875 par value Common Stock outstanding. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. REUTER MANUFACTURING, INC. BALANCE SHEETS
June 30, 2000 December 31, (Unaudited) 1999 ------------ ------------ ASSETS Current assets: Cash $ 500 $ 500 Receivables, net of allowances of $10,350 and $175,000 at June 30, 2000 and December 31, 1999, respectively 1,394,224 1,288,036 Inventories 1,268,679 1,287,951 Other current assets 25,000 9,500 ------------ ------------ Total current assets 2,688,403 2,585,987 Property, plant and equipment, net 3,095,804 3,402,734 ------------ ------------ Total assets $ 5,784,207 $ 5,988,721 ============ ============ LIABILITIES AND STOCKHOLDERS' DEFICIENCY Current liabilities: Book overdraft $ 361,167 $ 431,619 Asset-based line of credit and term obligations, bank 5,119,178 5,136,094 Current maturities of long-term equipment financing 518,762 444,216 Promissory note 200,000 200,000 Accounts payable, trade 1,614,632 1,484,191 Accrued expenses 814,259 701,150 ------------ ------------ Total current liabilities 8,627,998 8,397,270 Long-term equipment financing, less current maturities 293,761 433,315 Debentures payable 366,880 355,840 Other liabilities 33,045 38,345 Commitments and contingencies Stockholders' 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 4,899,385 and 4,898,885 shares at June 30, 2000 and December 31, 1999, respectively 937,385 937,385 Additional paid-in capital 17,871,766 17,871,759 Accumulated deficit (22,346,628) (22,024,362) Unearned stock compensation (20,831) ------------ ------------ Total stockholders' deficiency (3,537,477) (3,236,049) ------------ ------------ Total liabilities and stockholders' deficiency $ 5,784,207 $ 5,988,721 ============ ============
The accompanying notes are an integral part of the financial statements. 2 REUTER MANUFACTURING, INC. STATEMENTS OF OPERATIONS
(Unaudited) (Unaudited) For the three months ended For the six months ended June 30, June 30, 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Net sales $ 2,851,441 $ 2,777,992 $ 5,965,661 $ 5,724,147 Cost of sales 2,521,554 2,429,387 5,036,657 4,942,844 ------------ ------------ ------------ ------------ Gross profit 329,887 348,605 929,004 781,303 Selling, general and administrative expenses 468,383 443,769 887,048 913,916 ------------ ------------ ------------ ------------ Operating loss (138,496) (95,164) 41,956 (132,613) ------------ ------------ ------------ ------------ Other (expense) income: Interest expense (190,133) (193,831) (385,170) (379,223) Other, net 11,600 21,367 20,948 6,570 ------------ ------------ ------------ ------------ Total other expense, net (178,533) (172,464) (364,222) (372,653) ------------ ------------ ------------ ------------ Net loss $ (317,029) $ (267,628) $ (322,266) $ (505,266) ============ ============ ============ ============ Net loss per share (basic and diluted) $ (0.06) $ (0.06) $ (0.07) $ (0.10) ============ ============ ============ ============ Weighted average common shares outstanding (basic and diluted) 4,899,385 4,865,721 4,899,385 4,864,645 ============ ============ ============ ============
The accompanying notes are an integral part of the financial statements. 3 REUTER MANUFACTURING, INC. STATEMENTS OF CASH FLOWS
(Unaudited) For the six months ended June 30, - ------------------------------------------------------------------------------------------------------ 2000 1999 - ------------------------------------------------------------------------------------------------------ Cash flows from operating activities: Net loss $ (322,266) $ (505,266) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation 306,930 400,651 Amortization of intangible assets Accretion of debentures payable 11,040 Stock compensation 4,167 Provision for doubtful accounts 25,000 Provision for write-down of inventories 50,000 Changes in operating assets and liabilities: Receivables (106,188) (83,715) Inventories 19,272 148,525 Other current assets (15,500) 18,031 Accounts payable, trade 130,441 42,337 Accrued expenses 113,109 (64,009) Other liabilities (5,300) (19,447) ------------ ------------ Net cash provided by operating activities 120,498 27,314 ------------ ------------ Cash flows from investing activities: Additions to property, plant and equipment -- (45,671) ------------ ------------ Net cash used in investing activities -- (45,671) ------------ ------------ Cash flows from financing activities: Book overdraft 40,816 Repayment of long-term equipment financing (65,008) (70,677) Proceeds from asset-based line of credit and term obligations, bank 6,184,932 5,578,697 Repayment of asset-based line of credit (6,201,848) (5,760,564) Proceeds from private placement of debentures 11,040 50,000 Proceeds from exercise of stock options 20,838 210 ------------ ------------ Net cash used in financing activities (50,046) (161,518) ------------ ------------ Net (decrease) increase in cash 70,452 (179,875) Cash, beginning of year (431,119) 179,875 ------------ ------------ Cash, end of period $ (360,667) $ -- ============ ============ Supplemental disclosures of cash flow information: Cash paid for interest $ 341,820 $ 382,545 Noncash investing and financing activities: Purchase of equipment in exchange for notes payable 140,273
The accompanying notes are an integral part of the financial statements. 4 Reuter Manufacturing, Inc. Notes to Financial Statements (Unaudited) 1. Financial Statements: The unaudited financial statements of Reuter Manufacturing, Inc. (the "Company") for the three month and six month periods ended June 30, 2000 and 1999, reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments), necessary to fairly state the financial position at June 30, 2000, 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, 1999, 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, 1999, which are included in the Company's 1999 Annual Report on Form 10-KSB. Earnings Per Share: Basic earnings per common share is computed using the weighted average number of shares outstanding for the period. Diluted earnings per common share is computed using the weighted average number of shares outstanding per common share adjusted for the incremental dilutive shares attributed to outstanding stock options under the Company's stock option plans and stock purchase warrants. The Company incurred a loss for the three and six month periods ended June 30, 2000 and 1999, and as a result, incremental shares attributable to the assumed exercise of stock options and warrants were excluded from the computation of diluted earnings per share as the effect would be antidilutive. 5 2. Significant Customer: The Company has certain customers, which comprise a significant percentage of net sales as follows:
(Unaudited) (Unaudited) Net sales for the three months Net sales for the six months Ended June 30, Ended June 30 2000 1999 2000 1999 ---- ---- ---- ---- Amount % Amount % Amount % Amount % Customer A $ 1,298,147 46.2% $ 1,682,914 60.2% $ 2,689,949 45.3% $ 3,315,333 57.9% Customer B 310,140 11.0% -- -- 660,737 11.1% -- --
Accounts receivable credit concentrations associated with these customers totaled $558,166 at June 30, 2000. Inventory related to production in process according to customers' specifications for these customers at June 30, 2000, was $792,687. 3. Asset-Based Line of Credit: At June 30, 2000, the Company had borrowed approximately $5,119,000 under its line of credit facilities. The Company's credit facilities with the bank consist of a revolving line of credit and three term notes. Although the line of credit is not due until December 1, 2002, the bank has the right to demand payment at any time. In addition, although the term notes have scheduled repayment dates, the term notes may be due upon demand in the event that the bank requires demand repayment under the credit facilities. The credit facilities agreement also includes a subjective material adverse change clause under which the borrowing could become due and payable. Accordingly, the Company has classified all of the amounts owing under the credit facilities as current liabilities at June 30, 2000. 4. Private Placement of Debentures with Warrants On December 22, 1998, the Company completed a $350,000 private placement of debentures with warrants. The Company received an additional $50,000 under this placement in 1999. The debentures bear interest at 13% per annum and are due on December 31, 2001. In connection with the private placement of debentures, the Company granted five-year warrants to purchase 400,000 shares of the Company's common stock at an exercise price of $0.6625 per share, exercisable immediately. The Company is using the proceeds from the private offering to fund operations. 6 5. Subsequent Events ACCOUNTS PAYABLE During July 2000, the Company presented a settlement offer to trade creditors. The settlement plan required certain trade creditors to reduce their amounts outstanding above $200 by 47% of the total amount owed to the creditor. The remaining 53% of their trade creditor balance above $200 would then be paid by the Company in 12 equal bi-monthly installments, which commenced on October 30, 2000. Trade creditors with balances less than or equal to $200 were paid in full. Approximately 62.4% of the trade creditors responded to the settlement offer and approximately $499,000 of trade creditor balances have been settled under the offer. Of the total settlement amount of $499,000, approximately $331,000 relates to amounts outstanding at December 31, 1999. The Company will record an extraordinary gain of approximately $499,000 as a result of these trade creditor settlements in the fourth quarter of fiscal 2000. The Company is continuing to pursue settlements with the non-responding trade creditors. FINANCING ARRANGEMENTS In October 2000, the Company and its bank entered into an amended and restated senior credit agreement. The credit facilities under the credit agreement consist of an asset-based line of credit with availability of up to $1,500,000, subject to a borrowing base limitation of 80% of the Company's eligible accounts receivable plus $250,000, and three term notes of $2,800,000 ("Term Note A"), $1,100,000 ("Term Note B"), and $1,325,000 ("Term Note C"). The asset-based line of credit bears interest at the bank's reference rate and is payable in full in October 2002. Term Note A bears interest at a fixed rate of 10% per year and is payable in monthly principal and interest installments of $27,020 commencing November 2000, with a final balloon payment due in October 2005. Term Note B bears interest at a fixed rate of 12%, with interest payable monthly commencing November 2000 through January 2001. Effective February 2001, Term Note B is payable in monthly principal and interest installments of $36,500 with a final balloon payment due in January 2004. Term Note C is non-interest bearing and is due and payable in full on September 2003. If the line of credit and Term Notes A and B are paid in full on or before September 2003, or if no event of default exists at October 1, 2003, then Term Note C shall be forgiven. 7 Subsequent Events, continued The credit facilities restrict the payment of dividends and the Company's ability to incur other indebtedness. The credit agreement also contains a covenant that requires the Company to meet certain net income targets for 2002. The bank may at any time apply the funds available in any Company bank account against the outstanding loan balances. In addition, the credit facilities are collateralized by all of the Company's assets, except for certain equipment purchased with notes payable. STOCKHOLDERS' EQUITY In October 2000, the Company completed a private placement with certain investors under which the Company sold 3,500,000 shares of the Company's common stock and 1,000,000 shares of the Company's Series A Preferred Stock valued at $.177 per share, for proceeds of approximately $800,000. The Series A Preferred is convertible at any time into shares of common stock as is determined by dividing $.177 by the conversion price in effect at the time of any conversion and multiplying such quotient by each share of Series A Preferred to be converted. In connection with the private placement, the Company, the investors and certain of the Company's existing shareholders (collectively, the "control group") entered into a voting agreement. Among other provisions, the voting agreement requires that the control group vote their shares to designate the investors as members of the Company's Board of Directors. The voting agreement further requires the control group to vote as directed by the investors on all matters, which are presented for a vote to the Company's stockholders. PURCHASE AGREEMENT In December 2000, the Company purchased the inventories and accounts receivable and assumed certain liabilities of a company owned by the Chairman of the Company in exchange for a note issued by the Company. The note is for approximately $364,000 and bears interest at 8% with all principal and interest payable in December 2003. 8 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company is principally a contract manufacturer of precision machined products and assemblies for medical and industrial original equipment manufacturers ("OEM"). The Company manufactures on a contract basis, among other items, close tolerance bearing-related assemblies for the medical device industry. In order to differentiate itself from its competitors, the Company emphasizes its design engineering and manufacturing engineering capability and support. The Company continues to manufacture and sell, under the Reuter(R) name, self-powered oil centrifuges and laboratory centrifuges, which are sold by the Company's sales force to OEM's, end users, and to distributors. Throughout 1999, the Company continued to experience a decrease in sales for one of its blood centrifuge models to the Company's largest customer. Until August 1997 this product was being produced and shipped in large quantities to that customer. Beginning mid-February, 1999, sales of that particular blood centrifuge model started to increase again; however, there can be no assurance that sales to the Company's largest customer will return to expected or previous levels or that sales of other products will be sufficient to achieve positive cash flow or profitability. The Company's largest customer continues to order and take delivery of other products manufactured by the Company. The Company's efforts to attract industrial, cryogenic and high-tech custom product customers resulted in some improvement in sales toward the end of 1999. The Company's ability to continue operations is dependent on its ability to increase sales and maintain adequate margins on sales. If the Company is unable to increase sales from current levels and generate positive cash flows from operations, it would be unable to meet its debt service requirements and may be forced to cease operations or may need to seek protection under U.S. bankruptcy laws. Due to the lower sales and the resulting impact on cash, the Company is exploring additional cash conservation and generation strategies. Subsequent to June 30, 2000, the Company presented a settlement offer to its trade creditors of record at July 21, 2000. The settlement required certain trade creditors to reduce their amounts outstanding above $200 by 47%, with the remaining 53% to be paid in 12 equal bi-monthly payments beginning no later then October 30, 2000. The Company also amended its credit agreements with U.S. Bank National Association as of October 10, 2000, which created credit facilities with maximum borrowings of $6,725,000. These credit facilities included a revolving credit line and three term notes. The Company also received $800,000 on October 10, 2000 for the issuance 3,500,000 shares of common stock and 1,000,000 shares of Series A Preferred stock to Activar, Inc., J.L. Reissner and M.J. Tate. The Company also purchased the inventories and accounts receivable and assumed certain liabilities of another company, owned by the Chairman, for approximately $364,000. 9 RESULTS OF OPERATIONS The Company's net sales of $2,851,441 for the second quarter ended June 30, 2000 increased by approximately 2.6% or $73,449 from $2,777,992 for the same period in 1999. The increase in net sales for the second quarter of 2000 compared to the same quarter for 1999 was due primarily to increased spindle sales and increased proprietary sales (oil centrifuges). Net sales from medical, industrial, and proprietary products were $2,079,048, $604,481, and $167,912, respectively, for the second quarter ended June 30, 2000 compared to $2,085,434, $554,066, and $138,492, respectively, for the comparable period in 1999. Sales to the Company's largest medical product customer were $1,298,147 or 46.2% of net sales for the second quarter of 2000 compared to $1,672,341 or 60.2% of net sales for the same period in 1999. The Company's net sales of $5,965,661 for the six months ended June 30, 2000 increased by approximately 4.2% or $241,514 from $5,724,147 for the same period in 1999. The increase in net sales for the first six months of 2000 compared to the same period in 1999 was due primarily to a substantial increase in proprietary sales, an increase in industrial sales and a slight decrease in medical sales. Net sales from medical, industrial, and proprietary products were $4,302,760, $1,167,870, and $495,031, respectively, for the six months ended June 30, 2000 compared to $4,333,061, $1,127,691, and $263,395, respectively, for the comparable period in 1999. Sales to the Company's largest medical product customer were $2,689,949 or 45.3% of net sales for the six months ended June 30, 2000 compared to $3,314,825 or 57.9% of net sales for the same period in 1999. Gross profit was 11.6% in the second quarter of 2000, compared to 12.5% for the same period in 1999. The reduction in gross profit for the second quarter was due primarily to higher product costs through the use of alternative vendors and increased unabsorbed burden. Gross profit was 15.6% for the six months ended June 30, 2000, compared to 13.6% for the same period in 1999. The improvement in gross profit for the first six months of 2000 was primarily due to reduced overhead costs, reduced inventory variances and reduced burden absorption. Selling, general and administrative expenses were $468,383 or 16.4% of net sales for the second quarter of 2000, compared to $443,769 or 16.0% of net sales for the same period in 1999. The increase for the quarter ended June 30, 2000 in selling, general and administrative expenses of $24,614, from the comparable quarter in 1999 is due to increased contract labor costs for professional services. For the six months ended June 30, 2000, selling, general and administrative expenses were $887,048 or 14.9% of net sales, compared to $913,916 or 16.0% of net sales for the same period in 1999. For the six months ended June 30, 2000, selling, general and administrative expenses decreased $26,868 from the comparable period in 1999. The decrease is primarily due to a reduction in advertising expenses and depreciation. In the second quarter of 2000, the Company had an operating loss of $138,496, compared to an operating loss of $95,164 in the same period of 1999. For the six months ended June 30, 2000, the Company had an operating income of $41,956 compared to an operating loss of 10 $132,613 for the same period in 1999. The improvement in the operating income for the second quarter and first six months of 2000 compared to 1999 was due primarily to higher sales levels and reduced selling, general and administrative expenses. Other expenses, net, increased $6,069 for the second quarter of 2000 compared to the same period in 1999. The increase for the second quarter of 2000 compared to 1999 was due to increased interest expense of approximately $3,700 from increased borrowings under the asset-based financing and a reduction in other income of approximately $9,800. For the six months ended June 30, 2000, other expenses, net, decreased $8,431 compared to the same period in 1999. The decrease for the first six months of 2000 compared to 1999 was due to increased interest expense of approximately $5,900 from increased borrowings under the asset-based financing and an increase in other income of approximately $14,300. The Company incurred a net loss during the second quarter and first six months of 2000 and 1999, and consequently did not record a provision for income taxes for these periods. The Company generally does not pay regular income taxes because of the availability of its net operating loss carryforwards. The Company is, however, generally subject to the 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%. Because the Company did not generate taxable income during the first and second quarters of 2000 and 1999, no provision for income taxes was recorded. The effect of inflation on the Company's results has not been significant. The net loss for the second quarter of 2000 was $317,029 or $0.06 per basic and diluted share, compared to a net loss of $267,628 or $0.06 per basic and diluted share for the second quarter of 1999. The net loss for the six month period ended June 30, 2000 was $322,266 or $0.07 per basic and diluted share, compared to a net loss of $505,266 or $0.10 per basic and diluted share for the comparable period in 1999. The net loss for the three and six month period ended June 30, 2000 compared to the same period in 1999 was due to the factors discussed above. LIQUIDITY AND CAPITAL RESOURCES At June 30, 2000, the Company had a working capital deficiency of $5,939,595, compared to a working capital deficiency of $5,811,283 at December 31, 1999. The current ratio was .31 at June 30, 2000 and December 31, 1999. The increase in the working capital deficiency is principally due to continuing operating losses. Although the term notes under the Company's asset-based line of credit have scheduled repayment dates, the term notes may be due upon demand in the event that the asset-based lender demands repayment. Accordingly, the Company has classified all of the amounts owing under the credit facilities at June 30, 2000 and December 31, 1999, as current liabilities. The credit 11 facilities agreement includes a subjective material adverse change clause under which the borrowings could become due and payable. On October 10, 2000, the Company and US Bank National Association entered into an amended and restated senior credit agreement. The credit facilities under the credit agreement consist of an asset-based line of credit with availability of up to $1,500,000, subject to a borrowing base limitation of 80% of the Company's eligible accounts receivable plus $250,000, and three term notes of $2,800,000 ("Term Note A"), $1,100,000 ("Term Note B") and $1,325,000 ("Term Note C"). The asset-based line of credit bears interest at the US Bank National Association's reference rate and is payable in full in October 2002. Term Note A bears interest at a fixed rate of 10% per year and is payable in monthly principal and interest installments of $27,020 commencing November 2000, with a final balloon payment due in October 2005. Term Note B bears interest at a fixed rate of 12%, with interest payable monthly commencing November 2000 through January 2001. Effective February 2001, Term Note B is payable in monthly principal and interest installments of $36,500 with a final balloon payment due in January 2004. Term Note C is non-interest bearing and is due and payable in full on September 2003. If the line of credit and Term Notes A and B are paid in full on or before September 2003, or if no event of default exists at October 1, 2003, then Term Note C shall be forgiven. The credit facilities restrict the payment of dividends and the Company's ability to incur other indebtedness. The credit agreement also contains a covenant that requires the Company to meet certain net income targets for 2002. US Bank National Association may at any time apply the funds available in any Company bank account against the outstanding loan balances. In addition, the credit facilities are collateralized by all of the Company's assets, except for certain equipment purchased with notes payable. Net cash provided by operating activities was $120,498 for the six months ended June 30, 2000, compared to net cash provided by operating activities of $27,314 for the comparable period in 1999. The increase in cash flows from operating activities for the six months ended June 30, 2000, from the comparable period in 1999 was due primarily to a lower net loss. The lower net loss resulted from a increases in higher margin medical product sales and cost reductions from decreases in workforce and tighter cost controls. The Company's ability to meet its continuing cash flow requirements in the future is dependent on achieving adequate sales and margins from its manufacturing operations. No cash was used in investing activities for the six month period ended June 30, 2000, compared to cash used in investing activities of $45,671 for the same period in 1999. The decrease was due to a reduction in capital expenditures during the first six months of 2000. Net cash used in financing activities was $50,046 for the six month period ended June 30, 2000, compared to cash used in financing activities of $161,518 for the same period in 1999. 12 The change was primarily due to increased borrowings under the Company's asset-based line of credit to fund operating activities. As of June 30, 1999, the Company had borrowed approximately $5,119,000 under the credit facilities. In February 1999, the Company received the final investment of $50,000 from the private placement offering of debentures with warrants. The total liability relating to the debentures issued in this offering was $366,880 as of June 30, 2000. These debentures are due on December 31, 2001, although the Company has the right to prepay the debentures before this time. The proceeds are being used to fund operating activities. In October 2000, the Company completed a private placement with Activar, Inc., J.L. Reissner and M.J. Tate (collectively, the "Investors") under which the Company sold 3,500,000 shares of the Company's common stock and 1,000,000 shares of the Company's Series A Preferred Stock valued at $.177 per share, for proceeds of approximately $800,000. The Series A Preferred is convertible at any time into shares of common stock as is determined by dividing $.177 by the conversion price in effect at the time of any conversion and multiplying such quotient by each share of Series A Preferred to be converted. In connection with the private placement, the Company, the Investors and certain of the Company's existing shareholders (collectively, the "control group") entered into a voting agreement. Among other provisions, the voting agreement requires that the control group vote their shares to designate the Investors as members of the Company's Board of Directors. The voting agreement further requires the control group to vote as directed by the Investors on all matters, which are presented for a vote to the Company's stockholders. TROUBLED FINANCIAL CONDITION AND MANAGEMENT'S PLANS The Company incurred a net loss of $322,266 for the six months ended June 30, 2000 and has a working capital deficit and stockholders' deficiency of $5,939,595 and $3,537,477, respectively, at June 30, 2000. As of January 24, 2001, management's plans and objectives to improve the financial condition of the Company, including actions taken during 2000, are as follows: * Completed a settlement offer with certain trade creditors during 2000. In addition, the Company amended the terms of its senior financing arrangements and completed a private placement of common and preferred stock. * Control costs and expenses commensurate with the Company's current sales levels in an effort to generate cash flows from operations. 13 * Expand the Company's precision manufacturing medical device customer base and related sales. * Expand the Company's product offerings to include spinning devices, rotary assemblies and motion control devices. * Expand the market for the Company's trade name products. * Diversify selectively into industrial parts and components markets. There can be no assurance that management will be able to accomplish all of the above plans and objectives or achieve the necessary improvements in its cash flows and financial position to meet its obligations as they become due. The Company's ability to continue operations is dependent on its ability to increase sales and maintain adequate margins on sales, as well as its ability to maintain its current credit facilities with the bank. In addition, if the Company is unable to increase sales from current levels and generate positive cash flows from operations, it would be unable to meet its debt service requirements and may be forced to cease operations or seek protection under U.S. bankruptcy laws. Accordingly, there can be no assurance that the Company will continue as a going concern in its current form. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. SUBSEQUENT EVENTS Accounts Payable. During July 2000, the Company presented a settlement offer to its trade creditors. The settlement plan required certain trade creditors to reduce their amounts outstanding above $200 by 47% of the total amount owed to the creditor. The remaining 53% of their trade creditor balance above $200 would then be paid by the Company in 12 equal bi-monthly installments, which commenced on October 30, 2000. Trade creditors with balances less than or equal to $200 were paid in full. Approximately 62.4% of the trade creditors responded to the settlement offer and approximately $499,000 of trade creditor balances have been settled under the offer. Of the total settlement amount of $499,000, approximately $331,000 relates to amounts outstanding at December 31, 1999. The Company will record an extraordinary gain of approximately $499,000 as a result of these trade creditor settlements in the fourth quarter of fiscal 2000. The Company is continuing to pursue settlements with the non-responding trade creditors. Financing Arrangements. In October 2000, the Company and US Bank National Association entered into an amended and restated senior credit agreement. The credit facilities 14 under the credit agreement consist of an asset-based line of credit with availability of up to $1,500,000, subject to a borrowing base limitation of 80% of the Company's eligible accounts receivable plus $250,000, and three term notes of $2,800,000 ("Term Note A"), $1,100,000 ("Term Note B"), and $1,325,000 ("Term Note C"). The asset-based line of credit bears interest at the US Bank National Association's reference rate and is payable in full in October 2002. Term Note A bears interest at a fixed rate of 10% per year and is payable in monthly principal and interest installments of $27,020 commencing November 2000, with a final balloon payment due in October 2005. Term Note B bears interest at a fixed rate of 12%, with interest payable monthly commencing November 2000 through January 2001. Effective February 2001, Term Note B is payable in monthly principal and interest installments of $36,500 with a final balloon payment due in January 2004. Term Note C is non-interest bearing and is due and payable in full on September 2003. If the line of credit and Term Notes A and B are paid in full on or before September 2003, or if no event of default exists at October 1, 2003, then Term Note C shall be forgiven. The credit facilities restrict the payment of dividends and the Company's ability to incur other indebtedness. The credit agreement also contains a covenant that requires the Company to meet certain net income targets for 2002. US Bank National Association may at any time apply the funds available in any Company bank account against the outstanding loan balances. In addition, the credit facilities are collateralized by all of the Company's assets, except for certain equipment purchased with notes payable. Stockholders' Equity. In October 2000, the Company completed a private placement with Activar, Inc., J.L. Reissner and M.J. Tate (collectively the "Investors") under which the Company sold 3,500,000 shares of the Company's common stock and 1,000,000 shares of the Company's Series A Preferred Stock valued at $.177 per share, for proceeds of approximately $800,000. The Series A Preferred is convertible at any time into shares of common stock as is determined by dividing $.177 by the conversion price in effect at the time of any conversion and multiplying such quotient by each share of Series A Preferred to be converted. In connection with the private placement, the Company, the Investors and certain of the Company's existing shareholders (collectively, the "control group") entered into a voting agreement. Among other provisions, the voting agreement requires that the control group vote their shares to designate the Investors as members of the Company's Board of Directors. The voting agreement further requires the control group to vote as directed by the Investors on all matters, which are presented for a vote to the Company's stockholders. Purchase Agreement. In December 2000, the Company purchased the inventories and accounts receivable and assumed certain liabilities of a company owned by the Chairman of the 15 Company in exchange for a note issued by the Company. The note is for approximately $364,000 and bears interest at 8% with all principal and interest payable in December 2003. SUMMARY The Company had a disappointing first six months of 2000. However, the Company incurred a smaller loss on higher sales volume compared to the first six months of 1999. The gross margin increased approximately 2% in the first six months of 2000 compared to the same period in 1999. The Company has taken steps to control its operating expenses and reduce its overhead. The Company has begun a restructuring plan with its vendors to reduce outstanding amounts by approximately 47%. The Company has negotiated with its bank to restructure its credit arrangements. The Company has completed a private placement of common and preferred stock with a private investment group. There can be no assurance that these actions and future actions, if necessary, will be sufficient for the Company to continue to meet its continuing cash flow requirements in the future. Except for the historical financial information reported above, this Form 10-QSB contains forward-looking statements that involve risk and uncertainties, including references to anticipated and projected sales volume, the risk associated with establishing new or improving existing relationships with customers of the Company, other business development activities, anticipated financial performance, business prospects, 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 were primarily responsible for the net losses in the prior year. There can be no assurance that this customer will resume shipments to prior or expected levels. Because of these and other uncertainties, actual results could differ materially from those reflected in the forward-looking statements. 16 PART II - OTHER INFORMATION Item 6. Exhibits and Reports (a) Exhibits. Item No. Item Method of Filing -------- ----------- ---------------- 27.1 Financial Data Schedule Filed herewith electronically (b) Reports on Form 8-K. There were no reports on Form 8-K, which were filed during the second quarter of 2000. 17 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: January 24, 2001 By: /s/ R. F. McNamara ---------------- ----------------------------------- R. F. McNamara Chairman of the Board and Director Date: January 24, 2001 By: /s/ Michael J. Tate ---------------- ----------------------------------- Michael J. Tate President, Chief Executive Officer and Director (principal executive and financial officer) Date: January 24, 2001 By: /s/ J. L. Reissner ---------------- ----------------------------------- J. L. Reissner Director and Secretary 18 REUTER MANUFACTURING, INC. EXHIBIT TO QUARTERLY REPORT ON FORM 10-QSB FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000 Item No. Item Method of Filing - ---------- ----------- ---------------- 27.1 Financial Data Schedule Filed herewith electronically 19 EX-27.1 2 0002.txt FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-2000 JUN-30-2000 500 0 1,394,224 0 1,268,679 2,688,403 13,109,897 (10,014,093) 5,784,207 8,627,998 0 0 0 937,385 (4,474,862) 5,784,207 0 5,965,661 5,036,657 887,048 364,222 0 385,170 (322,266) 0 0 0 0 0 (322,266) (0.07) (0.07)
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