-----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, PT4O/o2W4VKn4EoxPywJIhRPpMz5DktRjWI/LyWVmebKb+/N8tuqYh+GlBTJsqVB TNQ4Lrnz/P66pd49l80pDA== 0000912057-95-009771.txt : 19951119 0000912057-95-009771.hdr.sgml : 19951119 ACCESSION NUMBER: 0000912057-95-009771 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951113 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: REUTER MANUFACTURING INC CENTRAL INDEX KEY: 0000083490 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FABRICATED METAL PRODUCTS [3490] IRS NUMBER: 410780999 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-01561 FILM NUMBER: 95590588 BUSINESS ADDRESS: STREET 1: 410 11TH AVE SOUTH CITY: HOPKINS STATE: MN ZIP: 55343 BUSINESS PHONE: 6129357798 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 10-QSB FORM 10-QSB U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1995 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from__________to__________ Commission File Number 0-1561 REUTER MANUFACTURING, INC. (f/k/a GREEN ISLE ENVIRONMENTAL SERVICES, INC.) -------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Minnesota 41-0780999 - ------------------------------ ------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 410 - 11th Avenue South, Hopkins, Minnesota 55343 - ------------------------------------------------- --------- (Address of principal executive offices) (Zip Code) 612/935-6921 - -------------------------------------------------------------------------------- (Issuer's telephone number, including area code) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No. . --- --- As of November 8, 1995 there were outstanding 3,191,520 shares of the registrant's common stock, par value $.18-3/4 per share. Traditional Small Business Disclosure Format (check one) Yes X . No. . --- --- 1 PART I. FINANCIAL INFORMATION. ITEM 1. FINANCIAL STATEMENTS. REUTER MANUFACTURING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended For the nine months ended September 30, September 30, 1995 1994 1995 1994 ------------ ------------ ------------ ------------ Net sales $2,703,830 $2,539,601 $8,754,793 $9,405,080 Less: Cost of sales 2,176,610 1,957,794 6,785,040 7,222,069 Depreciation 150,442 153,096 448,921 458,126 ------------- ------------- ------------- ------------- GROSS PROFIT 376,778 428,711 1,520,832 1,724,885 Selling, general and administrative expenses 520,356 425,156 1,667,494 1,350,936 Depreciation 28,751 22,291 84,311 67,131 ------------- ------------- ------------- ------------- OPERATING INCOME (LOSS) (172,329) (18,736) (230,973) 306,818 Other income (expenses): Interest income 2,951 2,764 7,572 7,527 Interest expense (106,490) (89,974) (302,044) (276,606) Management fees 30,000 30,000 90,000 90,000 Other, net 25,383 41,068 67,160 32,360 ------------- ------------- ------------- ------------- TOTAL OTHER EXPENSE (48,156) (16,142) (137,312) (146,719) ------------- ------------- ------------- ------------- INCOME (LOSS) FROM CONTINUING OPERATIONS (220,485) (34,878) (368,285) 160,099 ------------- ------------- ------------- ------------- Discontinued Operations: Gain (loss) from discontinued waste processing operations (540,131) 1,014,634 (1,617,809) (183,066) ------------- ------------- ------------- ------------- NET INCOME (LOSS) ($760,616) $979,756 ($1,986,094) ($22,967) ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Net income (loss) per common share data: Income (loss) from continuing operations ($0.07) ($0.01) ($0.11) $0.05 Income (loss) from discontinued operations (0.17) 0.32 (0.51) (0.06) ------------- ------------- ------------- ------------- NET INCOME (LOSS) PER SHARE ($0.24) $0.31 ($0.62) ($0.01) ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Weighted average number of shares outstanding 3,191,520 3,191,520 3,191,520 3,191,520 ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
The accompanying notes are an integral part of the consolidated financial statements. 2 REUTER MANUFACTURING, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
September 30, December 31, 1995 1994 ------------------ --------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $1,340 $209,192 Investments, restricted 250,000 250,000 Accounts receivable, net of allowances of $15,770 at September 30, 1995 and $20,685 at December 31, 1994 1,235,994 1,387,124 Inventories 1,287,516 917,329 Other current assets 10,837 23,828 Other assets held for sale 50,000 50,000 ------------------ --------------- TOTAL CURRENT ASSETS 2,835,687 2,837,473 Net property, plant and equipment 4,257,884 4,425,257 Other assets 469,168 ------------------ --------------- TOTAL ASSETS $7,562,739 $7,262,730 ------------------ --------------- ------------------ --------------- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Debt of Eden Prairie facility guaranteed by parent company, including accrued interest of $2,735,524 and $1,117,716 at September 30, 1995 and December 31, 1994, respectively $18,243,887 $16,626,079 Current maturities of long-term debt 161,361 151,981 Borrowings under line of credit 1,915,974 2,063,477 Accounts payable, trade 849,624 602,340 Accrued expenses 849,454 613,157 ------------------ --------------- TOTAL CURRENT LIABILITIES 22,020,300 20,057,034 Long-term debt, less current maturities 352,972 267,385 Other long-term liabilities 480,259 243,009 STOCKHOLDERS' EQUITY (DEFICIT): Preferred stock, par value $.01 per share; authorized 2,500,000 shares; none issued Common stock, par value $.1875 per share; authorized 9,000,000 shares; issued and outstanding: 3,191,520 shares at September 30, 1995 and December 31, 1994 598,410 598,410 Additional paid-in capital 13,710,596 13,710,596 Accumulated deficit (29,599,798) (27,613,704) ------------------ --------------- TOTAL STOCKHOLDERS' DEFICIT (15,290,792) (13,304,698) ------------------ --------------- Total Liabilities and Stockholders' Equity (Deficit) $7,562,739 $7,262,730 ------------------ --------------- ------------------ ---------------
The accompanying notes are an integral part of the consolidated financial statements. 3 REUTER MANUFACTURING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------------------------------------- Increase (Decrease) in Cash and Cash Equivalents For the Nine Months Ended September 30, - --------------------------------------------------------------------------------------------------------------- 1995 1994 - --------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ($1,986,094) ($22,967) Adjustments to reconcile net loss to net cash provided (used) by operating activities: Depreciation and amortization 592,208 525,364 Gain on sales of assets (9,636) (147,611) Provision for uncollectible receivables 7,907 Provision for (adjustment of) writedown and phase-out costs for assets of discontinued operations held for sale (1,794,534) Provision for writedown of other assets held for sale and inventories 15,000 187,144 Changes in operating assets and liabilities: Accounts receivable 143,224 (185,308) Inventories (385,186) 436,952 Other assets (20,153) 50,710 Accounts payable 247,284 (445,876) Accrued expenses (primarily interest) 1,791,354 1,745,747 - --------------------------------------------------------------------------------------------------------------- Net Cash Provided by Operating Activities 395,908 349,621 - --------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of property and equipment 35,124 389,450 Cash paid to purchase Sollami product line (195,000) Additions to property, plant and equipment (165,324) (200,306) - --------------------------------------------------------------------------------------------------------------- Net Cash Provided by (Used in) Investing Activities (325,200) 189,144 - --------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of long-term debt (131,057) (91,035) Proceeds from short-term borrowings 8,758,977 9,312,971 Repayment of short-term borrowings (8,906,480) (9,701,793) - --------------------------------------------------------------------------------------------------------------- Net Cash Used by Financing Activities (278,560) (479,857) - --------------------------------------------------------------------------------------------------------------- Net Increase (decrease) in Cash and Cash Equivalents (207,852) 58,908 Cash and Cash Equivalents, Beginning of Period 209,192 321,963 - --------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents, End of Period $1,340 $380,871 - --------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- Supplemental disclosures of cash flow information: Cash paid for interest $299,460 $4,050,147 Noncash investing and financing activities: Purchase of equipment in exchange for notes payable 226,024 93,411 Proceeds from sale of EPR, Inc. assets paid directly to EPR, Inc. lender 3,768,809
The accompanying notes are an integral part of the consolidated financial statements. 4 Reuter Manufacturing, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) 1. FINANCIAL STATEMENTS: The unaudited consolidated financial statements of Reuter Manufacturing, Inc. (f/k/a Green Isle Environmental Services, Inc.), and Subsidiaries (the Company) for the three and nine month periods ended September 30, 1995 and 1994 reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments except as described below) necessary to fairly state the results of the operations (including discontinued operations) for the interim period. The consolidated results of operations for any interim period are not necessarily indicative of results expected for the full year. The unaudited consolidated interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company's 1994 Form 10-KSB. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principals requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. SELECTED BALANCE SHEET INFORMATION: Inventories:
September 30, December 31, 1995 1994 ---------- --------- Raw material and supplies $ 309,434 $ 340,631 Work in process 978,082 576,698 ----------- ---------- $ 1,287,516 $ 917,329 ----------- ---------- ----------- ---------- Property, plant & equipment: Land and related improvements $ 206,995 $ 206,995 Building 3,044,442 2,980,608 Machinery and equipment 7,228,772 7,071,605 Office equipment 635,682 602,537 Molds, fixtures and tooling 31,869 Autos and trucks 42,112 42,112 ----------- ---------- Total $11,189,872 $10,903,857 Less: accumulated depreciation 6,931,988 6,478,600 ----------- ---------- $ 4,257,884 $ 4,425,257 ----------- ---------- ----------- ----------
5 2. SELECTED BALANCE SHEET INFORMATION (cont'd): Other assets held for sale:
September 30, December 31, 1995 1994 ---------- ----------- Container manufacturing equipment $ 50,000 $ 50,000 Total $ 50,000 $ 50,000 ----------- ---------- ----------- ---------- Accrued Expenses: Interest, excluding accrued interest associated with Eden Prairie debt $ 30,827 $ 28,243 Payroll, benefits and related taxes 383,639 291,699 Legal and accounting 92,339 104,850 Accrued container warranty 125,000 140,000 Product acquisition expenses 76,285 Accrued retirement and consulting 49,393 38,496 Accrued real estate taxes 88,352 Other 3,619 9,869 ----------- ---------- Total $ 849,454 $ 613,157 ----------- ---------- ----------- ----------
3. DISCONTINUED OPERATIONS AND RELATED DEBT: As described in Notes 2 and 3 of the Notes to Consolidated Financial Statements in the 1994 Form 10-KSB, the Company ceased operations of its Eden Prairie facility (EPR) effective January 1, 1994 and has undertaken a formal plan to dispose of its other remaining waste processing operations. The loss from discontinued operations in the third quarter of 1995 includes accrued interest (including default rate interest) through September 30, 1995. The Company will continue to accrue interest in future periods through the date of a final settlement of the debt. The loss from discontinued operations for the three months ended September 30, 1995 consists of accrued interest of $ 540,131. As previously announced, the Company closed on the sale of all of the assets of EPR for $3.8 million on September 1, 1994. A gain of $1,914,534 on the sale of the EPR assets was recorded in the third quarter of 1994. The net proceeds of $3,768,809 from the sale have been used to repay a portion of the debt underlying the EPR facility. The Company has retained all liabilities of EPR, including the balance of the loan underlying the facility which is guaranteed by the Company. As previously announced, on September 12, 1994, the Company entered into a preliminary settlement agreement with the lender of the debt underlying EPR whereby the lender agrees not to pursue its rights against the Company under the parent guarantee of the EPR debt in return for the following: 6 1. A Senior Subordinated Secured Note to the lender for $2,750,000 with interest at 8% per year. Interest will be payable monthly on the principal balance from time to time remaining unpaid. Principal payments of $75,000 will be payable quarterly beginning in 1997 and ending on July 1, 1999, when all outstanding principal and interest is due. 2. A Junior Subordinated Secured Note to the lender for $1,000,000 with interest to accrue at 8% per year; principal and interest will be paid from excess cash flow from operations, if any, with all outstanding principal and accrued interest due on July 1, 1999. 3. A Net Operating Loss Sharing Agreement under which the Company will make annual payments to the lender of an amount equal to any tax savings related to the use of up to $15,000,000 in net operating loss carryforwards. The Company has also preliminarily agreed to issue to the lender, a warrant to purchase 3,178,780 shares of Common Stock, exercisable only in the event of an "ownership change" with respect to the Company for purposes of Section 382(g) (1) of the Internal Revenue Code of 1986, as amended. The ownership change would effectively eliminate the net operating loss sharing Agreement obligation ((3) above) and result in the effective contribution of any remaining balance of the NOL Sharing Agreement obligation to contributed capital (shareholders' equity). Management is currently negotiating definitive agreements with the lender, although there can be no assurance that a definitive agreement will be reached. 4. ACQUISITION OF PRODUCT LINE: On January 9, 1995, the Company purchased the assets, inventory, patents and patent applications, trademarks and goodwill associated with the Rotary Vane Actuator business of The Sollami Company. The purchase price was $326,154 plus contingent payments equal to 8% of net sales made each month, for the 48 months beginning in February 1995, of rotary vane actuators and related parts. The total cumulative guaranteed minimum contingent payments are $295,000, with scheduled amounts due in each of the 4 years. To the extent cumulative monthly contingent payments do not equal the guaranteed minimum contingent payment for any 12 month period, the Company will be required to make an additional payment sufficient to achieve the guaranteed minimum payment for that year. The excess of acquisition cost over amounts assigned to the net identifiable assets acquired (goodwill) is being amortized on a straight line basis over fifteen years. Other identifiable intangible assets include value assigned to patents, and a covenant not to compete. Values assigned to patents are carried at cost less accumulated amortization calculated on a straight line basis over their estimated useful lives, which range from seven to fourteen years. The value assigned to the covenant not 7 to compete is being amortized on a straight line basis over seven years. 5. ASSET-BASED SHORT-TERM FINANCING ARRANGEMENT: In January 1995, the Company amended its loan and security agreement with its asset based lender. The key elements to the amendment include reducing the short-term demand line of credit to $4,500,000, increasing interest on borrowings to prime plus 3.75%, and increasing available borrowing by $125,000 by increasing the advance rate on the certificate of deposit which partially collateralizes borrowings under the line of credit. Funds available to the Company pursuant to terms of the line of credit agreement are dependent upon the level of eligible accounts receivable and plant and equipment, as defined. In October 1995, the Company amended its loan and security agreement again in order to obtain additional availability due to the low revenue levels for the third quarter and anticipated lower than budget projected revenue levels for the fourth quarter of 1995. The Company has obtained additional availability through a reload of the term loan associated with the line of credit. Under the new agreement, the Company received approximately $300,000 in additional borrowing capacity. The terms of the agreement call for a new term loan in the amount of $1,007,200 to be amortized over a period of 60 months, and a one year extension of the loan agreement. All other terms and conditions of the loan agreement remain the same as set forth above. The Company is again negotiating with its asset based lender to obtain additional relief during the fourth quarter of 1995 because of low revenue levels from the Company's two major medical customers. The revenue levels from these two major customers are projected to pick up beginning in the first quarter of 1996 based on firm orders. The Company is in violation of certain financial and technical covenants of this agreement and a cross-default covenant due to the defaults described in Notes 6 and 6(a) of the Notes to the Consolidated Financial Statements in the Company's 1994 Form 10-KSB. As a result of these default conditions, the lender may, at its sole discretion declare the Company in default, discontinue making advances to the Company and demand immediate repayment of borrowings under the line of credit. If the lender will continue making advances to the Company, additional borrowing capacity under this line of credit is approximately $69,000 at November 8, 1995. 8 6. SALE OF REUTER RECYCLING OF FLORIDA, INC.: On October 26, 1995, the Company closed the sale of Reuter Recycling of Florida, Inc. The Company had entered into an agreement effective June 1, 1995, to sell all of the stock of Reuter Recycling of Florida, Inc., which had been pledged by the Company to the construction lender of Reuter Recycling of Florida, Inc., to an unrelated third party. As discussed in Note 4 to the Consolidated Financial Statements contained in the 1994 Form 10-KSB, because Reuter Recycling of Florida, Inc. had previously been deconsolidated from the Company's consolidated financial statements and the Company will receive no proceeds from the sale, the transaction will have no impact on the Company's financial position or results of operations. The management agreement between Green Isle and Reuter Recycling of Florida, Inc. was terminated upon the close of the sale. 7. RECLASSIFICATION: Certain reclassification have been made to the 1994 consolidated financial statements in order to conform with the September 30, 1995 presentation. These reclassification did not change the Company's previously reported financial position or results of operations. 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. RESULTS OF OPERATIONS CONTINUING MANUFACTURING OPERATIONS: Continuing operations consist primarily of the Company's precision manufacturing business, which manufactures and assembles medical devices and other precision manufactured parts on a contract basis, and is developing proprietary products for manufacturing and sale. The Company has sold most of the equipment used in its plastics manufacturing operations and substantially all plastics manufacturing ceased effective August, 1994. The Company's net revenues from continuing operations for the third quarter of 1995 increased by approximately 6.5% from the same period in 1994. The Company's net revenues for the nine months ended September 30, 1995 were $8,754,793 compared to $9,405,080 for the same period in 1994, a decrease of approximately 6.9%. The increase in revenues for the third quarter of 1995 over the revenues for the same period for 1994 was attributable to revenues from sales of the rotary vane actuators and sales of Company proprietary products that did not exist during the third quarter of 1994. The decrease in revenues for the nine months ended September 30, 1995 from the same period in 1994 was due primarily to the elimination of sales to Seagate Technology, Inc. ("Seagate"), which effectively ceased after the first quarter of 1994 coupled with reduced sales from the plastics manufacturing operations which effectively ceased in August 1994. Gross profit was 13.9% of net sales for the third quarter of 1995 compared to 16.9% of net sales for the third quarter of 1994. Gross profit was 17.4% and 18.3% for the nine month periods ended September 30, 1995 and September 30, 1994, respectively. The lower gross profit for the quarter ended September 30, 1995 was primarily due to under absorbed burden that is volume related, along with increases in manufacturing supplies used in the production of industrial and proprietary products. The decrease in gross profit for the nine month period ended September 30, 1995 as compared to the same period for 1994 was mostly volume related. Medical product sales from the Company's two principal customers accounted for over 72% of net sales in the third quarter of 1995 compared to 78% of net sales in the third quarter of 1994. For the nine months ended September 30, 1995, medical product sales from these two customers accounted for 72% of net sales compared to 58% of net sales for the same period in 1994. 10 Selling, general and administrative expenses were $549,107 for the third quarter of 1995 compared to $447,447 for the same period in 1994. Selling, general and administrative expenses for the nine months ended September 30, 1995, were $1,751,805 compared to $1,418,067 for the same period in 1994. The increase in these expenses is primarily due to substantial legal and accounting costs related to pursuing restructuring of the debt underlying the EPR facility and higher selling expenses related to marketing of proprietary products (primarily oil centrifuge units). Other expense for the third quarter of 1995 increased approximately $32,000 from the same period in 1994, primarily due to an increase in interest expense resulting from increases in the prime rate, coupled with lower other income during the third quarter of 1995. Other expense for the nine months ending September 30 1995 was $137,312 compared to $146,719 for the nine months ending September 30, 1994. The decrease was attributable to the Company renting excess warehouse space beginning in 1995 and gains on the sale of various assets sold during 1995. The Company had no taxable income, and accordingly, recorded no provision for income taxes during the quarters ended September 30, 1995 and 1994. During the third quarter of 1995, the Company's loss from continuing operations was $220,485 or $.07 per share compared to a loss from continuing operations of $34,878 or $.01 per share for the same period in 1994. For the nine months ended September 30, 1995, the loss from continuing operations was $368,285 or $.11 per share compared to income from continuing operations of $160,099 or $.05 per share for the same period in 1994. In summary, the loss from continuing operations for the first nine months of 1995 compared to the income in 1994 is attributable to revenue reductions (phaseout of revenues from Seagate and reduced plastics revenues), staffing increases to enhance development and marketing of proprietary products (oil centrifuges and rotary vane actuators), and substantial professional expenses related to the continuing debt restructuring of the debt underlying the EPR facility that is guaranteed by the Company. DISCONTINUED WASTE PROCESSING OPERATIONS: As described in Notes 2 and 3 of the Notes to Consolidated Financial Statements in the Company's 1994 Form 10-KSB, the Company undertook a formal plan to dispose of its remaining waste processing and recycling operation located in Eden Prairie, Minnesota during the fourth quarter of 1993. The Company wrote-down the carrying value of this facility to its estimated net realizable value, which resulted in a charge against earnings of $10,800,000 in 1993. The Eden Prairie facility ceased operations effective January 1, 1994 and on September 1, 1994 the 11 Company closed on the sale of all of the assets of EPR, Inc., a wholly owned subsidiary of the Company ("EPR") for approximately $3.8 million. The proceeds from the sale of the assets of EPR have been used to repay a portion of the debt originally underlying the EPR facility. The Company retained all liabilities of EPR, including the balance of the loan underlying the facility (the "EPR loan") which is guaranteed by the Company. The loss from discontinued operations during the third quarter of 1995 consists of continuing interest accruals of $540,131 related to the underlying debt. This accrual does not include an accrual for estimated interest that will be incurred on the debt underlying the EPR loan between October 1, 1995 and the date of final settlement, due to uncertainty of the timing of the ultimate settlement. As described in Note 3 "Discontinued Operations and Related Debt" in this Form 10-QSB, the Company entered into a preliminary settlement agreement with the lender of the debt underlying EPR on September 12, 1994. Management is currently negotiating definitive agreements with the lender, although there can be no assurance that a definitive agreement will be reached. If final settlement cannot be reached, management may elect to seek protection under U.S. bankruptcy laws. LIQUIDITY AND CAPITAL RESOURCES: The Company currently has negative working capital and is in payment and technical default of terms of the EPR loan and is in violation of certain covenants of its demand line of credit agreement. The Company had a cash balance of $1,340 at September 30, 1995 compared to a cash balance of $209,192 at December 31, 1994. The decrease in cash was primarily due to the purchase of a product line of rotary vane actuators coupled with substantial outlays of cash for professional services related to the continuing debt restructuring of the debt underlying the EPR facility that is guaranteed by the Company. The Company had a working capital deficit of $19,184,613 at September 30, 1995, compared to a working capital deficit of $17,219,561 at December 31, 1994. The current ratio was .13 and .14 at September 30, 1995 and December 31, 1994, respectively. The working capital deficit includes the Eden Prairie debt because the entire remaining balance of this loan has been classified as a short-term liability as a result of the payment, technical and other defaults described in Notes 2 and 6 of the Notes to the Consolidated Financial Statements included in the Company's 1994 Form 10-KSB. Until the restructuring agreement with the lender to EPR is finalized, under the terms of the original loan agreement, and as a result of the payment and technical defaults, the lender has the right to demand repayment of the entire outstanding balance of the loan. In addition, the lender can demand payment of the default interest rate which is 2% higher than the stated interest rate of 11.85%. Interest accruals reflecting the incremental charge for the higher default rate have been established since 1992. 12 The Company has a $4.5 million line of credit arrangement with an asset based lender which is collateralized by assets associated with the manufacturing operations. The Company generally borrows funds up to the maximum available because the line of credit agreement has a minimum borrowing requirement of $2.75 million upon which the Company pays interest. Funds available to the Company pursuant to terms of the line of credit agreement are dependent upon the level of eligible accounts receivable and plant and equipment, as defined. The Company is in violation of certain financial and technical covenants contained in this line of credit agreement, which could result in the lender discontinuing advances and demanding repayment of all outstanding borrowings. Due to the default conditions discussed above and borrowing limits related to available collateral, it is possible that the Company will not be able to borrow sufficient amounts against this line to meet all the operating cash needs of the Company. In addition, there can be no assurance that the asset based lender will continue to disregard these covenant violations in the future. If the lender takes any action to reduce the availability of funds to the Company, there may not be sufficient liquidity to continue operations. As of November 8, 1995, the Company had borrowed approximately $2,761,000 and had additional availability of approximately $69,000 under this line. The Company had positive cash flow from operations for the nine months ended September 30, 1995 and September 30, 1994. However, its ability to meet its continuing manufacturing operations cash flow requirements during the remainder of 1995 and beyond, is dependent on continuing adequate sales and margins in the manufacturing business. Management expects a need for capital expenditures to support equipment upgrading and growth in the manufacturing division. Any future expenditures will depend on cash availability. In addition to cash flow from operations, the Company expects to seek needed capital through employee, vendor and other asset based lending arrangements. In summary, the Company currently has negative working capital and is in default under the terms of two outstanding loan agreements. Either of these two lenders could, at any time, demand full payment of the underlying debt, which the Company would be unable to satisfy. The Company's cash flow from operations may not be sufficient to meet the Company's general operating needs. The Company is experiencing near term liquidity problems due to the reduced shipping requirements of the Company's two major medical customers. The Company is actively negotiating with its asset based lender and is working with employees and vendors to ameliorate this short term situation. In the event that the Company cannot generate sufficient cash flow to meet its commitments, it may be forced to seek protection under U.S. Bankruptcy laws. 13 PART II - OTHER INFORMATION Item 3. Defaults upon Senior Security See Footnote 3 to Notes to the Consolidated Financial Statements and Management's Discussion and Analysis, included in Item 1 and 2 of this report on Form 10-QSB, for a description of the status of the defaults on the loan underlying the Eden Prairie facility and the Company's line of credit, which is incorporated herein by reference. Arrearage (interest and principal) on the Eden Prairie debt as of November 8, 1995, was approximately $7,000,000. As of November 8, 1995, the Company had borrowed approximately $2,761,000 and had additional availability of approximately $69,000 under its line of credit agreement. 14 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. REUTER MANUFACTURING, INC. ------------------------------------------------ (Registrant) Date: November 8, 1995 By: /s/ James W. Taylor ---------------- ---------------------------------- James W. Taylor President, Chief Executive Officer and Chief Financial Officer (principal executive and financial officer) Date: November 8, 1995 By: /s/ William H. Johnson ---------------- ---------------------------------- William H. Johnson Vice President, Controller and Secretary (principal accounting officer) 15 EX-27 2 EXHIBIT 27 (FDS)
5 9-MOS DEC-31-1995 SEP-30-1995 1,340 0 1,235,994 0 1,287,516 2,835,687 11,189,872 6,931,988 7,562,739 22,020,300 0 598,410 0 0 13,710,596 7,562,739 8,754,793 8,754,793 7,233,961 8,985,766 137,312 0 302,044 (1,986,094) 0 (368,285) (1,617,809) 0 0 (1,986,094) (.62) (.62)
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