<PAGE>

-------------------------------------------------------------------------------
                          SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C.  20549

                                     FORM 10-KSB


 /X/  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 
      ACT OF 1934

                    For the Fiscal Year Ended December 31, 1998

 / /  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

    For the transition period from __________________ to _____________________.

                            COMMISSION FILE NO.:  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
incorporation or organization)                    Identification No.)
                                                  



         410 11TH AVENUE SOUTH                          55343
          HOPKINS, MINNESOTA                         (Zip Code)
(Address of principal executive offices)



        Registrant's telephone number, including area code:  (612) 935-6921

          Securities registered pursuant to Section 12(b) of the Act: NONE

             Securities registered pursuant to Section 12(g) of the Act
                                          
                     COMMON STOCK, PAR VALUE $0.1875 PER SHARE
                                ____________________
      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 / /

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. / /

      The Registrant's revenues for the fiscal year ended December 31, 1998 
were $12,269,183.

      As of March 23, 1999, 4,898,885 shares of Common Stock of the Registrant
were deemed outstanding, and the aggregate market value of the Common Stock of
the Registrant (based upon the average of the closing bid and asked prices of
the Common Stock at that date), excluding outstanding shares beneficially owned
by directors and executive officers, was approximately $2,141,417.

                   DOCUMENTS INCORPORATED BY REFERENCE

      Part III of this Annual Report on Form 10-KSB incorporates by reference
information (to the extent specific sections are referred to herein) from the
Registrant's Proxy Statement for its, May 11, 1999, Annual Meeting of
Shareholders (the "1999 Proxy Statement").

      Transitional Small Business Disclosure Format (Check one): YES / / NO /X/
-------------------------------------------------------------------------------
<PAGE>

                                     PART I
FORWARD LOOKING STATEMENTS

      THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 PROVIDES A SAFE
HARBOR FOR FORWARD-LOOKING STATEMENTS.  THIS REPORT MAY CONTAIN FORWARD-LOOKING
STATEMENTS, INCLUDING REFERENCES TO ANTICIPATED SALES VOLUME AND HIGHER MEDICAL
PRODUCT MARGINS AND ALSO RELATING TO SUCH MATTERS AS ESTABLISHING NEW OR 
IMPROVING EXISTING RELATIONSHIPS WITH CUSTOMERS OF THE COMPANY, OTHER BUSINESS
DEVELOPMENT ACTIVITIES, ANTICIPATED FINANCIAL PERFORMANCE, BUSINESS PROSPECTS,
AND SIMILAR MATTERS.  SUCH FORWARD-LOOKING STATEMENTS BY THEIR NATURE INVOLVE
SUBSTANTIAL RISKS AND UNCERTAINTIES, AND ACTUAL RESULTS MAY DIFFER MATERIALLY
FROM THE ANTICIPATED RESULTS OR OTHER EXPECTATIONS EXPRESSED IN THE
FORWARD-LOOKING STATEMENTS.  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 LOSS FROM CONTINUING OPERATIONS
DURING 1998.  THERE CAN BE NO ASSURANCE THAT THIS CUSTOMER WILL RESUME SHIPMENTS
TO PRIOR OR EXPECTED LEVELS IN THE FUTURE.  THESE RISKS AND UNCERTAINTIES
INCLUDE, BUT ARE NOT LIMITED TO, THE COMPANY'S ABILITY TO EXPAND ITS PRODUCT
OFFERINGS AND TO DEVELOP ITS REPUTATION IN MANUFACTURING PRODUCTS FOR SELECT
INDUSTRIES SUCH AS MEDICAL INDUSTRIES, AND THE RISKS AND UNCERTAINTIES DESCRIBED
IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" IN THIS REPORT.

ITEM 1.     DESCRIPTION OF BUSINESS.

INTRODUCTION

          
          The Company is principally a contract manufacturer of precision 
machined components, assemblies and devices 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 also manufactures and sells, 
under the Reuter-Registered Trademark- name, self-powered oil centrifuges and 
laboratory centrifuges, which are sold by the Company's sales force and 
distributor network to the OEM or end user, and to distributors.

          The Company's contract manufacturing business is concentrated in the
medical device field and includes production of blood centrifuges, blood pumps,
blood analyzers, thrombectomy proximal motors, organic chemical synthesizers,
and valves for medical oxygen delivery.  Other contract manufacturing includes
gas regulators, cryogenic parts, desk top book binding equipment and
miscellaneous industrial parts.  Contract manufacturing accounted for
approximately 89% of the Company's net sales in 1998.

          The Company also manufactures products under its own trade names,
which accounted for approximately 11% of the Company's net sales in 1998.  The
Company's trade name manufacturing business is concentrated in two principal
areas.  The Company produces Envi-ro-fuge 2000-Registered Trademark-
self-powered oil centrifuges for stationary and mobile internal combustion
engines. The Company also sells a limited line of full flow oil filters as a
complement to the oil centrifuges. The Company's other principal trade name
manufacturing products are Reuter/Sollami-Registered Trademark- rotary vane
actuators, hydraulic and pneumatic, which are used to impart motion in diverse
industrial and special applications.  The Company decided to discontinue its
efforts related to the rotary vane actuator product and recorded a charge to
operations of approximately $477,000 during the quarter ended September 30,
1998, primarily related to intangible assets associated with the discontinued
product line.  The Company also markets and

                                       2
<PAGE>


sells a line of laboratory centrifuges on which sales began late in 1997.  
The laboratory centrifuges are being sold through manufacturing 
representatives and distributor networks of the Company.  The Company also 
began manufacturing prototype units of a desk top book binding machine in 
late 1998.  The Company's trade name manufacturing business requires 
substantial design and development engineering input.

          The Company was incorporated in 1956 as a Minnesota corporation.  The
principal executive offices of the Company are located at 410 Eleventh Avenue
South, Hopkins, Minnesota 55343.  The Company's telephone number is (612)
935-6921.

PRODUCTS AND MARKETS

          CONTRACT MANUFACTURING.  The Company manufactures to customer
specifications, highly engineered products and sub-assemblies on a contract
basis.  Since early 1994, the Company has directed its emphasis toward the
manufacture of assemblies for the medical device industry, such as blood
centrifuges, molecular synthesizers, blood analysis equipment, and other medical
products.  The Company believes its engineering cooperation on prototype
development with its medical and other product customers will result in future
manufacturing orders and will protect the business from competitors.  The
Company also has expanded its business of contract manufacturing of precision
devices for industrial use, such as gas pressure regulators, cryogenic pumps,
desk top book binding equipment and a wide range of piece parts for industrial
applications.

          The basic specifications and tolerances for the products manufactured
by the Company are initially provided by the customer.  The Company is involved
early in design review and development to effect potential long-term cost
reductions and performance improvements.  Upon receipt of an initial order from
a customer, the Company designs and manufactures the tooling required to produce
the device to the customer's specifications and tolerances.  Raw material,
castings, springs, bearings and similar parts are purchased by the Company, and
the parts are machined and assembled at the Company's plant.

          TRADE NAME PRODUCTS.  The Company manufactures and sells products
carrying the Company's trade names.  The Company has developed and is
manufacturing and marketing centrifuges for continuous removal of contaminants
from lubricating oil in internal combustion engines and expects to add
additional products to this and related centrifuge fields.   In 1997, the
Company entered into a product development, licensing, manufacturing and
marketing agreement, including certain technology for a multi-product line of
personal laboratory centrifuges, and started production and sales of these items
during the fourth quarter of 1997.  In September 1998, the Company terminated
the sales and marketing agreement for these products, and is now marketing and
selling these products through its own distributor network.

STRATEGY

          The Company's objective is to become indispensable to the customer
thereby ensuring that the Company will obtain subsequent production business. 
The Company pursues this strategy by providing engineering input throughout the
development and production processes of its customers' products.  This requires
the Company to maintain a strong design, application, and manufacturing
engineering capability and capacity.  In addition, the Company generally
designs,

                                    3
<PAGE>


manufactures and owns the tooling required to produce its customers' 
products.  Essentially all fixtures and prototypes are produced in the 
Company's tool and prototype department by highly trained and skilled 
toolmakers.  These strategies improve the ability of the Company to create a 
long-term production relationship with the customer.  Customers generally do 
not sign long-term production contracts with the Company.

     In addition to continuing to build strong customer relationships, the
Company also plans to pursue the following strategies:

     - Continue to control costs and expenses commensurate with the Company's 
       current sales levels in an effort to generate cash flows from 
       operations.

     - 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.

SALES AND MARKETING

          The Company sells its manufacturing services and trade name 
products through its own sales representatives and independent distributor 
networks.  The Company has its own inside sales force, in addition to 
distributor networks, which markets and sells the Company's products.  All of 
these individuals develop leads primarily through networking, selected 
advertising and trade shows.

CUSTOMERS

          The Company's customers typically manufacture and sell complete 
equipment in a wide range of industries including blood processing, blood 
analysis, pharmaceutical laboratories, medical product distributors, internal 
combustion engines, electronics, and cryogenics.  The initial attraction of 
the Company to potential customers is usually the Company's demonstrated 
engineering support capability and its record of rapid development and 
delivery of high quality products.  The Company's record of maintaining 
permanent customer relationships is strong.  The Company's medical device 
customers sell products for general blood processing and surgical 
applications, blood analysis, oxygen treatment of ambulatory patients and 
similar applications.  The Company's two largest medical customers accounted 
for approximately 57% and 68% of net sales in 1998 and 1997, respectively.  
The Company believes that a significant reduction of orders from its largest 
customer would have a material adverse effect on its business.  During the 
last half of 1997 and all of 1998, reductions in scheduled shipments to the 
Company's largest customer were primarily responsible for the loss from 
continuing operations.  The reduction in scheduled shipments to this customer 
began to come back mid-February, 1999, however, there can be no assurance 
that sales will return to previous or expected levels from this customer.

                                     4
<PAGE>

SUPPLIES

          The raw materials used by the Company in its manufacturing 
operations generally are reasonably available.  The Company seeks to maintain 
multiple sources of the parts and materials it purchases from suppliers; 
however, certain significant customers limit and/or designate specific 
suppliers.  The availability of such parts and materials could affect the 
Company's ability to fill customers' orders on a timely basis.  Management of 
the Company believes that the interruption of its relationships with 
suppliers would not have a material adverse effect over the long-term, as 
parts and materials suitable for the production of the types of products the 
Company manufactures would be available from other suppliers.

          The Company generally manufactures products to a customer's 
specifications on a contract basis, and carries reasonable amounts of 
inventory to meet rapid delivery requirements of customers and to assure a 
continuous allotment of goods from suppliers.  The Company generally does not 
provide extended payment terms to customers.

COMPETITION

          The contract manufacturing business in which the Company engages is 
highly competitive.  Many of the competitors of the Company have greater 
sales volume and resources than the Company.  The principal elements of 
competition are quality, service, delivery, price and meeting customer 
requirements.  The Company believes that it accounts for only a small portion 
of aggregate national sales of the manufacturing service it provides.  The 
Company believes, however, that its strong engineering capability gives it a 
competitive advantage. Approximately 12% of the Company's employees are 
engineers.

RESEARCH AND DEVELOPMENT

          The Company conducts research and development activities primarily 
related to prototype development of customers' products and products sold 
under its trade names.  The Company provides engineering services to support 
its customers in the development of new products including, enhancements to 
current products.

BACKLOG

          The Company makes product forecasts for future delivery based upon 
frequently updated information from customers; such forecasts are then 
adjusted or replaced by actual purchase orders or production releases.  On 
March 23, 1999, the Company's backlog of orders and releases was 
approximately $3.7 million, compared to approximately $6.8 million on March 
23, 1998.  Management expects that the backlog will be filled during the 
current year, and that additional orders will be received during the current 
year.  The Company's backlog tends to fluctuate as a consequence of large 
orders or releases being placed by customers who schedule delivery of the 
product over future months. The usual time period between receipt of an order 
and the first delivery of the product by the Company is 2 to 6 months.  The 
delivery period for subsequent orders generally is shorter than the period 
for the initial order.  The Company believes its backlog is firm; however the 
Company's customers do not sign production contracts and the customers can 
reduce, reschedule, or cancel orders without contractual penalty.

                                   5
<PAGE>


EMPLOYEES

          As of December 31, 1998, the Company had 112 employees, which 
includes 110 full time employees and 2 part time employees.

ITEM 2.     DESCRIPTION OF PROPERTY. 

          The Company's executive offices and principal manufacturing 
facilities are located at 410-11th Avenue South, Hopkins, Minnesota.  These 
facilities are owned by the Company.  The building has approximately 110,000 
square feet of which approximately 13,000 square feet are devoted to office 
space, 97,000 square feet are devoted to manufacturing, and warehouse 
purposes and approximately 65% of the space is being utilized.  The building 
is located on approximately 7.5 acres of land.  The Company considers this 
facility to be well maintained, in good operating condition, and believes 
that such manufacturing facilities can accommodate substantial future growth.

      The Company owns sufficient manufacturing equipment to generally enable 
it to meet its sales requirements.  This equipment includes horizontal and 
vertical milling machines, grinders, lathes, chucking machines, drilling 
machines, sawing equipment, testing and inspection equipment, clean room 
facilities, and other close tolerance CNC machines.  The production machines 
are computer controlled, which ensures that operations are repeatable.

ITEM 3.     LEGAL PROCEEDINGS.

          During December 1997, in connection with obtaining new credit 
facilities, the Company undertook an environmental inspection of its 
manufacturing facility.  As part of conducting a Phase I and Phase II 
environmental assessment of the facility, soil boring and groundwater work 
indicated the presence of potentially hazardous substances and petroleum 
products within the soil and groundwater located beneath the site.  The 
Company notified the applicable regulatory agency (Minnesota Pollution 
Control Agency), as required, and is working with that agency to resolve 
these issues.  However, because the results are still preliminary, the 
Company is not able to assess whether the Company will ultimately be held 
liable for the presence of these substances at the site nor the Company's 
financial exposure if it is found liable. At December 31, 1998, the Company 
had accrued $20,000 for the cost of additional environmental work scheduled 
to commence during 1999, which will determine the magnitude of the problem 
and what remediation efforts the Company must undertake to rectify the 
problem.

                                      6
<PAGE>

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

          No matter was submitted to a vote of security holders during the 
fourth quarter of the fiscal year covered by this Annual Report on Form 
10-KSB.

ITEM 4A.  EXECUTIVE OFFICERS OF THE REGISTRANT.

          The executive officers of the Company, their ages, the year first 
elected or appointed as an executive officer and the offices held as of March 
23, 1999, are as follows:

<TABLE>
<CAPTION>
                                        Position (s) with the Company
Name (age)                              Or Principal Occupation
----------                              -----------------------
<S>                                     <C>

Michael J. Tate (59)                     Chief Executive Officer, President and
                                         Chief Financial Officer

James W. Taylor (80)                     Chairman of the Board of Directors 

Robert D. Klingberg (54)                 Senior Vice President - Chief Technical
                                         Officer

William H. Johnson (41)                  Vice President - Controller and Secretary

Gary D. Gangstee (42)                    Vice President - Marketing and Sales
</TABLE>


     Mr. Tate was elected Chief Executive Officer, President and Chief 
Financial Officer and has been an employee director of the Company since 
April 20, 1998. Prior to joining the Company, he was Vice President/Chief 
Operating Officer of Minnesota Valley Engineering from August 1996.  Prior to 
1996, Mr. Tate held other positions at Minnesota Valley Engineering, 
including Vice President/General Manager Industrial Business Unit from March 
1993 to August 1996 and Vice President Finance/Treasurer from September 1989 
to March 1993. Prior to 1989, Mr. Tate performed various consulting projects 
with Peat Marwick Main & Co. from March 1986 to September 1989 and Coopers & 
Lybrand LLP from March 1981 to March 1986.  Prior to 1981, Mr. Tate held 
various positions with companies in the private sector.

     Mr. Taylor was elected Chairman of the Board of the Company on April 20, 
1998.  Mr. Taylor was elected Chief Executive Officer and President of the 
Company in November 1992 and Chief Financial Officer in March 1994.  He has 
also been the President of Taylor Consultants, Inc., a management and 
financial consulting firm, for more than five years.  Mr. Taylor also is a 
director of Compositech Ltd. and QC Solutions, Inc.

     Mr. Klingberg has been employed by the Company since October 1992.  He 
was elected Senior Vice President - Chief Technical Officer in June 1997.  
From 1986 to October 1992, Mr. Klingberg was the principal of Klingberg 
Consulting, Inc., a consulting firm engaged in the design, installation and 
testing of motion control systems.

                                     7
<PAGE>


     Mr. Johnson has been employed by the Company since June 1987.  He was 
elected Vice President - Controller in August 1995.  Prior to 1987, Mr. 
Johnson held various positions with companies in the private sector and has 
also worked in public accounting.  He has served as Secretary of the Company 
since October 1994.

     Mr. Gangstee has been employed by the Company since February 1994.  He 
was elected Vice President - Marketing and Sales in June 1997.  From October 
1990 until February 1994, Mr. Gangstee was employed by Kurt Manufacturing, a 
contract manufacturer of precision components.

                                   PART II

ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
                                          
                       PRICE RANGE OF COMMON STOCK

          The Company's Common Stock is traded in the local over-the-counter 
market under the symbol "RTMF."  The following table sets forth, for each of 
the calendar periods indicated, the quarterly high and low bid quotations for 
the Company's Common Stock quoted on the OTC Bulletin Board.  The prices in 
this table represent prices between dealers, and do not include adjustments 
for retail mark-ups, mark-downs or commissions and may not represent actual 
transactions.

<TABLE>
<CAPTION>

Year                                     High             Low
----                                     ----             ---
<S>                                     <C>              <C>
1998:     First Quarter                 2  1/2           2 1/8
          Second Quarter                2 11/16            7/8
          Third Quarter                 1  1/4             1/2
          Fourth Quarter                  11/16            3/8
                                        
1997:     First Quarter                 3  3/4           3 1/8
          Second Quarter                5                3 1/8
          Third Quarter                 4  7/8           3 1/8
          Fourth Quarter                3  5/8           2 1/8
</TABLE>


     As of March 23, 1999, there were approximately 1,304 registered record
holders of the Company's Common Stock.

     No cash dividends were declared or paid by the Company during 1998 or 1997,
and the Company does not intend to pay dividends on its Common Stock in the
foreseeable future.  The Company is prohibited from paying dividends on its
Common Stock under agreements with its lender.

                                       8
<PAGE>


ITEM 6.   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 also manufactures and sells, 
under the Reuter name, self-powered oil centrifuges and laboratory 
centrifuges, which are sold by the Company's sales force to the OEM or end 
user, and to distributors.

     Throughout 1998, 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 resume, 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 and 
cryogenic product customers resulted in some improvement in sales toward the 
end of 1998.  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.  On December 22, 1998, the Company 
completed a private placement of debentures with warrants and raised $350,000 
in cash, which will be used to fund operations.
      

RESULTS OF OPERATIONS

      The Company's net sales decreased by 31.9% in 1998 from 1997, compared to
an increase in net sales of 27.2% in 1997 from 1996.  Net sales from the
medical, industrial, and tradename products were $8,425,567, $2,696,963 and
$1,146,653, respectively, for 1998, compared to $14,130,371, $3,245,479 and
$651,168, respectively, for 1997.  The majority of the sales decrease for 1998
was attributable to decreased unit sales to the Company's largest customer. 
Sales to the Company's two largest customers totaled $6,951,792 in 1998,
compared to $12,968,667 in 1997.  While sales to the Company's two largest
customers accounted for 56.7% of net sales in 1998, and 71.9% of net sales in
1997, the Company's largest customer accounted for 43.5% and 63.0% of net sales
in 1998 and 1997, respectively.  The Company's net sales in 1998 were adversely
affected by a reduction in scheduled shipments of one high volume product from
the Company's largest customer.  The Company estimates that approximately $4.0
million and $1.5 million of sales and operating income, respectively, were lost
during 1998 as a result of this reduction.  Although not unexpected, the Company
also lost an automotive fuel

                               9
<PAGE>

pump bushing subcontract (due to pricing and redesign) that had provided 
about $1.6 million dollars of sales in 1997 and approximately $1.0 million 
dollars of sales in 1998.  The Company has taken corrective action to control 
expenses and has explored opportunities to secure additional work during the 
ongoing reduction in shipments.

      Gross profit was 6.0% in 1998, compared to 23.9% in 1997.  The decline in
gross profit as a percentage of sales in 1998 was primarily due to a decrease in
higher margin medical product business as a percentage of overall sales and the
loss of sales from the Company's largest customer and the automotive fuel pump
bushing contract.  In addition, the Company's overhead structure did not
decrease proportionately to the decline in sales during 1998.  During the
quarter ended September 30, 1998, the Company took a charge to operations of
$447,327, primarily related to the write-off of intangible assets associated
with a discontinued product line of rotary vane actuators.

      Selling, general and administrative expenses were $2,211,954 or 18.0% 
of net sales in 1998, compared to $2,879,676 or 16.0% of net sales in 1997.  
The decrease in selling, general and administrative expenses is due in part 
to a decrease in selling related expenses of approximately $200,000, 
principally a reduction in sales salaries and benefits and a reduction in 
advertising expenses to market the Company's oil centrifuges and rotary vane 
actuators. Administrative expenses decreased approximately $468,000 in 1998. 
Administrative salaries and benefits increased approximately $96,000 from 
1997, resulting primarily from the hiring of a new President and Chief 
Executive Officer in April 1998, which was offset by a decrease in Company 
contributions to employee benefit plans of approximately $105,000 as a result 
of losses from continuing operations during 1998.  Also during 1998, there 
was a decrease in computer supplies and services and office supplies expense 
of approximately $86,000 as a result of tighter cost control.  Training and 
education expenses decreased approximately $80,000 in 1998 from 1997, 
primarily from reduced management training and education related to ISO 9001 
certification efforts on a Company wide basis.  Professional fees and
services, including legal and accounting, decreased approximately $147,000
for 1998 from 1997.  The decrease was primarily related to the completion of
the Sanwa debt restructuring transactions, bank line of credit restructuring,
and related legal and accounting costs.  Other administrative expenses 
decreased approximately $146,000 in 1998 from 1997, primarily resulting from 
general decreases in expenses due do lower sales volume and increased cost 
control.

      In 1998, the Company had an operating loss of $1,924,049, compared to
operating income of $1,429,345 in 1997.  The decrease in operating income in
1998 was due to lower medical product and industrial sales and the rotary vane
actuator write-off charge to operations along with decreased operational
efficiencies as a result of the decreased sales volume, net of the decrease in
selling and administrative expenses.

      The Company had a loss from continuing operations of $2,594,894 or $.53
per share, compared to income from continuing operations of $1,027,349 or $.24
per share ($.23 per share on a diluted basis) in 1997.  The 1998 loss from
continuing operations resulted from the reasons stated above, along with higher
interest expense of approximately $200,000 due to increased utilization of the
Company's asset-based short-term financing arrangement and higher interest rates
during 1998.

                                   10
<PAGE>

      The Company recorded a net loss for 1998 and consequently did not record a
provision for income taxes.  The Company was profitable during 1997, but
generally does not pay regular income taxes because of the availability of its
net operating loss carryforwards.  The Company is, however, generally subject to
alternative minimum tax under the Internal Revenue Code of 1986, as amended (the
"Code"), because only 90% of the net operating loss carryforward is allowed as a
deduction before arriving at the alternative minimum taxable income.  Therefore,
10% of the Company's taxable income is generally subject to the flat alternative
minimum tax rate of 21%. The Company generated additional tax deductions for
1997 as a result of the timing of the deduction of certain costs associated with
the Company's 1996 and 1997 Sanwa debt restructuring transactions and ultimate
settlement.  These costs were not deductible for tax reporting purposes until
1997.  Because these additional tax deductions resulted in a tax loss for the
Company during 1997, the Company did not record a provision for alternative
minimum taxes for 1997.

      The net income for the period ended December 31, 1997 was $5,097,764 or
$1.17 per share ($1.12 per share on a diluted basis) and included a gain from
discontinued operations of $275,936, or $0.06 per share, and an extraordinary
gain on debt restructuring of $3,794,479, or $0.87 per share, ($0.83 per share
on a diluted basis).  The gain from discontinued operations in 1997 resulted
from the receipt of funds from an escrow account related to the Company's
previously deconsolidated subsidiary, Reuter Recycling of Florida, Inc. ("RRF"),
which was sold October 25, 1995.  The funds were previously placed in escrow to
fund any future liability related to this deconsolidated subsidiary.  Under the
agreement, the remaining funds were to be distributed equally between the lender
to RRF and the Company after the passing of a two-year period which ended
October 26, 1997.

      
      The effect of inflation on the Company's results has not been significant.

      
LIQUIDITY AND CAPITAL RESOURCES.  At December 31, 1998, the Company had a 
working capital deficiency of $4,099,333, compared to a working capital 
deficiency of $2,835,744 at December 31, 1997.  The current ratio was .48 at 
December 31, 1998, compared to .59 at December 31, 1997.  The increase in the 
working capital deficiency and the decrease in the current ratio are 
primarily due to a decrease in cash generated from operations, and an 
increase in borrowing under the Company's asset-based line of credit and term 
obligations.  The Company's credit facilities with US Bancorp consist of a 
revolving line of credit and three term notes.  Although the line of credit 
is not due until December 3, 2000, US Bancorp 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 US Bancorp 
requires demand repayment under the credit facilities.  Accordingly, the 
Company has classified all of the amounts owing under the credit facilities, 
at December 31, 1998 and 1997, as current liabilities.  The credit facilities 
agreement includes a subjective material adverse change clause under which 
the borrowings could become due and payable.

      On June 18, 1998, the Company signed an amendment to its credit facilities
with US Bancorp, which increased the interest rate on all borrowings by .90%. 
Effective June 1, 1998, interest started to accrue on the unpaid balance of the
notes and revolving line of credit at US Bancorp's Reference Rate (as defined in
the agreement with US Bancorp) plus 2.25%.  The

                                     11
<PAGE>


interest accrues on any outstanding over-advances, as defined by the 
agreement, at US Bancorp's Reference Rate plus 3.4%.  US Bancorp has agreed 
to defer principal payments of approximately $46,166 per month through March
1999.  The Company will be required to resume regular monthly principal 
payments on April 1, 1999, and make double the monthly principal payment of 
$92,333 beginning November 1, 1999, until the deferred principal payments are 
paid.  The Company is also required to pay US Bancorp a fee of $2,500 for 
each month that the Company elects to defer principal payments.  There can be 
no assurance that the lender will continue to provide credit to the Company.  
If US Bancorp demanded full payment of the Credit Facilities, the Company 
would need to obtain financing from another source.  There can be no 
assurance that the Company would be able to obtain such financing on terms 
acceptable to the Company or at all. As of December 31, 1998, the Company had 
borrowed approximately $5,510,000 and had additional availability of 
approximately $98,000 under the credit facilities.

      On December 22, 1998, the Company completed a $350,000 private placement
of debentures with warrants.  The proceeds are being used to fund operating 
activities.

      The Company had negative cash flow from operations of $309,043 for the
year ended December 31, 1998, compared to positive cash flow from operations of
$1,600,781 for the year ended December 31, 1997.  The decrease in cash flow from
operations for the year ended December 31, 1998, was due primarily to lower
sales volume and a decrease in sales of higher margin medical products, while
overhead costs did not decrease in proportion to the lower sales volume.

      Throughout 1998, 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 resume.  In addition, this customer continues to
order and take delivery of other products manufactured by the Company.  The
Company's efforts to attract industrial and cryogenic product customers resulted
in some improvement in sales toward the end of 1998.  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 ability to continue operations is
dependent on its ability to increase sales and maintain adequate margins on
sales and the ability to continue borrowing under its credit facilities with US
Bancorp.  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.

      Net cash used in investing activities was $106,265 and $426,714 for the
years ended December 31, 1998 and 1997, respectively.  The decrease in 1998 was
primarily due to a reduction in capital expenditures during the year.

      Net cash provided by financing activities was $481,949 for the year ended
December 31, 1998, compared to cash used in financing activities of $1,135,813
for the year ended December 31, 1997.  The increase in net cash provided by
financing activities in 1998 was

                                       12
<PAGE>

primarily due to increased borrowings under the Company's asset-based line of 
credit to fund operating activities, partially offset by principal repayment 
of term debt under the credit facilities of approximately $505,000.  The 
Company also made principal payments of approximately $188,000 on other 
financed equipment debt.

      Management anticipates making capital expenditures to support
diversification and growth of the manufacturing operations.  Near term capital
commitments for new manufacturing equipment total approximately $170,000.  The
Company anticipates obtaining sufficient amounts of capital for these
requirements through bank financing and deferred payment terms.

      During December 1997, in connection with obtaining new credit 
facilities, the Company undertook an environmental inspection of its 
manufacturing facility. As part of conducting a Phase I and Phase II 
environmental assessment of the facility, soil boring and groundwater work 
indicated the presence of potentially hazardous substances and petroleum 
products within the soil and groundwater located beneath the site. The 
Company notified the applicable regulatory agency (Minnesota Pollution 
Control Agency), as required, and is working with that agency to resolve 
these issues.  However, because the results are still preliminary, the 
Company is not able to assess whether the Company will ultimately be held 
liable for the presence of these substances at the site nor the Company's 
financial exposure if it is found liable. At December 31, 1998, the Company 
had accrued $20,000 for the cost of additional environmental work scheduled 
to commence during 1999, to determine the magnitude of the problem and what 
remediation efforts the Company must undertake to rectify the problem.

      
GOING CONCERN UNCERTAINTY  The accompanying financial statements have been 
prepared on a going concern basis, which contemplates the realization of 
assets and satisfaction of liabilities in the normal course of business.  As 
shown in the financial statements, the Company incurred a net loss from 
continuing operations of $2,594,894 for the year ended December 31, 1998, and 
has a working capital deficit and stockholders' deficiency of $4,157,294 and 
$1,129,135, respectively, at December 31, 1998.  These factors, among others, 
indicate the Company may not be able to continue as a going concern for a 
reasonable period of time.

Management's plans and objectives include the following:

     - Continue to control costs and expenses commensurate with the Company's 
       current sales levels in an effort to generate cash flows from operations.

     - 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.

                                    13
<PAGE>

      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 U.S. Bancorp (Note 
5).  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.

      
YEAR 2000 ISSUE

      STATE OF READINESS  The Company has been addressing the Year 2000 issue
since May 1997.  In the ordinary course of business, the Company has replaced,
or is in the process of replacing, many of its major computer systems with new
systems that have been designated to be Year 2000 compliant.  The Company's plan
for Year 2000 readiness involves four phases: inventory, evaluation,
remediation, and contingency planning.  Testing is an ongoing and integral part
of the evaluation, remediation and contingency planning phases.

     Inventory -   The Company has performed an extensive inventory of its
     information technology systems and other systems that use embedded
     microprocessors (collectively, "Systems").  The business processes
     supported by each System have been prioritized based on the degree of
     impact business operations would encounter if the Systems were disrupted.

     The inventory phase also includes identifying third parties with whom the
     Company has material relationships.  Where a third party is critical to a
     business process, efforts have been initiated to obtain Year 2000
     compliance information to identify the degree of risk exposure the Company
     may encounter.  During the quarter ended June 30, 1998, the Company sent a
     Year 2000 compliance survey to critical business partners.  The Company is
     working with its significant customers to share Year 2000 information and
     determine their readiness.  In addition, the Company is working with its
     suppliers in an effort to ensure adequate supplies of raw materials.

     The internal inventory phase was substantially completed in December 1998. 
     Regular contact with third parties with whom the Company has material
     relationships will continue through 1999.

     Evaluation -   This phase involves computer program code review and
     testing, vendor contacts and System testing.  Some Systems, upon
     inspection, are determined to be non-compliant and are immediately placed
     on the remediation schedule.  Some Systems require testing to determine
     compliance status.  As of March 12, 1999, the evaluation phase was 85%
     complete.

     Remediation -   In this phase each System is either fixed, replaced or
     removed.  The Company's financial and manufacturing software has been
     tested and found to be Year 2000 compliant.  The Company's operating system
     and office product software is not compliant and the Company plans to
     replace these systems when it is available and

                                    14
<PAGE>

     deemed compliant by the manufacturer.  This compliant software is 
     anticipated to be available in the second or third quarter of 1999.  
     The Company estimates that as of March 12, 1999, the remediation 
     planning phase was approximately 75% complete.

     Contingeny Planning -  The Company is currently developing a contingency
     and disaster recovery program designed to continue critical processes in
     the event the Company experiences Year 2000 disruptions despite remediation
     and testing. Contingency plans are expected to be completed during the
     quarter ending September 30, 1999.  The Company estimates that as of March
     12, 1999, the contingency planning phase is approximately 25% complete.

     COSTS  Preliminary cost estimates for achieving Year 2000 compliance of the
     Company are approximately $50,000, including $40,000 in capital costs and
     $10,000 of operating expense, with approximately $7,000 of expenses having
     been incurred to date.  A majority of the remaining costs are anticipated
     to be incurred in 1999.  No material resource contraints have been
     encountered to date.  Although management believes this estimate to be
     reasonable, there can be no assurance that this amount will be adequate to
     address the matter on a timely basis.

     The Company believes that the most likely worst case scenario is that the
     Company will have to add additional staff and/or reassign existing staff
     and/or acquire additional equipment or software during the time period
     leading up to and immediately following December 31, 1999, in order to
     address Year 2000 issues that unexpectedly arise.  Year 2000 could result
     in abnormal operating conditions, such as short-term interruption in the
     manufacturing process and system monitor and control functions.  These
     conditions could result in the temporary delay in the manufacturing and
     delivery of finished products.  Management believes that failure of the
     Company's and/or third parties' information technology systems could have a
     material adverse impact on the operations of the Company.

      In summary, the Company had a disappointing fiscal 1998 and has
experienced a reduction in scheduled shipments to its largest customer, which
resulted in a loss from continuing operations for 1998 and the last six months
of 1997.  The Company has taken action to control its operating expenses, reduce
overhead, restructure payment terms with its asset-based lender and other
equipment vendors, and has secured an infusion of $350,000 in proceeds from a
private placement of debentures with warrants to fund operating activities until
sales recover.  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.
      

      
FACTORS THAT MAY AFFECT FUTURE RESULTS.
      
      DEPENDENCE ON MAJOR CUSTOMER.  The Company's largest customer accounted
for 43.5% and 63.0% of net sales in 1998 and 1997, respectively.  The Company's
net sales in 1998 decreased $5,757,835, or 31.9%, from 1997, and sales were
primarily affected by a reduction in scheduled shipments of one high volume
product to this customer.  The Company continues to sell and take orders of
other products from this customer.  Sales of a previously high volume

                               15
<PAGE>

product from the Company's largest customer began to resume in mid-February 
1999, however, no assurance can be given that sales of this product will 
resume to previous or expected levels. The Company has no production 
contracts with this customer and believes that further reductions in orders 
from this customer would have a material adverse effect on its future 
operating results.
      

      DEPENDENCE ON NEW PRODUCTS AND CONTINUED GROWTH IN SALES VOLUME.  The
Company's future success will depend on its ability to secure additional
contract manufacturing business, enhance the products it currently manufactures
under its own trade names, increase sales volume of oil centrifuges, obtain
production orders for prototype products including desk top book binding
equipment, spindle assemblies, and maintain a satisfactory volume of orders for
industrial parts.
      

      COMPETITION.  The Company believes that the principal elements of
competition are quality, service, delivery, price and meeting customer
requirements.  The contract manufacturing business in which the Company engages
is highly competitive and many of the competitors of the Company have greater
sales volume and resources than the Company.  Although the Company believes its
engineering capability is a competitive advantage, customers may change to other
contract manufacturers.  Company management believes the Company represents only
a small portion of the aggregate national sales of contract manufacturing
services.

                                     16
<PAGE>

ITEM 7.     FINANCIAL STATEMENTS.

          The following Financial Statements and Report of Independent
Accountants thereon are included herein (page numbers refer to pages in this
Report):
<TABLE>
<CAPTION>
                                                                   PAGE
                                                                   ----
<S>                                                                <C>
Report of Independent Accountants............................      20

Balance Sheets as of December 31, 1998 and 1997..............      21

Statements of Operations for the years 
ended December 31, 1998 and 1997.............................      22

Statements of Stockholders' Equity for the years
ended December 31, 1998 and 1997.............................      23

Statements of Cash Flows for the years ended
December 31, 1998 and 1997...................................      24

Notes to the Financial Statements............................      26

</TABLE>

ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
     FINANCIAL DISCLOSURE.

          None.
                                          
                                      PART III


ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
          COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

          (a)  DIRECTORS OF THE REGISTRANT.

          The information under the caption "Election of Directors" in the 
Company's 1999 Proxy Statement is incorporated herein by reference.

          (b)  EXECUTIVE OFFICERS OF THE REGISTRANT.

          The information concerning Executive Officers of the Company is 
included in this Report under Item 4A, Executive Officers of the Registrant.

          (c)  COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

          The information under the caption "Section 16(a) Beneficial 
Ownership Reporting Compliance" in the Company's 1999 Proxy Statement is 
incorporated herein by reference.

                                    17
<PAGE>

ITEM 10.  EXECUTIVE COMPENSATION.

          The information under the captions "Election of Directors -- 
Director Compensation" and "Executive Compensation and Other Benefits" in the 
Company's 1999 Proxy Statement is incorporated herein by reference.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

          The information under the caption "Principal Shareholders and 
Beneficial Ownership of Management" in the Company's 1999 Proxy Statement is 
incorporated herein by reference.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

          The information under the captions "Election of Directors -- Director
Compensation" and "Certain Transactions" in the Company's 1999 Proxy Statement
is incorporated herein by reference.
                                          
                                      PART IV


ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K.

     (a)  EXHIBITS

        The exhibits to this Report are listed in the Exhibit Index on pages 40
to 46 of this Report.

      A copy of any of the exhibits listed or referred to above will be
furnished at a reasonable cost to any person who was a shareholder of the
Company as of March 23, 1999, upon receipt from any such person of a written
request for any such exhibit.  Such request should be sent to Reuter
Manufacturing, Inc., 410 11th Avenue South, Hopkins, Minnesota 55343, Attention:
Secretary, William H. Johnson.

      The following is a list of each management contract or compensatory plan
or arrangement required to be filed as an Exhibit to this Report, the location
of which is indicated in the Exhibit Index of this Report:

     (1)  Incentive Stock Option Plan of the Company, as amended effective
          December 17, 1987

     
     (2)  Directors Stock Option Plan of the Company
     
     (3)  Summary of options granted under Directors Stock Option Plan
     
     (4)  1991 Non-Employee Director Stock Option Plan

     (5)  Summary of options granted under 1991 Non-Employee Director Stock
          Option Plan
     

                                   18
<PAGE>

     (6)  1991 Stock Option Plan, as amended
     
     (7)  Summary of Options granted under 1991 Stock Option Plan
     
     (8)  Option Agreement between Edward E. Strickland and the Company
     
     (9)  Consulting Agreement with Edward E. Strickland
     
     (10) Independent Contractor Agreement dated as of May 16, 1991, between
          Taylor Consultants, Inc. and the Company

     (11) Independent Contractor Agreement dated as of November 2, 1992, between
          Taylor Consultants, Inc. and the Company

     (12) 1997 Non-Employee Director Stock Option Plan


     (b)  REPORTS ON FORM 8-K

     No reports were filed under Form 8-K during 1998.

                                  19
<PAGE>



REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and Board of Directors of
Reuter Manufacturing, Inc.:

In our opinion, the accompanying balance sheets and the related statements of 
operations, stockholders' equity (deficiency) and cash flows present fairly, 
in all material respects, the financial position of Reuter Manufacturing, 
Inc. (the "Company") at December 31, 1998 and 1997, and the results of its 
operations and its cash flows for the years then ended in conformity with 
generally accepted accounting principles. These financial statements are the 
responsibility of the Company's management; our responsibility is to express 
an opinion on these financial statements based on our audits. We conducted 
our audits of these statements in accordance with generally accepted auditing 
standards which require that we plan and perform the audit to obtain 
reasonable assurance about whether the financial statements are free of 
material misstatement. An audit includes examining, on a test basis, evidence 
supporting the amounts and disclosures in the financial statements, assessing 
the accounting principles used and significant estimates made by management, 
and evaluating the overall financial statement presentation. We believe that 
our audits provide a reasonable basis for the opinion expressed above.

The accompanying financial statements have been prepared assuming that the 
Company will continue as a going concern. As discussed in Note 1, the Company 
has suffered a net loss from continuing operations of approximately 
$2,600,000 in 1998 and has a working capital deficit in excess of $4,000,000 
and stockholders' deficiency of approximately $1,100,000 at December 31, 
1998, that raise substantial doubt about its ability to continue as a going 
concern. Management's plans in regard to these matters are also described in 
Note 1. The financial statements do not include any adjustments that might 
result from the outcome of this uncertainty.

                                  /s/ PRICEWATERHOUSECOOPERS LLP

                                  PRICEWATERHOUSECOOPERS LLP

February 26, 1999


<PAGE>


REUTER MANUFACTURING, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
                                    ASSETS                                               1998                1997
<S>                                                                               <C>                  <C>

Current assets:

     Cash                                                                          $        179,875    $        113,234
     Receivables, net of allowances of $25,000 at December 31,
           1998 and 1997                                                                  1,432,723           1,894,419
     Inventories                                                                          2,027,040           1,979,661
     Other current assets                                                                    44,685              99,612
                                                                                   -----------------   -----------------

        Total current assets                                                              3,684,323           4,086,926

     Property, plant and equipment, net                                                   4,027,404           4,624,678
     Intangible assets, net                                                                                     435,207
                                                                                   -----------------   -----------------

        Total assets                                                               $      7,711,727    $      9,146,811
                                                                                   -----------------   -----------------
                                                                                   -----------------   -----------------
               LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)

Current liabilities:

     Asset-based line of credit and term obligations, bank                         $      5,610,405    $      5,313,512
     Current maturities of long-term equipment financing                                    240,483             222,022
     Accounts payable, trade                                                              1,198,469             692,125
     Accrued expenses                                                                       792,260             695,011
                                                                                   -----------------   -----------------

        Total current liabilities                                                         7,841,617           6,922,670

Long-term equipment financing, less current maturities                                      657,045             740,507
Debentures payable                                                                          292,040
Other liabilities                                                                            50,160              88,496

Commitments and contingencies

Stockholders' equity (deficiency):

     Preferred stock, par value $.01 per share, authorized 2,500,000
           shares, none issued

     Common stock, par value $.1875 per share, authorized 9,000,000 shares,
           issued and outstanding 4,898,885 and 4,863,496
           shares in 1998 and 1997, respectively                                            918,541             911,906
     Additional paid-in capital                                                          17,832,113          17,768,127
     Accumulated deficit                                                               (19,879,789)        (17,284,895)
                                                                                   -----------------   -----------------

        Total stockholders' equity (deficiency)                                         (1,129,135)           1,395,138
                                                                                   -----------------   -----------------

        Total liabilities and stockholders' equity (deficiency)                    $      7,711,727    $      9,146,811
                                                                                   -----------------   -----------------
                                                                                   -----------------   -----------------


</TABLE>
       THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

                                    21
<PAGE>

REUTER MANUFACTURING, INC.
STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
                                                                                          1998               1997
<S>                                                                                 <C>                <C>

Net sales                                                                            $    12,269,183    $    18,027,018
Cost of sales                                                                             11,533,951         13,717,997
                                                                                     ----------------   ----------------
        Gross profit                                                                         735,232          4,309,021

Selling, general and administrative expenses                                               2,211,954          2,879,676
Write-off of certain assets, principally intangible assets                                   447,327
                                                                                     ----------------   ----------------
        Operating (loss) income                                                          (1,924,049)          1,429,345
                                                                                     ----------------   ----------------
Other income (expense)
     Interest income                                                                             946             28,558
     Interest expense                                                                      (677,198)          (472,808)
     Other, net                                                                                5,407             42,254
                                                                                     ----------------   ----------------
        Total other expense, net                                                           (670,845)          (401,996)
                                                                                     ----------------   ----------------
        (Loss) income from continuing operations before discontinued
              operations                                                                 (2,594,894)          1,027,349

Discontinued operations:
     Extraordinary gain on debt restructuring                                                                 3,794,479
     Gain from discontinued operations                                                                          275,936
                                                                                   -----------------   -----------------
        Net (loss) income                                                            $   (2,594,894)    $     5,097,764
                                                                                   -----------------   -----------------
                                                                                   -----------------   -----------------
Basic earnings per share:

     (Loss) income from continuing operations                                        $        (0.53)    $          0.24
     Discontinued operations:
        Extraordinary gain on debt restructuring                                                                   0.87
        Gain from discontinued operations                                                                          0.06
                                                                                     ----------------   ----------------
        Net (loss) income per share                                                  $        (0.53)    $          1.17
                                                                                   -----------------   -----------------
                                                                                   -----------------   -----------------
Diluted earnings per share:

     (Loss) income from continuing operations                                        $        (0.53)    $          0.23
     Discontinued operations:
        Extraordinary gain on debt restructuring                                                                   0.83
        Gain from discontinued operations                                                                          0.06
                                                                                     ----------------   ----------------
        Net (loss) income per share                                                  $        (0.53)    $          1.12
                                                                                   -----------------   -----------------
                                                                                   -----------------   -----------------
Weighted average common shares outstanding:

     Basic                                                                                 4,883,431          4,342,328
                                                                                   -----------------   -----------------
                                                                                   -----------------   -----------------
     Diluted                                                                               4,883,431          4,548,926
                                                                                   -----------------   -----------------
                                                                                   -----------------   -----------------
</TABLE>

     THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

                                           22
<PAGE>



REUTER MANUFACTURING, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
                                                                                                             TOTAL
                                                                      ADDITIONAL                         STOCKHOLDERS'
                                                                        PAID-IN        ACCUMULATED          EQUITY
                                           SHARES      PAR VALUE        CAPITAL          DEFICIT         (DEFICIENCY)
<S>                                       <C>          <C>           <C>              <C>               <C>            

Balances, December 31, 1996               3,208,020    $  601,504    $  13,713,582    $ (22,382,659)    $   (8,067,573)

Proceeds from private placement of
       common stock, net of $400,000
       of private placement costs         1,517,333       284,500        3,867,280                            4,151,780

Payment of certain obligations in
       exchange for common stock             37,032         6,944          118,038                              124,982

Purchase of license and manufacturing
       rights in exchange for common
       stock                                 11,111         2,083           47,917                               50,000

Exercise of stock options                    90,000        16,875           21,310                               38,185

Net income                                                                                 5,097,764          5,097,764
                                         -----------   -----------   --------------   ---------------   ----------------

Balances, December 31, 1997               4,863,496       911,906       17,768,127      (17,284,895)          1,395,138

Cancellation of common stock               (11,111)       (2,083)          (7,986)                             (10,069)

Exercise of stock options                    46,500         8,718           14,012                               22,730

Issuance of warrants                                                        57,960                               57,960

Net loss                                                                                 (2,594,894)        (2,594,894)
                                         -----------   -----------   --------------   ---------------   ----------------

Balances, December 31, 1998               4,898,885    $  918,541    $  17,832,113    $ (19,879,789)    $   (1,129,135)
                                         -----------   -----------   --------------   ---------------   ----------------
                                         -----------   -----------   --------------   ---------------   ----------------

              THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
                                               23

<PAGE>

REUTER MANUFACTURING, INC.
STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>

                                                                                         1998                1997
<S>                                                                                <C>                 <C>
Cash flows from operating activities:

     Net (loss) income                                                             $    (2,594,894)    $      5,097,764
     Adjustments to reconcile net (loss) income to net cash (used in)
           provided by operating activities:
        Extraordinary gain on debt restructuring                                                            (3,794,479)
        Depreciation                                                                        811,416             830,743
        Amortization of intangible assets                                                    61,476              62,524
        Write-off of certain assets, principally intangible assets                          447,327
        Gain on sales of assets                                                                                (37,579)
        Provision for uncollectible accounts receivable                                         641               7,254
        Provision for writedown of inventories                                              125,664              81,831
        Changes in operating assets and liabilities:
           Receivables                                                                      436,055            (37,306)
           Inventories                                                                    (216,912)           (295,452)
           Other current assets                                                              54,927            (90,475)
           Accounts payable, trade                                                          506,344            (71,370)
           Accrued expenses                                                                  97,249            (97,172)
           Other liabilities                                                               (38,336)            (55,502)
                                                                                   -----------------   -----------------

        Net cash (used in) provided by operating activities                               (309,043)           1,600,781
                                                                                   -----------------   -----------------

Cash flows from investing activities:
     Redemption of investment                                                                                   250,000
     Additions to property, plant and equipment                                           (106,265)           (670,378)
     Purchase of license and manufacturing rights                                                              (50,000)
     Proceeds from sale of assets                                                                                68,664
     Other                                                                                                     (25,000)
                                                                                   -----------------   -----------------
        Net cash used in investing activities                                             (106,265)           (426,714)
                                                                                   -----------------   -----------------
Cash flows from financing activities:

     Payment of long-term equipment financing                                             (187,674)         (7,739,193)
     Proceeds from asset-based line of credit and term obligations, bank                 13,509,582          22,774,695
     Repayment of asset-based line of credit                                           (13,212,689)        (20,361,280)
     Proceeds from private placement of debentures and common stock                         350,000           4,151,780
     Proceeds from exercise of stock options                                                 22,730              38,185
                                                                                   -----------------   -----------------
        Net cash provided by (used in) financing activities                                 481,949         (1,135,813)
                                                                                   -----------------   -----------------
Net increase in cash                                                                         66,641              38,254

Cash, beginning of year                                                                     113,234              74,980
                                                                                   -----------------   -----------------
Cash, end of year                                                                  $        179,875    $        113,234
                                                                                   -----------------   -----------------
                                                                                   -----------------   -----------------

            THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

                                         24
</TABLE>

<PAGE>

REUTER MANUFACTURING, INC.
STATEMENTS OF CASH FLOWS, CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
                                                                                         1998                1997
<S>                                                                               <C>                  <C>
Supplemental disclosures of cash flow information:
 Cash paid for:
        Interest                                                                   $        664,655    $        461,410
     Noncash investing and financing activities:
        Purchase of equipment in exchange for notes payable                                 122,673             619,387
        Settlement of certain obligations in exchange for common stock                                          124,982
        Purchase of license and manufacturing rights in exchange
              for common stock                                                                                   50,000

            THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
                                         25


<PAGE>

REUTER MANUFACTURING, INC.
NOTES TO FINANCIAL STATEMENTS


1.   BUSINESS DESCRIPTION AND BASIS OF PRESENTATION:

     BUSINESS DESCRIPTION:

     The Company, which operates in a single business segment, is principally a
     contract manufacturer of precision machined components, assemblies and
     devices 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 also manufactures and sells under the Reuter
     -Registered Trademark- name self-powered oil centrifuges and laboratory 
     centrifuges which are sold by the Company's sales force to the OEM or end 
     user, and to distributors.

     GOING CONCERN UNCERTAINTY:

     The accompanying financial statements have been prepared on a going-concern
     basis, which contemplates the realization of assets and satisfaction of
     liabilities in the normal course of business. As shown in the financial
     statements, the Company incurred a net loss from continuing operations of
     $2,594,894 for the year ended December 31, 1998, and has a working capital
     deficit and stockholders' deficiency of $4,157,294 and $1,129,135,
     respectively, at December 31, 1998. These factors, among others, indicate
     that the Company may not be able to continue as a going concern for a
     reasonable period of time.

     Management's plans and objectives include the following:

     - Continue to control costs and expenses commensurate with the
       Company's current sales levels in an effort to generate cash flows from
       operations.

     - 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.

     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 US Bancorp (Note 5).
     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.

                                      26

<PAGE>

REUTER MANUFACTURING, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED

2.   SIGNIFICANT ACCOUNTING POLICIES:

     BASIS OF PRESENTATION:

     The financial statements include the accounts of Reuter Manufacturing, Inc.
     and its precision manufacturing operations (the Company). For 1997, the
     financial statements include, as discontinued operations, extraordinary
     gains on debt restructuring associated with its inactive wholly-owned
     subsidiary, EPR, Inc. (Eden Prairie Waste Processing Facility) (Note 3) and
     gains from discontinued operations associated with its previously
     deconsolidated subsidiary, Reuter Recycling of Florida, Inc. (Note 3).

     ACCOUNTS RECEIVABLE:

     A significant portion of the Company's accounts receivable is due primarily
     from one customer (see Note 9). The Company performs ongoing credit
     evaluations of its customers and generally does not require collateral for
     the outstanding receivable balances.

     INVENTORIES:

     Inventories are valued at the lower of cost or market with cost determined
     on a first-in, first-out basis.

     PROPERTY, PLANT AND EQUIPMENT:

     Property, plant and equipment are recorded at cost. Depreciation is
     provided for by the straight-line method based on the estimated useful
     lives of the related assets. Useful lives range from 15 to 40 for buildings
     and building improvements and 5 to 7 for machinery and equipment.
     Expenditures for major renewals and betterments are capitalized, and
     expenditures for maintenance and repairs are charged to operations as
     incurred. Upon retirement or other disposition of property, plant or
     equipment, the applicable cost and accumulated depreciation are eliminated
     from the accounts, and the resulting gain or loss is included in
     operations.

     REVENUE RECOGNITION:

     The Company recognizes sales of precision manufacturing products when these
     products are shipped.

     INCOME TAXES:

     The Company utilizes the asset and liability method of accounting for
     income taxes whereby deferred taxes are determined based on the difference
     between the financial statement and tax bases of assets and liabilities
     using enacted tax rates in effect in the years in which the differences are
     expected to reverse. Valuation allowances are established when necessary to
     reduce deferred tax assets to the amount expected to be realized. Income
     tax expense is the sum of the tax currently payable and the change in the
     deferred tax assets and liabilities during the period.


                                         27
<PAGE>

REUTER MANUFACTURING, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED


2.   SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

     INTANGIBLE ASSETS:

     Intangible assets include patents, noncompete agreements and goodwill being
     amortized on the straight-line method over their estimated useful lives of
     seven to fifteen years. Also included are licensing and manufacturing
     rights being amortized on the straight-line method over their estimated
     useful lives of three years.

     In connection with losses relating to the manufacture of two products, the
     Company analyzed the carrying amount of the intangible assets and
     determined that the carrying values would not be recoverable through future
     cash flows. Accordingly, in accordance with Statement of Financial
     Accounting Standards No. 121, "Accounting for Long-Lived Assets," the
     Company wrote off its intangible assets and recorded a charge of $447,327
     in the Statement of Operations for the year ended December 31, 1998.

     EARNINGS (LOSS) PER COMMON 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 shares attributed to
     outstanding stock options under the Company's stock option plans and stock
     purchase warrants.

     Incremental shares attributable to the assumed exercise of stock options
     and warrants for the year ended December 31, 1998 were excluded from the
     computation of diluted earnings per share as the effect would be
     antidilutive. For the year ended December 31, 1997, the denominator used to
     calculate diluted earnings per share includes the dilutive impact of
     171,392 stock options and 35,206 stock purchase warrants.

     STOCK-BASED COMPENSATION:

     In accordance with the provisions of Statement of Financial Accounting
     Standards No. 123 (SFAS 123), "Accounting for Stock Based Compensation",
     the Company has elected to apply the provisions of APB Opinion No. 25,
     "Accounting for Stock Issued to Employees," and related interpretations in
     accounting for its stock option plans.

     USE OF ESTIMATES:

     The preparation of the Company's financial statements in conformity with
     generally accepted accounting principles requires management to make
     estimates and assumptions that affect the reported amounts of assets and
     liabilities and disclosure of contingent assets and liabilities at the date
     of the financial statements and the reported amounts of revenues and
     expenses during the reporting periods. Actual results could differ from
     those estimates.

                                        28
<PAGE>

REUTER MANUFACTURING, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED


3.   DISCONTINUED OPERATIONS:

     Effective January 1, 1994, the county in which the Eden Prairie waste
     processing facility (the facility) operated substantially reduced the fees
     at competing county-owned waste processing facilities. As a result, the
     Company could no longer attract waste haulers using its existing fee
     structure and could not generate sufficient cash to fund operations using
     the county's fee structure. Accordingly, the Company ceased operation of
     the facility effective January 1, 1994, and on September 1, 1994, finalized
     a sale of all assets of EPR, Inc.

     The net proceeds of $3,768,809 from the sale were used to repay a portion
     of the debt underlying the EPR, Inc. facility. The Company retained all
     liabilities of EPR, Inc., including the balance of the loan and accrued
     interest underlying the facility which was guaranteed by the Company. On
     January 24, 1996, and April 18, 1997, the Company entered into agreements
     to restructure its guarantee of the debt obligation underlying the EPR,
     Inc. facility (see Note 5).

     During the fourth quarter of 1997, the Company received proceeds of
     $275,936 from the release of funds that were held in an escrow account
     related to the Company's previously deconsolidated subsidiary, Reuter
     Recycling of Florida, Inc. (RRF), which was sold on October 25, 1995. The
     funds were previously placed in escrow to fund any future liability related
     to this deconsolidated subsidiary. Under the agreement, the remaining funds
     were distributed equally between the lender to RRF and the Company after
     the completion of a two-year period ended October 26, 1997.

4. SELECTED BALANCE SHEET INFORMATION:

     INVENTORIES:
<TABLE>
<CAPTION>

                                                                                           1998              1997
     <S>                                                                          <C>               <C>
     Raw materials and supplies                                                   $       682,357   $       736,312
     Work-in-process                                                                    1,344,683         1,243,349
                                                                                  ----------------- -----------------

                                                                                  $     2,027,040   $     1,979,661
                                                                                  ----------------- -----------------
                                                                                  ----------------- -----------------

     PROPERTY, PLANT AND EQUIPMENT, NET:

                                                                                           1998              1997

     Land and related improvements                                                $       206,995   $       206,995
     Buildings and building improvements                                                3,375,198         3,366,494
     Machinery and equipment                                                            9,375,749         9,374,973
                                                                                  ----------------- -----------------

                                                                                       12,957,942        12,948,462

     Less accumulated depreciation                                                      8,930,538         8,323,784
                                                                                  ----------------- -----------------

                                                                                  $     4,027,404   $     4,624,678
                                                                                  ----------------- -----------------
                                                                                  ----------------- -----------------
</TABLE>

                                          29
<PAGE>

REUTER MANUFACTURING, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED


4.   SELECTED BALANCE SHEET INFORMATION, CONTINUED:

     ACCRUED EXPENSES:
<TABLE>
<CAPTION>
                                                                                           1998              1997
<S>                                                                               <C>               <C>
     Interest                                                                     $        54,674   $        42,131
     Payroll, benefits and related taxes                                                  371,586           325,740
     Legal and accounting                                                                 115,000           115,000
     Property taxes                                                                       142,000            45,000
     Accrued retirement                                                                    38,335            55,502
     Other                                                                                 70,665           111,638
                                                                                  ----------------- -----------------

                                                                                  $       792,260   $       695,011
                                                                                  ----------------- -----------------
                                                                                  ----------------- -----------------
</TABLE>


5.   FINANCING ARRANGEMENTS:

     Financing arrangements at December 31, 1998 and 1997, consisted of the
     following:

<TABLE>
<CAPTION>
                                                                                        1998               1997
<S>                                                                                    <C>              <C>

Asset-based line of credit, payable to bank, due on demand, interest at the
     bank's reference rate (reference rate was 7.75% and 8.5% at December 31,
     1998 and 1997, respectively) plus 2.25% for 1998 (1.35% for 1997), however,
     certain asset-based line of credit over-advances to the Company accrue
     interest at the reference rate plus 3.4%. Approximately $1,700,000 of
     borrowings under the asset-based line of credit provide for monthly
     payments of $28,333 plus accrued interest and a final payment of unpaid
     principal and accrued interest on March 1, 2003. Funds available to the
     Company pursuant to the terms of the asset-based line of credit are
     dependent upon the level of eligible accounts receivable, inventories and
     plant and equipment, as defined. The line of credit is collateralized by
     substantially all of the Company's assets, except for certain equipment
     purchased with notes payable. The weighted average interest rate of
     asset-based line of credit borrowings was 10.23% and 12.00% for
     the years ended December 31, 1998 and 1997, respectively.                    $ 3,136,572 (a)     $     2,643,512 (a)
 
Term note, payable to bank, interest at the bank's reference rate plus 2.25%
     for 1998 (1.35% for 1997), however, the Company may make a one- time
     election to have interest accrue on this note at a rate which Approximates
     the yield on U.S. Treasury securities, as defined, plus 3.0%; monthly
     principal payments of $13,333 plus interest and a final payment of unpaid
     principal and accrued interest on December 1, 2002; Collateralized by a
     first mortgage on the Company's manufacturing facility and substantially
     all of the Company's assets, except for certain equipment purchased with
     notes payable.                                                                 2,253,333 (a)           2,400,000 (a)

</TABLE>
                                       30
<PAGE>

REUTER MANUFACTURING, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED

5.   FINANCING ARRANGEMENTS, CONTINUED:
<TABLE>
<CAPTION>
                                                                                        1998               1997
<S>                                                                                 <C>                 <C>
     Term note, payable to bank, interest at the bank's reference rate plus
          2.25% for 1998 (1.35% for 1997); monthly principal payments of $4,500
          plus interest and a final payment of unpaid principal and interest on
          December 1, 2002; collateralized by substantially all of the Company's
          assets, except for certain equipment purchased with notes payable.        $  220,500(a)      $  270,000(a)

     Debentures payable (primarily due to the Company's key management and
          members of the Board of Directors), interest at 13%, payable monthly
          beginning March 1999; principal due December 2001.                           292,040               -

     Notes payable in monthly principal and interest installments, with interest
          ranging from 5.9% to 11.8%. Notes mature from August 1999 to February
          2003, and are collateralized by equipment with an aggregate carrying
          value of approximately $1,000,000 at December 31, 1998. Certain of
          these notes payable agreements contain subjective material adverse
          change clauses under which the notes could become due and payable.
                                                                                       897,528            962,529
                                                                                      ------------- -------------

    Total debt                                                                       6,799,973          6,276,041

    Less asset-based line of credit and term obligations, bank                       5,610,405          5,313,512

    Less current maturities of long-term equipment financing                           240,483            222,022
                                                                                    -------------      -------------
                                                                                    -------------      -------------

    Long-term debt, less current maturities                                         $  949,085         $  740,507
                                                                                    -------------      -------------
                                                                                    -------------      -------------
</TABLE>

     (a)  Although the term notes and certain borrowings under the asset-based
          line of credit have scheduled repayment dates, these borrowings may be
          due upon demand in the event US Bancorp (formerly U.S. Bank) requires
          demand repayment on the asset-based line of credit. Accordingly, these
          borrowings have been classified as current obligations in the December
          31, 1998 and 1997 balance sheets. Scheduled payments on the U.S.
          Bancorp credit facilities in 1999 through 2002 range from $497,333 to
          $554,000 annually and a scheduled payment of $1,656,667 in 2003.

     On January 24, 1996, the Company and Sanwa Business Credit Corporation
     (Sanwa) entered into a Loan and Security Agreement to restructure its
     guarantee of the debt obligation underlying the Eden Prairie Facility,
     which included the following agreements: a Senior Subordinated Secured
     Promissory Note (Senior Note) in the amount of $2,780,000; a Junior
     Subordinated Secured Promissory Note (Junior Note) in the amount of
     $1,000,000; a Mortgage, Assignment of Leases and Rents, Security Agreement
     and Financing Statement; a Patent Security Agreement; an Income-Sharing
     Agreement; and a Common Stock Warrant Agreement.

                                       31
<PAGE>


REUTER MANUFACTURING, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED


5.   FINANCING ARRANGEMENTS, CONTINUED:

     On April 18, 1997, the Company completed a private placement of 1,517,333
     shares of the Company's common stock at $3.00 per share, raising gross
     proceeds of $4,552,000. Proceeds of $3,750,000 from the private placement
     were used to retire the Junior Note and the Income-Sharing Agreement with
     Sanwa. The balance of the proceeds were used to pay expenses of the private
     placement and the remaining proceeds were applied to general Company
     operating requirements. The two debt instruments, including associated
     future interest at 8%, had an aggregate carrying value of $6,922,288 at
     April 18, 1997. In connection with the retirement of the Sanwa debt, the
     warrant previously issued to Sanwa for 3,178,780 shares of common stock was
     terminated and the management standstill agreements with the CEO and
     Chairman of the Company were settled for $102,479 cash and 37,032 shares of
     the Company's common stock with a fair value of $124,982 on the settlement
     date.

     As a result of the transactions described above, the Company recognized an
     extraordinary gain on debt restructuring of approximately $3,400,000 in the
     second quarter of 1997. There was no income tax effect related to the
     extraordinary gain due to the net operating loss carryforwards available to
     the Company, as well as the Company's continued insolvency for tax purposes
     subsequent to the debt restructuring.

     On December 3, 1997, the Company entered into an agreement with US Bancorp,
     pursuant to which US Bancorp made credit facilities of up to $8,670,000
     available to the Company. The credit facilities consist of an asset-based
     line of credit with availability of up to $5,000,000, as defined, and three
     term notes of $2,400,000, $1,000,000 and $270,000, respectively. The credit
     facilities were used to repay the Company's previous asset-based line of
     credit of approximately $2,200,000 and the remaining balance of
     approximately $2,500,000 owed to Sanwa under the Senior Note. As a result
     of this refinancing, the Company recognized an extraordinary gain on debt
     restructuring of approximately $363,000 in the fourth quarter of 1997.

     In June 1998, the Company amended the US Bancorp agreement to increase the
     interest rate to the US Bancorp reference rate plus 2.25% and extend the
     agreement an additional year, expiring in December 2000. Furthermore, in
     December 1998, the agreement was amended to defer principal payments to
     April 1, 1999. The Company will be required to resume regular monthly
     principal payments of $46,166 on April 1, 1999, and increase the monthly
     principal payments to $92,333 beginning November 1, 1999 until the
     previously deferred principal is paid.

     The credit facilities with US Bancorp prohibit the payment of dividends and
     limit capital expenditures. The credit facilities agreement includes a
     subjective material adverse change clause under which the borrowings could
     become due and payable.

                                       32
<PAGE>

REUTER MANUFACTURING, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED

5.   FINANCING ARRANGEMENTS, CONTINUED:

     The aggregate maturities of long-term equipment financing, excluding
     scheduled payments of the US Bancorp credit facilities as set forth in (a)
     above, are as follows:

<TABLE>
                       <S>                                                    <C>              
                       1999                                                   $      240,483
                       2000                                                          313,687
                       2001                                                          237,028
                       2002                                                          105,596
                       2003                                                              734
                                                                              ---------------

                       Total maturities of long-term equipment financing      $      897,528
                                                                              ===============
</TABLE>


     CARRYING VALUE OF FINANCIAL INSTRUMENTS:

     The carrying value of the Company's financial instruments approximates fair
     value at December 31, 1998.

6.   STOCKHOLDERS' EQUITY (DEFICIENCY):

     The Company's Stock Option Plans (the Plans) provide for grants of stock
     options. The number of common shares available for grant pursuant to the
     Plans were 344,583 and 439,500 as of December 31, 1998 and 1997,
     respectively. Options become exercisable over periods of up to four years
     from the date of grant and expire 10 years from the date of grant.

     The following summarizes all option activity under the Plans:

<TABLE>
<CAPTION>
                                                                                                             
                                                                                                             WEIGHTED
                                                                                           OPTIONS           AVERAGE
                                                                                         OUTSTANDING      EXERCISE PRICE
       <S>                                                                               <C>              <C>
        Balances, December 31, 1996                                                          353,500         $1.04

        Options cancelled                                                                     (4,000)         2.49
        Options granted                                                                      114,000          4.41
        Options exercised                                                                    (90,000)          .42
                                                                                     -----------------

        Balances, December 31, 1997                                                          373,500          2.20

        Options cancelled                                                                   (147,007)         2.40
        Options granted                                                                      227,924          1.97
        Options exercised                                                                    (46,500)          .49
                                                                                     -----------------

        Balances, December 31, 1998                                                          407,917          1.96
                                                                                     -----------------
                                                                                     -----------------

        Options exercisable at December 31, 1998                                             276,250          1.84
                                                                                     -----------------
                                                                                     -----------------

</TABLE>

                                         33
<PAGE>



REUTER MANUFACTURING, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED

                     


   6.   STOCKHOLDERS' EQUITY (DEFICIENCY), CONTINUED:

        The following table summarizes information about fixed price stock
        options outstanding at December 31, 1998:

<TABLE>
<CAPTION>

                                                       OPTIONS OUTSTANDING                  OPTIONS EXERCISABLE

                                               ------------------------------------  -----------------------------------
                                                    WEIGHTED
                             SHARES UNDER            AVERAGE            WEIGHTED           NUMBER           WEIGHTED
            RANGE OF          OPTIONS AT            REMAINING           AVERAGE        EXERCISABLE AT        AVERAGE
            EXERCISE         DECEMBER 31,       CONTRACTUAL LIFE        EXERCISE        DECEMBER 31,        EXERCISE
             PRICES              1998               (MONTHS)             PRICE              1998              PRICE
<S>                          <C>                   <C>                 <C>               <C>              <C>
           $ .1875 - .50              93,500            85            $        .42               93,500   $         .42
           .6250 - .8281             131,917           114                     .81               71,917             .78
           1.50 - 2.4688              66,000           103                    1.96               30,000            1.65
          3.375 - 4.4375              86,000            95                    4.34               50,333            4.27
          4.875 - 5.1875              30,500            95                    4.90               30,500            4.90


</TABLE>


        STOCK-BASED COMPENSATION:

        Had compensation cost for the Plans been determined based on the fair
        value of options at the grant date for awards in 1998 and 1997, the
        Company's pro forma net income (loss) and net income (loss) per share
        would have been as follows:

<TABLE>
<CAPTION>
                                                                                           1998              1997
       <S>                                                                           <C>               <C>

        Net income (loss)                                                            $    (2,717,631)  $     4,921,100

        Basic net income (loss) per share                                                      $(.56)            $1.13
                                                                                                         

        Diluted net income (loss) per share                                                    $(.56)            $1.08
                                                                                                         

        The pro forma effect on net income (loss) for 1998 and 1997 is not fully
        representative of the pro forma effect on net income (loss) in future
        years because these years do not take into consideration pro forma
        compensation expense related to grants made prior to 1995.

        Stock-based compensation costs computed in accordance with SFAS 123 for
        options granted during 1998 and 1997 were $299,443 and $412,260,
        respectively, for the Plans. The aggregate fair value was estimated at
        the date of grant, utilizing the Black-Scholes option pricing model with
        the following key assumptions:

</TABLE>

<TABLE>
<CAPTION>
                                     ASSUMPTIONS                                      1998                 1997
          <S>                                                                      <C>                 <C>
          Risk free interest rates                                                 4.8% - 5.7%         6.2% - 6.6%
          Volatility                                                                  111%                 99%
          Expected lives (months)                                                      72                   72


</TABLE>

        The Company does not anticipate paying dividends in the near future.

                                        34

<PAGE>


REUTER MANUFACTURING, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED



   6.   STOCKHOLDERS' EQUITY (DEFICIENCY), CONTINUED:

        WARRANTS:

        In April 1997, in connection with the private placement of common stock
        (Note 5), the Company granted the underwriter a five-year warrant to
        purchase 50,000 shares of the Company's common stock with an exercise
        price of $3.60 per share, exercisable immediately.

        In December 1998, in connection with the private placement of debentures
        (Note 5), the Company granted five-year warrants to purchase 350,000
        shares of the Company's common stock at an exercise price of $.6625 per
        share, exercisable immediately.

   7.   INCOME TAXES:

        The following table sets forth the components of the tax-effected
        deferred tax assets and liabilities as of December 31, 1998 and 1997:

<TABLE>
<CAPTION>

                                                                                           1998              1997
<S>                                                                                 <C>                <C>
        Net operating losses available for carryforward
              (expire 2004 to 2018)                                                  $    10,195,000   $    10,192,000
        Accelerated depreciation for tax reporting purposes                                 (124,000)         (143,000)
        Other future deductible temporary differences, net                                   224,000           273,000
                                                                                     ----------------- -----------------

        Net deferred tax asset before valuation allowance                                 10,295,000        10,322,000

        Valuation allowance                                                              (10,295,000)      (10,322,000)
                                                                                     ----------------- -----------------

                                                                                     $       -         $       -
                                                                                     ----------------- -----------------
                                                                                     ----------------- -----------------

</TABLE>


     The Company has established a valuation allowance for any tax benefits for
     which management believes, based on the relative weight of currently
     available evidence, that it is "more likely than not" that the related net
     deferred tax asset will not be realized. As a result, no tax benefit has
     been provided for the net loss incurred during the year ended December 31,
     1998.

     Under the Internal Revenue Code, certain stock transactions, including
     sales of stock and the granting of warrants to purchase stock, may limit
     the amount of net operating loss carryforwards that may be utilized on an
     annual basis to offset taxable income in future periods.

                                    35
<PAGE>


REUTER MANUFACTURING, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED


7.   INCOME TAXES, CONTINUED:

     Reconciliation of the income tax computed at the federal statutory rate to
     the actual income tax provision is as follows:

<TABLE>
<CAPTION>
                                                                                           1998              1997
<S>                                                                                 <C>                <C>
        (Benefit) provision at federal statutory rate                                $      (882,264)  $     1,784,217

        Limitation of net operating loss carryforward benefit                                882,264

        Utilization of net operating loss carryforward benefit and deduction
             of other items for tax purposes                                                 -              (1,784,217)
                                                                                     ----------------- -----------------
             Income tax provision                                                    $       -         $       -
                                                                                     ----------------- -----------------

</TABLE>

   8.   EMPLOYEE BENEFIT PLANS:

     All employees who are at least 21 years of age and have completed six
     months of service and have worked at least 1,000 hours are eligible to
     participate in the Company's 401(k) Retirement Savings Plan and Profit
     Sharing Plan. The Company may make 401(k) matching contributions and profit
     sharing contributions at the discretion of the Board of Directors. The
     Company accrued 401(k) matching contributions and profit sharing
     contributions of $60,000 as of December 31, 1997.

   9.   SIGNIFICANT CUSTOMER INFORMATION:

     Two of the Company's customers account for the following percentage of net
     sales:


<TABLE>
<CAPTION>
                                                               1998                                 1997
                                                -----------------------------------  -----------------------------------
<S>                                             <C>                                  <C>
                                                     AMOUNT               %               AMOUNT               %

        Customer A                              $     5,332,516         43.5%        $    11,363,249         63.0%

        Customer B                                    1,619,276         13.2%                206,570          1.2%
</TABLE>

     Accounts receivable credit concentrations associated with these customers
     at December 31, 1998 and 1997, totaled $708,401 and $937,042, respectively.
     Inventories related to production in process according to these customers'
     specifications at December 31, 1998 and 1997, were $931,372 and $758,436,
     respectively.

     The Company received notification from Customer A in August 1997 of a
     temporary reduction in scheduled shipments of one high-volume product,
     which constitutes a substantial portion of sales to the customer. This
     reduction in scheduled shipments to this customer continued in 1998.

                                        36
<PAGE>

REUTER MANUFACTURING, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED


  10.   ENVIRONMENTAL CONTINGENCY:

     During December 1997, in connection with obtaining the Company's new credit
     facilities described in Note 5, the Company was required to have an
     environmental inspection of its manufacturing facility. As part of
     conducting a Phase I and Phase II investigation of this facility, soil
     boring and groundwater work indicated the presence of hazardous substances
     and petroleum products within the soil and groundwater located beneath the
     site. The Company notified the applicable regulatory agency and is working
     with that agency to resolve these issues. However, because the results are
     still preliminary, the Company is not able to assess whether the Company
     will ultimately be held liable for the presence of these substances at the
     site nor the Company's exposure if it is found liable. There can be no
     assurance that the outcome of these matters and associated costs will not
     have a material adverse effect on the Company's business, financial
     condition, results of operations and liquidity in any future period. The
     Company accrued $20,000 during 1997 for the cost of further investigation
     and remediation action which has been postponed until 1999.

  11.   ACQUISITION OF LICENSING AND MANUFACTURING RIGHTS FOR LABORATORY
        CENTRIFUGES:

     On July 25, 1997, the Company and Hill Bioscience, Inc. (Hill) entered into
     a product development, licensing, manufacturing and marketing agreement
     (the Agreement) covering certain micro-centrifuges technology. Terms of the
     Agreement required the Company to pay Hill $50,000 of cash and issue to
     Hill $50,000 of Reuter Manufacturing, Inc. common stock (11,111 shares).
     The Agreement also requires the Company to loan Hill $25,000 to be repaid
     in five quarterly installments of $5,000, commencing in July 1998. The
     Company recorded an intangible asset of $100,000 during the third quarter
     of 1997, to be amortized over three years. In return, Hill issued the
     Company 10% of its outstanding common stock. The Company has not assigned a
     value to the common stock received from Hill, since Hill is privately held
     and the fair value is not considered to be material to the Company's
     financial position. Due to losses relating to this product, the Agreement
     was cancelled in September 1998, accordingly, during the third quarter of
     1998, the 11,111 shares originally issued to Hill were returned to the
     Company, and the note receivable and related intangibles were written off.

                                        37
<PAGE>


REUTER MANUFACTURING, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>

                  COLUMN A                          COLUMN B         COLUMN C         COLUMN D              COLUMN E
                  --------                          --------         --------         --------              --------
<S>                                               <C>               <C>              <C>                   <C>
                                                                     ADDITIONS
                                                   BALANCE AT       CHARGED TO       DEDUCTIONS             BALANCE
                                                   BEGINNING         COSTS AND          FROM                 AT END
               CLASSIFICATION                      OF PERIOD         EXPENSES         ALLOWANCE            OF PERIOD

Year ended December 31, 1997:
     Inventories                                 $      250,000    $      81,831    $    (26,831) (2)    $      305,000
     Allowance for doubtful accounts                     25,000            7,254          (7,254) (1)            25,000

Year ended December 31, 1998:
     Inventories                                        305,000          125,664        (225,664) (2)           205,000
     Allowance for doubtful accounts                     25,000              641            (641) (1)            25,000


(1)     Write-off of accounts receivable

(2)     Write-off of inventories

</TABLE>

                                               38

<PAGE>

                                     SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) 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.

Dated:  March 24, 1999                     REUTER MANUFACTURING, INC.


                                           By: /s/ Michael J. Tate
                                               -----------------------------
                                           Michael J. Tate, President, Chief
                                           Executive Officer and Chief
                                           Financial Officer

      
      Pursuant to the requirements of the Securities and Exchange Act of 1934,
this Report has been signed below on March 24, 1999 by the following persons on
behalf of the Registrant and in the capacities indicated.

<TABLE>
<CAPTION>

Signature                               Title
---------                               -----
<S>                                     <C>
/s/ James W. Taylor                     Chairman of the Board and Director
-----------------------------
James W. Taylor

/s/Michael J. Tate                      President, Chief Executive Officer
-----------------------------           Chief Financial Officer and Director
Michael J. Tate                         (principal executive and financial 
                                         officer)

/s/ William H. Johnson                  Vice President, Controller and Secretary 
------------------------------          (principal accounting officer)
William H. Johnson                      

/s/ Robert E. Cieslukowski              Director
------------------------------
Robert E. Cieslukowski

/s/ Kenneth E. Daugherty                Director
------------------------------
Kenneth E. Daugherty

/s/ M. Karen Gilles                     Director
------------------------------
M. Karen Gilles

/s/ Robert W. Heller                    Director
------------------------------
Robert W. Heller

/s/ Edward E. Strickland                Director
------------------------------
Edward E. Strickland

</TABLE>
                                          39
<PAGE>

                             REUTER MANUFACTURING, INC.
                                          
                           EXHIBIT INDEX TO ANNUAL REPORT
                                   ON FORM 10-KSB
                    FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

<TABLE>
<CAPTION>

Item No.  Item                                     Method of Filing
-------   ----                                     ----------------
<S>       <C>                                      <C>
3.1       Restated Articles of Incorporation,
          As amended. . . . . . . . . . . . . .    Incorporated by reference to
                                                   Exhibit 3.1 to the Company's
                                                   Annual Report on Form 10-KSB for
                                                   the year ended December 31, 1995
                                                   (File No. 0-1561)

3.2       Amended Bylaws. . . . . . . . . . . .    Incorporated by reference to
                                                   Exhibit 3.2 to the Company's
                                                   Annual Report on Form 10-K for
                                                   the year ended December 31, 1990
                                                   (File No. 0-1561)

4.1       Form of the Company's Common Stock
          Certificate . . . . . . . . . . . . .    Incorporated by reference to
                                                   Exhibit 4.1 to the Company's
                                                   Annual Report on Form 10-K for
                                                   the year ended December 31, 1990
                                                   (File No. 0-1561)

10.1      Incentive Stock Option Plan of Reuter,
          Inc., as amended effective 
          December 17, 1987 . . . . . . . . . .    Incorporated by reference to
                                                   Exhibit 10(a) to the Company's
                                                   Annual Report on Form 10-K for
                                                   the year ended December 31, 1987
                                                   (File No. 0-1561)

10.2      Directors Stock Option Plan of
          Reuter, Inc.. . . . . . . . . . . . .    Incorporated by reference to
                                                   Exhibit 10(c) to the Company's
                                                   Annual Report on Form 10-K for
                                                   the year ended December 31, 1987
                                                   (File No. 0-1561)

10.3      Summary of options granted under
          Directors Stock Option Plan.  . . . .    Incorporated by reference to
                                                   Exhibit 10.4 to the Company's
                                                   Annual Report on Form 10-KSB for
                                                   the year ended December 31, 1994
                                                   (File No. 0-1561)



                                        40
<PAGE>

10.4      1991 Non-Employee Director Stock
          Option Plan . . . . . . . . . . . . .    Incorporated by reference to
                                                   Exhibit 10.4 to the Company's
                                                   Annual Report on Form 10-K for
                                                   the year ended December 31, 1993
                                                   (File No. 0-1561)

10.5      Summary of options granted under
          1991 Non-Employee Director
          Stock Option Plan . . . . . . . . . .    Incorporated by reference to
                                                   Exhibit 10.5 to the Company's
                                                   Annual Report on Form 10-K for
                                                   the year ended December 31, 1993
                                                   (File No. 0-1561)

10.6      1991 Stock Option Plan, as amended. .    Incorporated by reference to
                                                   Exhibit 10.6 to the Company's
                                                   Annual Report on Form 10-KSB for
                                                   the year ended December 31, 1995
                                                   (File No. 0-1561)

10.7      Summary of Options granted
          Under 1991 Stock Option Plan . . . .     Incorporated by reference to
                                                   Exhibit 10.9 to the Company's
                                                   Annual Report on Form 10-KSB for
                                                   the year ended December 31, 1994
                                                   (File No. 0-1561)

10.8   1997 Non-Employee Director Stock 
       Option Plan . . . . . . . . . . . . . .     Incorporated by reference to
                                                   Exhibit 10.8 to the Company's
                                                   Annual Report on Form 10-KSB for
                                                   the year ended December 31, 1997
                                                   (File No. 0-1561)

10.9   Option Agreement between Edward E.
       Strickland and the Company. . . . . . .     Incorporated by reference to
                                                   Exhibit 10.10 to the Company's
                                                   Annual Report on Form 10-K for
                                                   the year ended December 31, 1991
                                                   (File No. 0-1561)

10.10  Consulting Agreement with 
       Edward E. Strickland. . . . . . . . . .     Incorporated by reference to
                                                   Exhibit 10.6 to the Company's
                                                   Annual Report on Form 10-K for
                                                   the year ended December 31, 1990
                                                   (File No. 0-1561)


                                     41
<PAGE>

10.11  Installment Note payable by Reuter
       Recycling, Inc. to Sanwa Business
       Credit Corporation and Term Loan
       And Security Agreement between
       Reuter Recycling, Inc., the Company
       And Sanwa Business Credit Corporation,
       Both dated May 6, 1988. . . . . . . . . .   Incorporated by reference to
                                                   Exhibit 28(a) to the Company's
                                                   Current Report on Form 8-K dated
                                                   May 6, 1988 (File No. 0-1561)

10.12  Guaranty by the Company and Debtor's
       Security and Pledge Agreement between
       The Company and Sanwa Business
       Credit Corporation, both dated
       May 6, 1988 . . . . . . . . . . . . . . .   Incorporated by reference to
                                                   Exhibit 28(b) to the Company's
                                                   Current Report on Form 8-K dated
                                                   May 6, 1988 (File No. 0-1561)

10.13  Independent Contractor Agreement 
       Dated as of November 2, 1992,
       Between Taylor Consultants, Inc. 
       and the Company . . . . . . . . . . . . .   Incorporated by reference to
                                                   Exhibit 10.30 to the Company's
                                                   Annual Report on Form 10-K for
                                                   the year ended December 31, 1992
                                                   (File No. 0-1561)

10.14  Loan and Security Agreement, dated
       December 31, 1995, between the 
       Company and Sanwa Business 
       Credit Corporation. . . . . . . . . . . .    Incorporated by reference to
                                                    Exhibit 2.1 to the Company's
                                                    Current Report on Form 8-K,
                                                    dated January 24, 1996 (File 
                                                    No. 0-1561)


10.15  Senior Subordinated Secured Promissory
       Note, dated December 31, 1995, between
       The Company and Sanwa Business Credit
       Corporation.. . . . . . . . . . . . . . . .  Incorporated by reference to
                                                    Exhibit 2.2 to  the Company's
                                                    Current Report on Form 8-K,
                                                    dated January 24, 1996 (File No.
                                                    0-1561)
                                    42
<PAGE>


10.16  Junior Subordinated Secured Promissory
       Note, dated December 31, 1995, between
       The Company and Sanwa Business Credit
       Corporation . . . . . . . . . . . . . . . .  Incorporated by reference to
                                                    Exhibit 2.3 to  the Company's
                                                    Current Report on Form 8-K,
                                                    dated January 24, 1996 (File No.
                                                    0-1561)

10.17  Mortgage, Security Agreement and 
       Fixture Financing Statement, dated 
       December 31, 1995, between the 
       Company and Sanwa Business
       Credit Corporation. . . . . . . . . . . . .  Incorporated by reference to
                                                    Exhibit 2.4 to  the Company's
                                                    Current Report on Form 8-K,
                                                    dated January 24, 1996 (File No.
                                                    0-1561)

10.18  Patent Security Agreement, dated
       December 31, 1995, between the
       Company and Sanwa Business
       Credit Corporation. . . . . . . . . . . . .  Incorporated by reference to
                                                    Exhibit 2.5 to  the Company's
                                                    Current Report on Form 8-K,
                                                    dated January 24, 1996 (File No.
                                                    0-1561)

10.19  Income Sharing Agreement, dated
       December 31, 1995, between the
       Company and Sanwa Business
       Credit Corporation. . . . . . . . . . . . .  Incorporated by reference to
                                                    Exhibit 2.6 to  the Company's
                                                    Current Report on Form 8-K,
                                                    dated January 24, 1996 (File No.
                                                    0-1561)

10.20  Intercreditor and Subordination
       Agreement, dated December 31, 1995,
       Among the Company, The CIT 
       Group/Credit Finance, Inc. and 
       Sanwa Business Credit Corporation. . . . . . Incorporated by reference to
                                                    Exhibit 2.7 to  the Company's
                                                    Current Report on Form 8-K,
                                                    dated January 24, 1996 (File No.
                                                    0-1561)

10.21  Common Stock Warrant Agreement,
       Dated December 31, 1995, between
       The Company and Sanwa Business
       Credit Corporation. . . . . . . . . . . . .  Incorporated by reference to
                                                    Exhibit 2.8 to  the Company's
                                                    Current Report on Form 8-K,
                                                    dated January 24, 1996 (File No.
                                                    0-1561)

                                          43
<PAGE>


10.22  Standstill Agreement, dated 
       December 31, 1995, among 
       Edward E. Strickland, the
       Company and Sanwa Business 
       Credit Corporation. . . . . . . . . . . . .   Incorporated by reference to
                                                     Exhibit 2.9 to  the Company's
                                                     Current Report on Form 8-K,
                                                     dated January 24, 1996 (File No.
                                                     0-1561)

10.23  Standstill Agreement, dated 
       December 31,1995, among James 
       Taylor, the Company And Sanwa 
       Business Credit Corporation . . . . . . . .   Incorporated by reference to
                                                     Exhibit 2.10 to the Company's
                                                     Current Report on Form 8-K,
                                                     dated January 24, 1996 (File No.
                                                     0-1561)

10.24  Amendment to Loan and 
       Security Agreement dated 
       April 18, 1997, between the 
       Company and Sanwa Business Credit 
       Corporation . . . . . . . . . . . . . . . .   Incorporated by reference to
                                                     Exhibit 10.1 to the Company's
                                                     Quarterly Report on Form 10-QSB,
                                                     for the quarter ended March 31,
                                                     1997 (File No. 0-1561)

10.25  Release and Termination 
       Agreement, dated April 18, 1997, 
       by Sanwa Business Credit 
       Corporation for the benefit of 
       the Company . . . . . . . . . . . . . . . .    Incorporated by reference to
                                                      Exhibit 10.2 to the Company's
                                                      Quarterly Report on Form 10-QSB,
                                                      for the quarter ended March 31,
                                                      1997 (File No. 0-1561)

10.26  Release and Termination 
       Agreement, dated April 18, 1997, 
       by Sanwa Business Credit Corporation 
       for the benefit of James W. Taylor . . . . .   Incorporated by reference to
                                                      Exhibit 10.3 to the Company's
                                                      Quarterly Report on Form 10-QSB,
                                                      for the quarter ended March 31,
                                                      1997 (File No. 0-1561)

10.27  Release and Termination 
       Agreement, dated April 18, 1997, 
       by Sanwa Business Credit Corporation 
       for the benefit of 
       Edward E. Strickland. . . . . . . . . . . .    Incorporated by reference to
                                                      Exhibit 10.4 to the Company's
                                                      Quarterly Report on Form 10-QSB,
                                                      for the quarter ended March 31,
                                                      1997 (File No. 0-1561)
                                         44
<PAGE>


10.28  Release and Termination Agreement, 
       dated April 18, 1997, among 
       Edward E. Strickland, 
       James W. Taylor and the Company . . . . . .    Incorporated by reference to
                                                      Exhibit 10.5 to the Company's
                                                      Quarterly Report on Form 10-QSB,
                                                      for the quarter ended March 31,
                                                      1997 (File No. 0-1561)

10.29  Financing Agreement, dated 
       December 3, 1997, between Reuter 
       Manufacturing, Inc. and U.S. Bank 
       National Association. . . . . . . . . . . .    Incorporated by reference to
                                                      Exhibit 10.1 to the Company's
                                                      Current Report on Form 8-K,
                                                      dated December 18, 1997 (File
                                                      No. 0-1561)

10.30  Promissory Note for $270,000, 
       dated December 3, 1997, between 
       Reuter Manufacturing, Inc. and 
       U.S. Bank National Association. . . . . . .    Incorporated by reference to
                                                      Exhibit 10.2 to the Company's
                                                      Current Report on Form 8-K,
                                                      dated December 18, 1997 (File
                                                      No. 0-1561)

10.31  Promissory Note for $1,000,000, 
       dated December 3, 1997, between 
       Reuter Manufacturing, Inc. and
       U.S. Bank National Association. . . . . . .    Incorporated by reference to
                                                      Exhibit 10.3 to the Company's
                                                      Current Report on Form 8-K,
                                                      dated December 18, 1997 (File
                                                      No. 0-1561)

10.32  Promissory Note for $2,400,000, 
       dated December 3, 1997, between 
       Reuter Manufacturing, Inc. and 
       U.S. Bank National Association. . . . . . .     Incorporated by reference to
                                                       Exhibit 10.4 to the Company's
                                                       Current Report on Form 8-K,
                                                       dated December 18, 1997 (File
                                                       No. 0-1561)

10.33  Security Agreement, dated 
       December 3, 1997, between Reuter 
       Manufacturing, Inc. and U.S. Bank 
       National Association. . . . . . . . . . . .     Incorporated by reference to
                                                       Exhibit 10.5 to the Company's
                                                       Current Report on Form 8-K,
                                                       dated December 18, 1997 (File
                                                       No. 0-1561)
                                       45
<PAGE>


10.34  Mortgage, Security Agreement, 
       Assignment of Leases and Rents 
       and Fixture Financing Statement 
       Security Agreement, dated 
       December 3, 1997, between Reuter 
       Manufacturing, Inc. and U.S. Bank 
       National Association. . . . . . . . . . . .     Incorporated by reference to
                                                       Exhibit 10.6 to the Company's
                                                       Current Report on Form 8-K,
                                                       dated December 18, 1997 (File
                                                       No. 0-1561)

10.35  Environmental and ADA Indemnification 
       Agreement, dated December 3, 1997, 
       between Reuter Manufacturing, Inc. 
       and U.S. Bank National Association. . . . .     Incorporated by reference to
                                                       Exhibit 10.7 to the Company's
                                                       Current Report on Form 8-K,
                                                       dated December 18, 1997 (File
                                                       No. 0-1561)

10.36  Environmental Letter of 
       Undertaking, dated December 3, 1997, 
       between Reuter Manufacturing, Inc. 
       and U.S. Bank National Association. . . . .     Incorporated by reference to
                                                       Exhibit 10.8 to the Company's
                                                       Current Report on Form 8-K,
                                                       dated December 18, 1997 (File
                                                       No. 0-1561)

21.1   Subsidiaries of the Company. . . . . . . . .    Incorporated by reference to
                                                       Exhibit 21.1 to the Company's
                                                       Annual Report on Form 10-KSB,
                                                       for the year ended December 31,
                                                       1996 (File No. 0-1561)

23.1   Consent of PricewaterhouseCoopers LLP. . . .    Filed herewith electronically

27.1   Financial Data Schedule. . . . . . . . . . .    Filed herewith electronically

</TABLE>
                                        46