SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period Ended September 30, 1996
OR
[ ] 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. 0-9407
REHABILICARE INC.
(Exact name of small business issuer as specified in charter)
MINNESOTA 41-0985318
(State of Incorporation) (I.R.S. Employer Identification No.)
1811 OLD HIGHWAY 8
NEW BRIGHTON, MINNESOTA 55112
(Address of Principal Executive Offices)
(612) 631-0590
(Issuer's telephone number)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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___
The number of shares outstanding for each of the Issuer's classes of common
stock as of September 30, 1996 was:
COMMON STOCK, $.10 PAR VALUE 4,673,788 SHARES
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (check one):
Yes___ No_X_
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
REHABILICARE INC.
BALANCE SHEETS
(UNAUDITED)
September 30, June 30,
1996 1996
------------ ------------
ASSETS
- ------
<S> <C> <C>
CURRENT ASSETS
Cash $ 26,441 $ 32,553
Receivables, less reserve for uncollectible accounts of $1,506,000 and $1,410,000 5,696,350 5,506,121
Inventories, net:
Raw materials 473,662 542,439
Finished goods 2,043,373 2,056,868
Deferred income tax benefit 496,000 496,000
Income tax refund receivable 591 1,100
Prepaid expenses 275,708 259,649
------------ ------------
Total current assets 9,012,125 8,894,730
------------ ------------
PROPERTY AND EQUIPMENT 4,916,371 4,897,235
Less accumulated depreciation (2,542,319) (2,470,155)
------------ ------------
Total property and equipment 2,374,052 2,427,080
------------ ------------
$ 11,386,177 $ 11,321,810
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable $ 820,000 $ 555,000
Current maturities of long-term obligations 294,193 293,890
Accounts payable 373,722 529,523
Accrued liabilities:
Payroll 73,225 87,954
Commissions 170,738 178,118
Taxes 41,871 145,120
Other 99,501 95,461
------------ ------------
Total current liabilities 1,873,250 1,885,066
LONG-TERM OBLIGATIONS 2,174,858 2,251,908
------------ ------------
Total liabilities 4,048,108 4,136,974
------------ ------------
STOCKHOLDERS' EQUITY
Common stock 467,379 467,029
Additional paid-in capital 5,267,160 5,264,448
Retained earnings 1,603,530 1,453,359
------------ ------------
Total stockholders' equity 7,338,069 7,184,836
------------ ------------
$ 11,386,177 $ 11,321,810
============ ============
The accompanying notes to financial statements are an integral part of these balance sheets.
</TABLE>
<TABLE>
<CAPTION>
REHABILICARE INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
September 30
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
NET SALES AND RENTAL REVENUE $ 2,344,760 $ 2,343,122
COSTS OF SALES AND RENTALS 616,910 750,584
----------- -----------
Gross profit 1,727,850 1,592,538
OPERATING EXPENSES:
Selling, general and administrative 1,307,167 1,206,559
Research and development 120,904 116,041
----------- -----------
Total operating expenses 1,428,071 1,322,600
----------- -----------
Operating income 299,779 269,938
OTHER INCOME (EXPENSE):
Interest expense (71,860) (53,626)
Other income 6,252 1,160
----------- -----------
Income before income taxes 234,171 217,472
PROVISION FOR INCOME TAXES 84,000 78,000
----------- -----------
Net income $ 150,171 $ 139,472
=========== ===========
NET INCOME PER COMMON SHARE AND
COMMON SHARE EQUIVALENTS
$ 0.03 $ 0.03
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON SHARE EQUIVALENTS OUTSTANDING 4,856,757 4,853,141
=========== ===========
The accompanying notes to financial statements are an integral
part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
REHABILICARE INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
September 30
----------------------
1996 1995
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 150,171 $ 139,472
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation 72,164 131,426
Deferred income taxes -- --
Changes in current assets and liabilities:
Receivables (190,229) (263,728)
Income tax refund receivable 509 --
Inventories 81,176 (95,102)
Prepaid expenses (16,059) (13,002)
Accounts payable (155,801) (9,256)
Accrued liabilities (121,317) 68,894
--------- ---------
Net cash used in operating activities (179,386) (41,296)
--------- ---------
INVESTING ACTIVITIES
Purchase of property and equipment (18,040) (25,194)
--------- ---------
FINANCING ACTIVITIES
Principal payments on long-term obligations (76,748) (20,158)
Proceeds (payments on) line of credit, net 265,000 25,000
Proceeds from exercise of stock options 3,062 34,465
--------- ---------
Net cash provided by financing activities 191,314 39,307
Net decrease in cash (6,112) (27,183)
CASH AT BEGINNING OF PERIOD 32,553 55,704
--------- ---------
CASH AT END OF PERIOD $ 26,441 $ 28,521
========= =========
SUPPLEMENTAL DISCLOSURES Cash paid during the period for:
Interest $ 71,860 $ 53,626
========= =========
Income taxes $ 187,900 $ 14,339
========= =========
The accompanying notes to financial statements are an integral
part of these financial statements.
</TABLE>
REHABILICARE INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
Note A
The amounts set forth in the preceding financial statements are unaudited as of
and for the periods ended September 30, 1996 and 1995, but in the opinion of
management, reflect all adjustments (consisting only of normal recurring
adjustments) necessary for a fair statement of the results for the periods
presented. Such results are not necessarily indicative of results for the full
year. The significant accounting policies and certain financial information
which are normally included in financial statements prepared in accordance with
generally accepted accounting principles, but which are not required for interim
reporting purposes, have been omitted. The accompanying financial statements of
the Company should be read in conjunction with the financial statements and
related notes included in the Company's Annual Report on Form 10-KSB.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
The following table sets forth information from the statements of operations as
a percentage of revenue for the periods indicated:
Three Months Ended
September 30
----------------
1996 1995
------ ------
Net sales and rental revenue 100.0% 100.0%
Cost of sales and rentals 26.3 32.0
Gross profit 73.7 68.0
Operating expenses -
Selling, general and administrative 55.7 51.5
Research and development 5.2 5.0
Total operating expenses 60.9 56.5
Operating income 12.8 11.5
Other income expense 2.8 2.2
Provision for income taxes 3.6 3.3
Net income 6.4 6.0
Revenue for the first quarter of fiscal 1997 was $2,345,000, compared to
$2,343,000 in the first quarter of fiscal 1996. Although total revenue remained
essentially the same for both years, the mix has changed. Revenue from the
Company's traditional dealer business, excluding international, declined by 13%
in fiscal 1997 from the first quarter of fiscal 1996 due primarily to the
expiration of a long-term contract with one dealer. International sales were
minimal in the first quarter of fiscal 1997 and are off sharply from the first
quarter of fiscal 1996 as dealers in the United Kingdom and Germany continued
recapitalization efforts started during fiscal 1996. Revenue from all dealer
business decreased 47% to $375,000 from $707,000 in the prior year. The Company
does expect international sales orders to increase during the second half of
fiscal 1997 as its U.K. distributor finalizes long-term arrangements relative to
the BabiTENS product. Net sales and rental revenue from direct sales increased
20% to $1,970,000 from $1,636,000 in the first quarter of fiscal 1996. Those
revenues accounted for approximately 84% of total revenue compared to 70% of
total revenue in fiscal 1996 and represented record quarterly revenue from
direct business. The increase was due primarily to increased volume of rentals,
sales of electrodes and other accessories.
Gross profit increased 8% to $1,728,000 or 74% or revenue in the first
quarter of fiscal 1997 from $1,593,000 or 60% of revenue in the first quarter of
fiscal 1996. Margins on wholesale business were down to 46% compared to 49% in
the first quarter of fiscal 1996, reflecting the decrease in more profitable
international business and continued pressure on selling prices. Margins on
direct business were up to 79% for the first quarter of fiscal 1997 compared to
76% in fiscal 1996. This improvement resulted from a greater portion of rentals
than sales and from the increased volume of higher margin accessory sales.
Overall margins increased because the lower margin wholesale sales represented a
smaller percentage of revenue in the first quarter of fiscal 1997.
Selling, general and administrative expenses increased 8% to $1,307,000 in
the first quarter of fiscal 1997 from $1,207,000 in the first quarter of fiscal
1996. As a percent of revenue, those expenses increased 4% from 52% to 56%. The
increase resulted from continued training and development of an expanded sales
force and increased provision for uncollectible retail receivables.
FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES
Operations have required significant amounts of cash since the Company
established its direct sales division in October 1991 and began offering its
products directly to patients. Cash was used to fund increases in net
receivables of $190,000 in the first quarter of fiscal 1997 and $264,000 in the
same quarter of fiscal 1996. The increase in receivables in fiscal 1997 is
attributable primarily to increased direct revenue and the long collection cycle
associated with third-party reimbursement.
During the first quarter of fiscal 1997, the Company increased its reserve
for uncollectible accounts from $1,410,000 to $1,506,000. The reserve is based
on factors including historical trends, relationship and experience with
insurance companies or other third-party reimbursers and patient responsibility
for charges. Based on such factors, the Company believes that its current
reserve for uncollectible accounts is adequate. However, the Company will
continue to provide significant reserves for those accounts not collected within
a reasonable period after submitting invoices to third-party payors and
patients.
In the first quarter of fiscal 1997, effective management of inventories
provided $81,000 in cash. The Company used $95,000 in the first quarter of
fiscal 1996 to increase inventories of clinical units and consignment units for
new territories as a result of expanding its sales force.
The cash needed to fund operations during fiscal 1997, over and above that
generated by operating activities, is being provided by the Company's' revolving
bank line of credit. The line provides for borrowing up to $2,000,000, limited
by eligible accounts receivable. The borrowing base limit was approximately
$1,250,000 at September 30, 1996. Borrowings bear interest at the bank's prime
rate. Interest is paid monthly. Borrowings under the line were $820,000 at
September 30, 1995 and $555,000 at June 30, 1996. The increase related primarily
to decreases in accounts payable and accrued liabilities aggregating $277,000.
The Company anticipates that cash requirements during fiscal 1997 will be less
than its available credit facility.
SAFE HARBOR STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995.
This report contains "forward-looking statements" within the meaning of
Federal securities laws. The forward looking statements are subject to risks and
uncertainties, including, but not limited to: the risks related to fluctuations
in the Company's quarterly operating results; inventory and receivables
requirements for direct billed medical equipment sales; volatility in the
markets for electrotherapy; the effects of reimbursement and other governmental
or private agency actions on the Company's sales; competition and other risks as
detailed in the Company's Form 10-KSB for the year ending June 30, 1996 or in
other filings with the Securities and Exchange Commission.
PART II. OTHER INFORMATION
ITEM 5. OTHER MATTERS
Mr. Anthony R. Gette resigned from the Board of Directors effective October 8,
1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No exhibits are required to be filed with this Form 10-QSB. The Company did
not file any reports on Form 8-K during the quarter ended September 30, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
REHABILICARE INC.
/S/ DAVID B. KAYSEN
------------------------------------------
David B. Kaysen
President and Chief Executive Officer
/S/ W. GLEN WINCHELL
------------------------------------------
W. Glen Winchell
Vice President of Finance
Principal Financial and Accounting Officer
Date: October 30, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUL-01-1996
<CASH> 26,441
<SECURITIES> 0
<RECEIVABLES> 7,148,722
<ALLOWANCES> 1,506,029
<INVENTORY> 2,517,035
<CURRENT-ASSETS> 9,012,125
<PP&E> 4,916,371
<DEPRECIATION> 2,542,319
<TOTAL-ASSETS> 11,386,177
<CURRENT-LIABILITIES> 1,873,250
<BONDS> 2,174,858
0
0
<COMMON> 467,379
<OTHER-SE> 5,267,160
<TOTAL-LIABILITY-AND-EQUITY> 11,386,177
<SALES> 2,344,760
<TOTAL-REVENUES> 2,344,760
<CGS> 616,910
<TOTAL-COSTS> 1,493,679
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 152,000
<INTEREST-EXPENSE> 71,860
<INCOME-PRETAX> 234,171
<INCOME-TAX> 84,000
<INCOME-CONTINUING> 234,171
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 150,171
<EPS-PRIMARY> 0.031
<EPS-DILUTED> 0.031
</TABLE>
