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 MARCH 31, 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 March 31, 1996, was:
COMMON STOCK, $.10 PAR VALUE 4,652,123 SHARES
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (check one):
Yes ___ No _X_
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REHABILICARE INC.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, June 30,
ASSETS 1996 1995
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 20,576 $ 55,704
Receivables, less reserve
for uncollectible accounts of $751,610 and $599,311 5,523,144 5,205,285
Inventories:
Raw materials 565,833 408,154
Finished goods 1,950,615 1,528,101
Deferred income tax benefit 263,000 263,000
Prepaid income taxes 65,180 111,129
Prepaid expenses 284,499 172,682
------------ ------------
Total current assets 8,672,847 7,744,055
PROPERTY AND EQUIPMENT 4,831,903 4,719,943
Less accumulated depreciation (2,527,832) (2,215,657)
------------ ------------
Total property and equipment 2,304,071 2,504,286
------------ ------------
$ 10,976,918 $ 10,248,341
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable $ 1,095,000 $ 650,000
Current maturities of long-term obligations 86,752 88,489
Accounts payable 493,181 486,134
Accrued liabilities:
Payroll 100,281 110,806
Commissions 165,086 160,825
Warranty 61,900 61,900
Other 33,018 37,018
------------ ------------
Total current liabilities 2,035,218 1,595,172
LONG-TERM OBLIGATIONS 1,847,448 1,904,211
------------ ------------
Total liabilities 3,882,666 3,499,383
STOCKHOLDERS' EQUITY
Common stock 465,213 460,900
Additional paid-in capital 5,184,200 5,116,962
Retained earnings 1,444,839 1,171,096
------------ ------------
Total stockholders' equity 7,094,252 6,748,958
------------ ------------
$ 10,976,918 $ 10,248,341
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
REHABILICARE INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
March 31, March 31,
--------- ---------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales and rental revenue $ 2,033,608 $ 2,360,653 $ 6,445,596 $ 6,905,009
----------- ----------- ----------- -----------
Cost of sales and rentals 552,128 729,763 1,940,345 2,077,980
----------- ----------- ----------- -----------
Gross profit
1,481,480 1,630,890 4,505,251 4,827,029
Operating expenses:
Selling, general and administrative 1,215,094 1,269,360 3,562,384 3,761,603
Research and development 143,335 122,506 370,150 327,786
-- -- -- --
Total operating expenses 1,358,429 1,391,866 3,932,534 4,089,389
----------- ----------- ----------- -----------
Operating income 123,051 239,024 572,717 737,640
Other income (expense):
Interest expense (61,152) (16,829) (169,372) (32,557)
Other 4,554 888 7,398 3,160
----------- ----------- ----------- -----------
Income before income taxes 66,453 223,083 410,743 708,243
Provision for income taxes 15,000 80,300 137,000 255,000
----------- ----------- ----------- -----------
Net income $ 51,453 $ 142,783 $ 273,743 $ 453,243
=========== =========== =========== ===========
Net income per common share and
common share equivalents $ 0.01 $ 0.03 $ 0.06 $ 0.10
=========== =========== =========== ===========
Weighted average number of 4,890,500 4,672,611 4,863,756 4,678,344
common and common share equivalents =========== =========== =========== ===========
outstanding
</TABLE>
The accompanying notes are an integral part of these financial statements.
REHABILICARE INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended March 31,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 273,743 $ 453,243
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation 312,175 402,218
Deferred income taxes and refunds receivable 45,949 (42,183)
Change in current assets and liabilities:
Receivables (317,859) (1,230,605)
Inventories (615,841) 158,745
Prepaid expenses (111,817) (119,194)
Accounts payable 7,047 34,762
Accrued liabilities (10,263) (246,401)
----------- -----------
Net cash used in operating activities (416,866) (589,415)
INVESTING ACTIVITIES
Purchase of property and equipment (76,312) (129,901)
FINANCING ACTIVITIES
Principal payments on long-term obligations (58,501) (16,731)
Proceeds from line of credit, net 445,000 575,000
Proceeds from sale of common stock -- --
Proceeds from exercise of stock options 71,551 117,152
----------- -----------
Net cash provided by financing activities 458,050 675,421
Net decrease in cash (35,128) (43,895)
CASH AT BEGINNING OF PERIOD 55,704 44,129
CASH AT END OF PERIOD $ 20,576 $ 234
=========== ===========
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
Interest $ 169,372 $ 32,557
=========== ===========
Income taxes $ 92,391 $ 441,680
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
REHABILICARE INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
Note A
The amounts set forth in the preceding financial statements are unaudited as of
and for the periods ended March 31, 1996 and 1995, but in the opinion of
management, reflect all adjustments (consisting only of normal recurring
accruals) necessary for a fair statement of the results for the periods
presented. Such results are not necessarily indicative of results for the full
year.
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:
Nine Months Ended March 31
---------------------------
1996 1995
----------- -----------
Net sales and rental revenue 100.0% 100.0%
Cost of sales and rentals 30.1 30.1
Gross profit 69.9 69.9
Operating expenses
Selling, general and administrative 55.3 54.5
Research and development 5.7 4.8
Total operating expenses 61.0 59.3
Operating income 8.9 10.6
Other expense 2.5 .4
Provision for income taxes 2.1 3.7
Net income 4.3 6.5
Revenue for the third quarter of fiscal 1996 was $2,034,000, a 14% decrease from
$2,361,000 in the third quarter of fiscal 1995. Revenue for the nine months
ended March 31, 1996 decreased 7% to $6,446,000 from $6,905,000 in the first
nine months of fiscal 1995. The decrease for the quarter resulted from lower
revenue from direct sales and rentals and from lower revenue from traditional
dealer and international business.
Net sales and rental revenue from direct business for the third quarter
decreased 8% in fiscal 1996 to $1,672,000 from $1,826,000 for the third quarter
of fiscal 1995. Revenue from direct business for the first nine months decreased
10% in fiscal 1996 to $4,872,000 from $5,437,000 in fiscal 1995. Direct business
accounted for approximately 82% of revenue for the third quarter and 76% for the
year-to-date compared to 77% and 79%, respectively, in fiscal 1995. The
decreased revenues were attributable primarily to reduced volume. The Company
has experienced significant turnover of its more experienced independent sales
agents during fiscal 1996, and, and in addition to replacing those agents, has
nearly doubled the size of its independent sales force. Recruiting and training
has taken considerable time during fiscal 1996 and it is taking longer than
expected to generate significant revenues from many of the newer agents.
Revenue during the third quarter from the traditional dealer business was down
32% to $362,000 from $534,000. For the year-to-date, revenue from that business
was up 7% to $1,574,000 from $1,468,000. The increase for the nine months ended
March 31, 1996 was attributable to international sales, primarily to dealers in
the United Kingdom and Germany. Both of those dealers deferred significant
orders during the third quarter as they sought to recapitalize their businesses
to accommodate future growth plans.
Gross profit for the third quarter of fiscal 1996 decreased 9% to $1,481,000 or
73% of revenue compared to $1,631,000 or 69% of revenue in the third quarter of
fiscal 1995. For the nine months ended March 31, 1996, gross profit decreased 7%
to $4,505,000 or 70% of net sales from $4,827,000 or 70% of net sales in fiscal
1995. The increased gross profit percentage for the third quarter was
attributable to product mix. Overall, margins have not significantly changed
during the past two fiscal years.
Selling, general and administrative expenses decreased 4% to $1,215,000 in the
third quarter of fiscal 1996 from $1,269,000 in the third quarter of fiscal
1995. For the nine months ended March 31, 1996, those expenses decreased 5% to
$3,562,000 or 55% of net revenue from $3,762,000 or 55% of net revenue for the
same period of fiscal 1995. The Company added 38 independent sales agents during
fiscal 1996, mostly during the first half of the year, bringing the total number
of sales representatives to 70 at March 31, 1996. The Company continues to
invest considerable time and resources in training and developing those people.
Significant resources have also been devoted to introduction of the new CTDx(TM)
Electrostimulation System. Those increased expenses have been largely offset by
reductions in various expenses in response to reduced revenue levels.
Research and development expense was $143,000 in the third quarter of fiscal
1996 compared with $123,000 last year. Those expenses increased from 5% of
revenue for the first nine months of fiscal year 1995 to 6% of revenue for the
same period in fiscal 1996. The increase is attributable to final development of
the CTDx Electrostimulation System.
Operating income was $123,000 in the third quarter of fiscal 1996 compared with
$239,000 in the third quarter of fiscal 1995. Operating income was $573,000 for
the first nine months of fiscal year 1996 compared to $738,000 for the same
period of fiscal year 1995. The decrease is the result of decreased revenue.
Interest expense rose to $61,000 in the third quarter of fiscal 1996 from
$17,000 in fiscal 1995 as a result of debt incurred to finance new facilities,
furniture, and equipment. Net income was $66,000 in the third quarter of fiscal
1996 compared with $223,000 in fiscal 1995. Net income was $274,0000 or 4% of
net sales for the first nine months of fiscal year 1996 compared to $453,000 or
7% of net sales for the same period of fiscal 1995.
FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES
The Company used cash of $417,000 in operating activities during the first nine
months of fiscal 1996 and $589,000 during the first nine months of fiscal 1995.
Operations have required significant amounts of cash since the Company
established its direct sales division in fiscal 1992 and began offering its
products directly to patients.
Cash was used to fund increases in receivables of $318,000 in the first nine
months of fiscal 1996 and $1,231,000 for the same period in fiscal 1995. During
the first nine months of fiscal 1996, the Company increased its reserve for
uncollectible accounts from $599,000 to $752,000. Certain billings, including
those related to Medicare patients and patients involved in automobile accidents
or other litigation continue to take extended periods of time to collect. The
Company will continue maintaining a significant reserve to cover the risk of
such accounts eventually becoming uncollectible.
The Company also used $616,000 in the first nine months of fiscal 1996 to
increase inventories of clinical units and consignment units for new
territories. The number of territories has now stabilized and the rate of
investment in inventories will be slower during the remainder of the year.
The cash needed to fund operations during fiscal 1996, over and above that
generated by operating activities, is being provided by the Company's revolving
bank line of credit. Net borrowings under the line increased $445,000 for the
first nine months of fiscal 1996. That increase was due primarily to delays in
collection of receivables from the Company's international distributors and the
increase in inventories described above.
In December 1994, the Company entered into an agreement for a revolving bank
line of credit which provides for borrowing up to $2,000,000, limited by
eligible accounts receivable. The borrowing base limit was approximately
$1,103,000 at March 31, 1996. Borrowings bear interest at the bank's prime rate.
Interest is paid monthly. Borrowings under the line were $1,095,000 at March 31,
1996 and $650,000 at June 30, 1995.
The Company has entered into discussions with the bank to increase the borrowing
base limit to include certain inventories as well as accounts receivable. The
Company anticipates that future cash flow from operations together with
available borrowings will be adequate to meet cash requirements including
expenses associated with introduction of the CTDx Electrostimulation System.
PART II. OTHER INFORMATION
ITEM 5. OTHER MATTERS
Mr. Robert K. Anderson resigned from the Board of Directors effective March 1,
1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 -- Financial Data Schedule
(b) Reports
The Company did not file any reports on Form 8-K during the quarter ended
marhc 31, 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
Date: May 13, 1996 (Principal Financial and Accounting
Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 20,576
<SECURITIES> 0
<RECEIVABLES> 6,274,754
<ALLOWANCES> 751,610
<INVENTORY> 2,516,448
<CURRENT-ASSETS> 8,672,847
<PP&E> 4,831,903
<DEPRECIATION> 2,527,832
<TOTAL-ASSETS> 10,976,918
<CURRENT-LIABILITIES> 2,035,219
<BONDS> 1,847,447
0
0
<COMMON> 465,212
<OTHER-SE> 5,184,201
<TOTAL-LIABILITY-AND-EQUITY> 10,976,918
<SALES> 6,445,596
<TOTAL-REVENUES> 6,445,596
<CGS> 1,940,345
<TOTAL-COSTS> 4,094,508
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 179,500
<INTEREST-EXPENSE> 169,372
<INCOME-PRETAX> 410,743
<INCOME-TAX> 137,000
<INCOME-CONTINUING> 410,743
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 273,743
<EPS-PRIMARY> 0.056
<EPS-DILUTED> 0.056
</TABLE>
