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 December 31, 1996
OR
[X] 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 December 31, 1996 was:
COMMON STOCK, $.10 PAR VALUE 4,696,253 SHARES
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (check one):
Yes___ No_X_
ITEM 1. FINANCIAL STATEMENTS
REHABILICARE INC.
BALANCE SHEETS
(UNAUDITED)
December 31, June 30,
1996 1996
------------ ------------
ASSETS
CURRENT ASSETS
Cash $ 34,240 $ 32,553
Receivables, less reserve for
uncollectible accounts of
$1,273,000 and $1,410,000 5,683,305 5,506,121
Inventories, net:
Raw materials 486,729 542,439
Finished goods 1,994,550 2,056,868
Deferred income tax benefit 496,000 496,000
Income tax refund receivable 591 1,100
Prepaid expenses 252,213 259,649
------------ ------------
Total current assets 8,947,628 8,894,730
------------ ------------
PROPERTY AND EQUIPMENT 4,977,732 4,897,235
Less accumulated depreciation (2,611,796) (2,470,155)
------------ ------------
Total property and equipment 2,365,936 2,427,080
------------ ------------
$ 11,313,564 $ 11,321,810
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable $ 475,000 $ 555,000
Current maturities of long-term obligations 292,606 293,890
Accounts payable 474,876 529,523
Accrued liabilities:
Payroll 105,699 87,954
Commissions 203,197 178,118
Taxes 62,996 145,120
Other 83,760 95,461
------------ ------------
Total current liabilities 1,698,134 1,885,066
LONG-TERM OBLIGATIONS 2,103,012 2,251,908
------------ ------------
Total liabilities 3,801,146 4,136,974
------------ ------------
STOCKHOLDERS' EQUITY
Common stock 469,625 467,029
Additional paid-in capital 5,281,124 5,264,448
Retained earnings 1,761,669 1,453,359
------------ ------------
Total stockholders' equity 7,512,418 7,184,836
------------ ------------
$ 11,313,564 $ 11,321,810
============ ============
The accompanying notes to financial statements are an integral part of these
balance sheets.
REHABILICARE INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
-------------------------- --------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales and rental revenue $ 2,752,995 $ 2,068,866 $ 5,097,755 $ 4,411,988
Cost of sales and rentals 726,031 637,633 1,342,941 1,388,217
----------- ----------- ----------- -----------
Gross profit 2,026,964 3,754,814 3,023,771 1,431,233
Operating expenses:
Selling, general and 1,603,428 1,140,731 2,910,595 2,347,290
administrative 134,117 110,774 255,021 226,815
----------- ----------- ----------- -----------
Research and development 1,737,545 1,251,505 3,165,616 2,574,105
----------- ----------- ----------- -----------
Total operating expenses
Operating income 289,419 179,728 589,198 449,666
Other income (expense):
Interest expense (66,423) (54,594) (138,283) (108,220)
Other income 17,143 1,684 23,395 2,844
----------- ----------- ----------- -----------
Income before income taxes 240,139 126,818 474,310 344,290
Provision for income taxes 82,000 44,000 166,000 122,000
----------- ----------- ----------- -----------
Net income $ 158,139 $ 82,818 $ 308,310 $ 222,290
=========== =========== =========== ===========
Net income per common share and
common share equivalents $ 0.03 $ 0.02 $ 0.06 $ 0.05
=========== =========== =========== ===========
Weighted average number of common
and common share equivalents
outstanding 4,898,820 4,847,626 4,877,789 4,850,384
=========== =========== =========== ===========
The accompanying notes to financial statements are an integral part of these
financial statements.
</TABLE>
REHABILICARE INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
December 31,
----------------------
1996 1995
--------- ---------
OPERATING ACTIVITIES
Net income $ 308,310 $ 222,290
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation 141,641 234,322
Deferred income taxes -- --
Changes in current assets and liabilities:
Receivables (177,184) (417,167)
Income tax refund receivable 509 --
Inventories 114,404 (386,546)
Prepaid expenses 7,436 (35,215)
Accounts payable (54,647) 109,636
Accrued liabilities (51,001) 41,561
--------- ---------
Net cash used or generated in operating 289,468 (231,119)
activities
INVESTING ACTIVITIES
Purchase of property and equipment (76,873) (47,601)
--------- ---------
FINANCING ACTIVITIES
Principal payments on long-term obligations (150,180) (36,051)
Proceeds from (payments on) line of credit, net (80,000) 230,000
Proceeds from exercise of stock options 19,272 40,215
--------- ---------
Net cash provided by financing activities (210,908) 234,164
Net increase (decrease) in cash 1,687 (44,556)
CASH AT BEGINNING OF PERIOD 32,553 55,704
--------- ---------
CASH AT END OF PERIOD $ 34,240 $ 11,148
========= =========
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
Interest $ 138,283 $ 108,220
========= =========
Income taxes $ 248,775 $ 88,739
========= =========
The accompanying notes to financial statements are an integral part of these
financial statements.
REHABILICARE INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
Note A
The amounts set forth in the preceding financial statements are unaudited as of
and for the periods ended December 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. 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:
SIX MONTHS ENDED DECEMBER 31 1996 1995
---------------------------- ---- ----
Net sales and rental revenue 100.0% 100.0%
Cost of sales and rentals 26.3 31.5
Gross profit 73.7 68.5
Operating expenses -
Selling, general and administrative 57.1 53.2
Research and development 5.0 5.1
Total operating expenses 62.1 58.3
Operating income 11.6 10.2
Other expense (2.3) (2.4)
Provision for income taxes 3.3 2.8
Net income 6.0 5.0
Revenue for the second quarter of fiscal 1997 was $2,753,000 , a 33% increase
from $2,069,000 in the second quarter of fiscal 1996. Revenue for the six months
ended December 31, 1996 increased 16% to $5,098,000 from $4,412,000 in the first
six months of fiscal 1996. Revenue from the Company's direct business was
$2,155,000 for the second quarter and $4,125,000 for the first six months of
fiscal 1997 compared to $1,564,000 and $3,200,000, respectively, in fiscal 1996.
Those increases reflect solid growth in new patients during fiscal 1997.
Revenue from the Company's traditional dealer business, including international,
grew 18% in the second quarter of fiscal 1997 to $598,000 from $505,000 for the
second quarter of fiscal 1996 as the Company's distributor in the United Kingdom
finalized its recapitalization and resumed purchasing BabiTENS. Revenue from
this business decreased 20% to $973,000 from $1,212,000 in the first six months
of fiscal 1996.
Direct business accounted for approximately 78% of revenue during the second
quarter of fiscal 1997 and 76% of revenue in the second quarter of fiscal 1996
as a result of the changes described above.
Gross profit increased 42% to $2,027,000 or 74% of revenue in the second quarter
of fiscal 1997 compared to $1,431,000 or 69% of revenue in the second quarter of
fiscal 1996. For the six months ended December 31, 1996, gross profit increased
24% to $3,755,000 or 74% of net sales from $3,024,000 or 69% of net sales in
fiscal 1996. Overall, margins increased primarily from changes in mix of
business. Lower margin wholesale revenue represented a smaller percentage of
total revenue in both quarters of fiscal 1997. These sales also included more
higher margin units. Finally, most of the increase in the direct business was
attributable to rentals which have a higher margin than sales.
Selling, general and administrative expenses increased 40% to $1,603,000 in the
second quarter of fiscal 1997 from $1,141,000 in the second quarter of fiscal
1996. For the six months ended December 31, 1996, those expenses increased 24%
to $2,911,000 or 57% of net revenue from $2,347,000 or 53% of net revenue for
the same period of fiscal 1996. The increase resulted from investments in
marketing and sales development for the CTDx(TM) product line, and an increased
provision for uncollectible retail receivables.
Operating income increased 61% to $289,000 in the second quarter of fiscal 1997
compared with $180,000 in the second quarter of fiscal 1996. Operating income
for the first six months of fiscal year 1997 increased 31% to $589,000 compared
to $450,000 for the same period of fiscal year 1996. Net income for the second
quarter rose 91% to $158,000 in fiscal 1997 compared to $83,000 in fiscal 1996.
Net income for the first six months rose 39% to $308,000 for fiscal 1997
compared to $222,000 in fiscal 1996. The amount of increase in revenue exceeded
the increase in costs and expenses.
The Company has recorded a deferred income tax benefit relating to the excess of
book over tax depreciation and bad debt expense. The Company believes that the
asset is realizable through future operations based on its history of profitable
results since changing its focus to direct sales and rentals.
FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES
The Company generated $289,000 of cash from operations during the first six
months of fiscal 1997 as net income before depreciation plus a $114,000
reduction of inventories exceeded $177,000 of cash used to finance receivables
and $106,000 used to decrease accounts payable and accrued liabilities. During
the first six months of fiscal 1996, operations used $231,000 of cash due
primarily to using $417,000 to finance receivables and $387,000 to finance
increases in inventories attributable to expanding the sales force.
During the first six months of fiscal 1997, the Company provided an additional
$463,000 to the reserve for uncollectible accounts receivable and wrote off
$600,000 of receivables it considered uncollectible, resulting in a net decrease
of $137,000 in the reserve. The amount of the reserve is based on a number of
factors, including historical trends and experience with third-party
reimbursers and patients responsible for charges. Although the Company believes
that its current reserve for uncollectible accounts is adequate, it anticipates
that it will continue to provide significant reserves because of practices of
reimbursement in the medical products industry.
The Company used $77,000 of cash for investing activities during the first six
months of fiscal 1997, primarily to purchase property and equipment used in
manufacturing activities. The Company also used $211,000 of cash for financing
activities during the period, as it reduced outstanding borrowings under its
principal credit line by $80,000 and made continuing payments on long-term
obligations.
Any cash needed to fund operations, over and above that generated by operating
activities, is 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 $1,360,000 at December
31, 1996. Borrowings bear interest at the bank's prime rate. Interest is paid
monthly. Borrowings under the line were $475,000 at December 31, 1996 and
$555,000 at June 30, 1996. The Company anticipates that cash requirements during
fiscal 1997 will be less than its available credit facility.
PART II. OTHER INFORMATION
ITEM 5. OTHER MATTERS
John H. P. Maley was elected as a board member effective December 31, 1996,
replacing Robert K. Anderson who resigned in March 1996. Richard E. Jahnke was
elected as a board member effective January 13, 1997, replacing Anthony R. Gette
who resigned in October 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 December 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: February 12, 1997 (Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 34,240
<SECURITIES> 0
<RECEIVABLES> 6,956,776
<ALLOWANCES> 1,273,471
<INVENTORY> 2,481,279
<CURRENT-ASSETS> 8,947,628
<PP&E> 4,977,732
<DEPRECIATION> 2,611,769
<TOTAL-ASSETS> 11,313,564
<CURRENT-LIABILITIES> 1,698,134
<BONDS> 2,103,012
0
0
<COMMON> 469,625
<OTHER-SE> 5,281,124
<TOTAL-LIABILITY-AND-EQUITY> 11,313,564
<SALES> 5,097,755
<TOTAL-REVENUES> 5,097,755
<CGS> 1,342,941
<TOTAL-COSTS> 3,280,504
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 377,500
<INTEREST-EXPENSE> 138,283
<INCOME-PRETAX> 474,310
<INCOME-TAX> 166,000
<INCOME-CONTINUING> 474,310
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 308,310
<EPS-PRIMARY> .063
<EPS-DILUTED> .063
</TABLE>
