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, 1997
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, 1997 was:
Common Stock, $.10 par value 4,851,090 Shares
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (check one):
Yes_____ No__X__
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REHABILICARE INC.
BALANCE SHEETS
(UNAUDITED)
March 31, June 30,
1997 1996
------------ -------------
ASSETS
CURRENT ASSETS
Cash $ 47,173 $ 32,553
Receivables, less reserve for
uncollectible accounts of
$1,054,120 and $1,410,000 5,765,214 5,506,121
Inventories, net:
Raw materials 514,446 542,439
Finished goods 1,966,945 2,056,868
Deferred income tax benefit 496,000 496,000
Income tax refund receivable 591 1,100
Prepaid expenses 265,053 259,649
------------ ------------
Total current assets 9,055,422 8,894,730
------------ ------------
PROPERTY AND EQUIPMENT 4,993,009 4,897,235
Less accumulated depreciation (2,660,142) (2,470,155)
------------ ------------
Total property and equipment 2,332,867 2,427,080
------------ ------------
$ 11,388,289 $ 11,321,810
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable $ 350,000 $ 555,000
Current maturities of long-term
obligations 290,940 293,890
Accounts payable 426,402 529,523
Accrued liabilities:
Payroll 116,739 87,954
Commissions 207,560 178,118
Taxes 117,656 145,120
Other 105,265 95,461
------------ ------------
Total current liabilities 1,614,562 1,885,066
LONG-TERM OBLIGATIONS 2,030,720 2,251,908
------------ ------------
Total liabilities 3,645,282 4,136,974
------------ ------------
STOCKHOLDERS' EQUITY
Common stock 485,109 467,029
Additional paid-in capital 5,529,468 5,264,448
Less Notes Receivable - Stockholder (162,500) 0
Retained earnings 1,890,930 1,453,359
------------ ------------
Total stockholders' equity 7,743,007 7,184,836
------------ ------------
$ 11,388,289 $ 11,321,810
============ ============
The accompanying notes to financial statements are an integral part of these
balance sheets.
<PAGE>
REHABILICARE INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
-------------------------- --------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales and rental revenue $ 2,783,290 $ 2,033,608 $ 7,881,045 $ 6,445,596
Cost of sales and rentals 765,766 552,128 2,108,707 1,940,345
----------- ----------- ----------- -----------
Gross profit 2,017,524 1,481,480 5,772,338 4,505,251
Operating expenses:
Selling, general and 1,645,530 1,215,094 4,556,125 3,562,384
administrative
Research and development 139,384 143,335 394,405 370,150
----------- ----------- ----------- -----------
Total operating expenses 1,784,914 1,358,429 4,950,530 3,932,534
----------- ----------- ----------- -----------
Operating income 232,610 123,051 821,808 572,717
Other income (expense):
Interest expense (57,634) (61,152) (195,917) (169,372)
Other income 17,285 4,554 40,680 7,398
----------- ----------- ----------- -----------
Income before income taxes 192,261 66,453 666,571 410,743
Provision for income taxes 63,000 15,000 229,000 137,000
----------- ----------- ----------- -----------
Net income $ 129,261 $ 51,453 $ 437,571 $ 273,743
=========== =========== =========== ===========
Net income per common share and
common share equivalents $ 0.03 $ 0.01 $ 0.09 $ 0.06
=========== =========== =========== ===========
Weighted average number of common
and common share equivalents
outstanding
4,858,877 4,890,517 4,871,485 4,863,761
=========== =========== =========== ===========
The accompanying notes to financial statements are an integral part of
these financial statements.
</TABLE>
<PAGE>
REHABILICARE INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
March 31,
------------------------
1997 1996
---------- -----------
OPERATING ACTIVITIES
Net income $ 437,571 $ 273,743
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation 189,987 312,175
Deferred income taxes 509 45,949
Changes in current assets and liabilities:
Receivables (259,093) (317,859)
Income tax refund receivable
Inventories 113,337 (615,841)
Prepaid expenses (5,404) (111,817)
Accounts payable (103,121) 7,047
Accrued liabilities 40,567 (10,263)
--------- ---------
Net cash (used) or generated in operating 414,353 (416,866)
activities
INVESTING ACTIVITIES
Purchase of property and equipment (91,195) (76,312)
--------- ---------
FINANCING ACTIVITIES
Principal payments on long-term obligations (224,138) (58,501)
Proceeds from (payments on) line of credit, net (205,000) 445,000
Proceeds from exercise of stock options 120,600 71,551
--------- ---------
Net cash provided by financing activities (308,538) 458,050
Net increase (decrease) in cash 14,620 (35,128)
CASH AT BEGINNING OF PERIOD 32,553 55,704
--------- ---------
CASH AT END OF PERIOD $ 47,173 $ 20,576
========= =========
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
Interest $ 195,917 $ 169,372
========= =========
Income taxes $ 261,060 $ 92,391
========= =========
The accompanying notes to financial statements are an integral part of
these financial statements.
<PAGE>
REHABILICARE INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
Note A
The amounts set forth in the preceding financial statements are unaudited
as of and for the periods ended March 31, 1997 and 1996, 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 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.
<PAGE>
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 1997 1996
-------------------------- ---- ----
Net sales and rental revenue 100.0% 100.0%
Cost of sales and rentals 26.8 30.1
Gross profit 73.2 69.9
Operating expenses -
Selling, general and administrative 57.8 55.3
Research and development 5.0 5.7
Total operating expenses 62.8 61.0
Operating income 10.4 8.9
Other income (expense) (2.0) (2.5)
Provision for income taxes 2.9 2.1
Net income 5.5 4.3
Total revenue for the third quarter of fiscal 1997 was $2,783,000, a 37%
increase from $2,034,000 in the third quarter of fiscal 1996. Total revenue
for the nine months ended March 31, 1997 increased 22% to $7,881,000 from
$6,446,000 in the first nine months of fiscal 1996.
Revenue from direct sales and rentals during the third quarter of fiscal
1997 increased 24% to $2,082,000 from $1,672,000 in the third quarter of
fiscal 1996 and increased 27% to $6,206,000 from $4,872,000 in the nine
months ended March 31, 1997 and 1996, respectively. Those increases were
the result of solid growth in new patients during fiscal 1997.
Revenue from the Company's traditional dealer business, including
international, grew 94% in the third quarter of fiscal 1997 to $702,000
from $362,000 for the third quarter of fiscal 1996. Revenue from dealer
business increased 6% in fiscal 1997 to $1,675,000 from $1,574,000 in the
first nine months of fiscal 1996. The variation in revenue from the dealer
business is attributable to the level and timing of purchases of BabiTENS
by the Company's distributor in the United Kingdom. That distributor
purchased a large number of units in the first and second quarters of
fiscal 1996 and the second and third quarters of fiscal 1997 but virtually
no units during the third and fourth quarters of 1996 and the first quarter
of 1997.
Direct business accounted for approximately 79% of year-to-date revenue in
fiscal 1997 compared to 76% in fiscal 1996. That business has continued to
grow more rapidly than dealer business since the Company began selling
direct in fiscal 1992.
Gross profit for the third quarter of fiscal 1997 increased 36% to
$2,018,000, or 72% of revenue, compared to $1,481,000, or 73% of revenue,
in the third quarter of fiscal 1996. For the nine months ended March 31,
1997, gross profit increased 28% to $5,772,000, or 73% of net revenue, from
$4,505,000, or 70% of net revenue in fiscal 1996. The decrease in gross
profit percentage for the third quarter was attributable to lower margin
international sales. The increase in year-to-date gross profit percentage
is due primarily to the growth in direct rentals and sales which have
higher margins than dealer business. Most of the increase in direct
business in fiscal 1997 has been in rentals which have a higher margin than
sales.
Selling, general and administrative expenses increased 35% to $1,646,000 in
the third quarter of fiscal 1997 from $1,215,000 in the third quarter of
fiscal 1996. For the year-to-date, those expenses increased 28% to
$4,556,000 from $3,562,000. The increases resulted from continued
investments in marketing and sales development for the CTDxTM product line,
an increased provision for uncollectible retail receivables, and an
increase in commissions and other variable expenses directly related to
increased direct sales and rentals.
Operating income increased 89% to $233,000 in the third quarter of fiscal
1997 from $123,000 in the third quarter of fiscal 1996. Operating income
for the first nine months of fiscal 1997 increased 43% to $822,000 compared
to $573,000 for the same period in fiscal 1996. Net income for the third
quarter rose 151% to $129,000 in fiscal 1997 compared to $51,000 in fiscal
1996. Net income for the fist nine months rose 60% to $438,000 in fiscal
1997 compared to $274,000 in fiscal 1996. Revenue has increased at a
greater rate than the increase in costs and expenses during fiscal 1997.
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.
<PAGE>
FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES
The Company generated $414,000 of cash from operations during the first
nine months of fiscal 1997. During the first nine months of fiscal 1996,
operations used $417,000 of cash. Net income before depreciation plus a
$113,000 reduction of inventories exceeded $259,000 of cash used to finance
receivables and $63,000 used to decrease accounts payable and accrued
liabilities. In fiscal 1996, cash used to finance a $312,000 increase in
receivables and a $616,000 increase in inventories attributable to
expanding the sales force exceeded the cash generated from other operating
activities.
During the first nine months of fiscal 1997, the Company increased its
reserve for uncollectible accounts receivable by $707,000. For that same
period, the Company wrote off $1,063,000 of receivables it considered
uncollectible, resulting in a net decrease of $356,000 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 $91,000 of cash for investing activities during the first
nine months of fiscal 1997. This cash was used to purchase property and
equipment used primarily in manufacturing activities. The Company also used
$309,000 of cash for financing activities during that period. Cash raised
from exercised stock options helped offset a reduction in outstanding
borrowings under its principal credit line by $205,000. Payments of
$224,000 on long-term obligations were made in accordance with such
agreements.
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
$1,274,000 at March 31, 1997. Borrowings bear interest at the bank's prime
rate. Interest is paid monthly. Borrowings under the line were $350,000 at
March 31, 1997 and $555,000 at June 30, 1996. The Company anticipates that
cash requirements during fiscal 1997 will be less than its available credit
facility.
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of Rehabilicare was held at 3:30 p.m. on
Tuesday, February 25, 1997. Shareholders holding 4,079,494 shares, or
approximately 87% of outstanding shares, were represented at the meeting by
proxy or in person. Matters submitted at the meeting for vote by the
shareholders were as follows:
a. Election of Directors
The following nominees were elected to serve as members of the Board
of Directors until the annual meeting of shareholders in 1997 or
until such time as a successor may be elected:
FOR WITHHOLD/
AGAINST
--------- ---------
4,069,244 10,250 Donn Berkeland
4,068,431 11,063 William Hibbs
4,069,244 10,250 Richard Jahnke
4,065,931 13,563 David Kaysen
4,069,244 10,250 John Maley
4,070,134 9,360 Robert Wingrove
b. Amendment to 1988 Restated Stock Option Plan
Shareholders approved an amendment to the 1988 Restated Stock Option
Plan increasing the number of shares of the Company's common stock
available for issuance thereunder by 100,000 shares by a vote of 4,031,706
in favor, 36,088 opposed, and 11,700 abstained.
No other matters were brought to a vote during the meeting.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No exhibits are required to be filed with this Form 10-QSB.
The Company filed a report on Form 8-K on January 17, 1997 announcing a
change in its independent accountants from Arthur Andersen LLP to Price
Waterhouse.
<PAGE>
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: May 7, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 47,173
<SECURITIES> 0
<RECEIVABLES> 6,819,334
<ALLOWANCES> 1,054,120
<INVENTORY> 2,481,391
<CURRENT-ASSETS> 9,055,422
<PP&E> 4,993,009
<DEPRECIATION> 2,660,142
<TOTAL-ASSETS> 11,388,289
<CURRENT-LIABILITIES> 1,614,562
<BONDS> 2,030,720
0
0
<COMMON> 485,109
<OTHER-SE> 5,366,968
<TOTAL-LIABILITY-AND-EQUITY> 11,388,289
<SALES> 7,881,045
<TOTAL-REVENUES> 7,881,045
<CGS> 2,108,707
<TOTAL-COSTS> 5,105,767
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 595,000
<INTEREST-EXPENSE> 195,917
<INCOME-PRETAX> 666,571
<INCOME-TAX> 229,000
<INCOME-CONTINUING> 666,571
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 437,571
<EPS-PRIMARY> 0.090
<EPS-DILUTED> 0.090
</TABLE>
