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, 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_ N0_
The number of shares outstanding for each of the Issuer's classes of common
stock as of September 30, 1997 was:
Common Stock, $.10 par value 4,870,002 Shares
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (check one):
Yes________No___X__
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
REHABILICARE INC.
BALANCE SHEETS
(Unaudited)
September 30, June 30,
1997 1997
-------------- --------------
ASSETS
CURRENT ASSETS
Cash $ 19,253 $ 46,529
Receivables, less reserve for
uncollectible accounts of
$1,376,000 and $1,353,000 6,177,037 5,850,686
Inventories -
Raw materials 479,822 497,206
Finished goods 1,968,101 2,032,210
Deferred income tax benefit 575,000 575,000
Prepaid expenses 156,124 216,998
------------- -------------
Total current assets 9,375,337 9,218,629
PROPERTY AND EQUIPMENT 5,092,956 4,936,463
Less accumulated depreciation (2,669,340) (2,618,667)
------------- -------------
Total property and equipment 2,423,616 2,317,796
Intangible assets 28,129 28,129
Other assets 37,500 37,500
------------- -------------
$ 11,864,582 $ 11,602,054
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable $ 645,000 $ 340,000
Current maturities of long-term debt 293,951 296,250
Accounts payable 327,586 472,674
Accrued liabilities -
Payroll 138,140 213,296
Commissions 176,717 185,015
Taxes 279,444 197,573
Other 48,879 52,693
-------------- -------------
Total current liabilities 1,909,717 1,757,501
LONG-TERM DEBT 1,882,779 1,957,834
STOCKHOLDERS' EQUITY
Common stock 487,000 485,359
Additional paid-in capital 5,568,650 5,546,759
Less note receivable from
officer/stockholder (162,500) (162,500)
Retained earnings 2,178,936 2,017,101
-------------- -------------
Total stockholders' equity 8,072,086 7,886,719
-------------- -------------
$ 11,864,582 $ 11,602,054
============ ============
<PAGE>
REHABILICARE INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
September 30
----------------------------------
1997 1996
------------ ------------
NET SALES AND RENTAL REVENUE $ 2,929,902 $ 2,344,760
COST OF SALES AND RENTALS 758,028 616,910
------------ ------------
Gross profit 2,171,874 1,727,850
OPERATING EXPENSES:
Selling, general and administrative 1,757,134 1,307,167
Research and development 119,828 120,904
------------ ------------
Total Operating Expenses 1,876,962 1,428,071
------------ ------------
Income from operations 294,912 299,779
OTHER INCOME (EXPENSE):
Interest expense (56,787) (71,860)
Other income 6,710 6,252
------------ ------------
Income before income taxes 244,835 234,171
PROVISION FOR INCOME TAXES 83,000 84,000
------------ ------------
Net income $ 161,835 $ 150,171
============ ============
NET INCOME PER COMMON SHARE AND
COMMON SHARE EQUIVALENTS $ 0.03 $ 0.03
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON SHARE EQUIVALENTS
OUTSTANDING 4,948,443 4,856,757
============ ============
<PAGE>
REHABILICARE INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
September 30
------------------------
1997 1996
------------- -----------
OPERATING ACTIVITIES
Net income $ 161,835 $ 150,171
Adjustments to reconcile net income to net cash
generated by or used in operating activities:
Depreciation 50,673 72,164
Changes in current assets and liabilities:
Receivables (326,351) (190,229)
Inventories 46,456 81,176
Prepaid expenses 60,874 (15,550)
Accounts payable (145,088) (155,801)
Accrued liabilities (5,397) (121,317)
--------- ---------
Net cash used in operating activities (156,997) (179,386)
--------- ---------
INVESTING ACTIVITIES
Purchase of property and equipment, net (121,456) (18,040)
--------- ---------
FINANCING ACTIVITIES
Principal payments on long-term debt, net (77,355) (76,748)
Proceeds from (payments on) line of credit, net 305,000 265,000
Proceeds from exercise of stock options 11,874 3,062
Proceeds from purchases of stock by employees 11,658 --
--------- ---------
Net cash provided by financing activities 251,177 191,314
--------- ---------
Net decrease in cash (27,276) (6,112)
CASH AT BEGINNING OF PERIOD 46,529 32,553
--------- ---------
CASH AT END OF PERIOD $ 19,253 $ 26,441
========= =========
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
Interest $ 56,787 $ 71,860
========= =========
Income taxes $ 170 $ 187,900
========= =========
<PAGE>
REHABILICARE INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
Note A
The amounts set forth in the preceding financial statements are unaudited
as of and for the periods ended September 30, 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 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.
<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:
Three Months Ended
September 30
-------------------------
1997 1996
-------- -------
Net sales and rental revenue 100.0% 100.0%
Cost of sales and rentals 25.9 26.3
Gross profit 74.1 73.7
Operating expenses -
Selling, general and administrative 60.0 55.7
Research and development 4.1 5.2
Total operating expenses 64.1 60.9
Operating income 10.0 12.8
Other expense 1.7 2.8
Provision for income taxes 2.8 3.6
Net income 5.5 6.4
Revenue was $2,930,000 for the first quarter of fiscal 1998, a 25% increase
from $2,345,000 in the first quarter of fiscal 1997. Net sales and rental
revenue from direct distribution to patients increased 24% to $2,449,000
from $1,970,000 and accounted for approximately 84% of total revenue for
the first quarter in both fiscal years. The increase was due primarily to a
19% growth in the number of new patients. Revenue from the Company's
traditional dealer business, excluding international, increased by 27% in
fiscal 1998 from the first quarter of fiscal 1997 due primarily to
increased purchases by several key dealers. International sales were
minimal in the first quarter of both fiscal years.
Gross profit increased 26% to $2,172,000 or 74% of revenue in the first
quarter of fiscal 1998 compared with $1,728,000 or 74% of revenue in the
first quarter of fiscal 1997. Margins on dealer business were 52% compared
with 46% in the first quarter of fiscal 1997, reflecting an increase in
sales of more profitable products. Margins on direct sales and rentals were
80% for the first quarter of fiscal 1998 compared with 79% in fiscal 1997.
This improvement resulted from an increased volume of higher margin
accessory sales.
Selling, general and administrative expenses increased 34% to $1,757,000 in
the first quarter of fiscal 1998 from $1,307,000 in fiscal 1997. As a
percent of revenue, those expenses increased from 56% to 60%. The increase
resulted primarily from an increased provision for uncollectible retail
receivables and marketing costs related to the CTDx and the new Ortho Dx
product lines.
<PAGE>
Operating income was $295,000 in fiscal 1998 compared with $300,000 in
fiscal 1997. Net income was $162,000 in fiscal 1998 compared with $150,000
for the first quarter of fiscal 1997. The effective tax rate of 34% for
fiscal 1998 was lower than the 36% effective rate for fiscal 1997 due to
the use of a tax advantaged Foreign Sales Corporation (FSC) and a reduction
of excess liability recorded in previous years.
Financial Condition, Liquidity, and Capital Resources
The Company used cash of $157,000 in operations during the first quarter of
fiscal 1998. The Company used $179,000 of cash in the same quarter of
fiscal 1997.
Operations have previously required significant amounts of cash to fund
increases in receivables. Cash was used to fund increases in net
receivables of $326,000 in the first quarter of fiscal 1998 and $190,000 in
the first quarter of fiscal 1997. During the first quarter of fiscal 1998,
the Company provided an additional $268,000 for uncollectible receivables
and wrote off $244,000 of accounts it considered uncollectible. As a
percent of receivables, the reserve decreased from 21% in fiscal 1997 to
18% in fiscal 1998.
The reserve for uncollectible accounts is determined after considering
various factors including historical trends, relationship and experience
with insurance or other third party payors and patient responsibility for
charges. The Company believes that its current reserve for uncollectible
accounts is adequate. However, it will be necessary to continue maintaining
a significant reserve to cover instances where the extent of insurance
coverage cannot be verified prior to distributing home units to patients.
During the first quarter of fiscal 1998, a decrease of $145,000 in accounts
payable was partially offset by decreases in inventory of $46,000 and
prepaid expenses of $61,000.
Cash of $121,000 was used in investing activities in fiscal 1998 compared
with $18,000 in fiscal 1997. Most of the usage related to the purchase of
new computer software and hardware for the Company's manufacturing and
accounting systems.
Financing activities provided cash of $251,000 in fiscal 1998 and $191,000
in fiscal 1997. The Company repaid $77,000 of long-term debt in the first
quarter of fiscal 1998 and fiscal 1997. The Company maintains a line of
credit which provides for borrowing up to $2,000,000, limited by eligible
accounts receivable. At September 30, 1997, the borrowing base limit was
approximately $1,663,000. Borrowings under the line were $640,000 on
September 30, 1997 and $340,000 at June 30, 1996. The Company anticipates
that cash requirements during fiscal 1998 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 that may be detailed in the Company's Form
10-KSB for the year ending June 30, 1997 or in other filings with the
Securities and Exchange Commission.
<PAGE>
PART II. OTHER INFORMATION
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,
1997
<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: October _30_, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 46,529
<SECURITIES> 0
<RECEIVABLES> 7,553,332
<ALLOWANCES> 1,376,295
<INVENTORY> 2,447,923
<CURRENT-ASSETS> 9,375,337
<PP&E> 5,092,956
<DEPRECIATION> 2,669,340
<TOTAL-ASSETS> 11,761,570
<CURRENT-LIABILITIES> 1,909,717
<BONDS> 1,882,779
0
0
<COMMON> 487,000
<OTHER-SE> 5,406,150
<TOTAL-LIABILITY-AND-EQUITY> 11,864,582
<SALES> 2,929,902
<TOTAL-REVENUES> 2,929,902
<CGS> 758,028
<TOTAL-COSTS> 1,927,039
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 268,000
<INTEREST-EXPENSE> 56,787
<INCOME-PRETAX> 244,835
<INCOME-TAX> 83,000
<INCOME-CONTINUING> 244,835
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 161,835
<EPS-PRIMARY> 0.033
<EPS-DILUTED> 0.033
</TABLE>
