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, 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 December 31, 1997 was:
Common Stock, $.10 par value 4,871,002 Shares
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (check one):
Yes No X
<PAGE>
<TABLE>
ITEM 1. FINANCIAL STATEMENTS
REHABILICARE INC.
BALANCE SHEETS
(Unaudited)
<CAPTION>
December 31, June 30,
1997 1997
<S> <C> <C>
-------------- -------------
ASSETS
CURRENT ASSETS
Cash $ 69,601 $ 46,529
Receivables, less reserve for uncollectible accounts of $ 1,372,000
and $1,273,000 6,532,341 5,850,686
Inventories -
Raw materials 434,337 497,206
Work in Process 40,454 ---
Finished goods 1,870,552 2,032,210
Deferred income tax benefit 575,000 575,000
Prepaid expenses 275,192 216,998
-------------- ------------
Total current assets 9,797,477 9,218,629
PROPERTY AND EQUIPMENT 4,809,267 4,936,463
Less accumulated depreciation and amortization (2,419,764) (2,618,667)
-------------- ----------
Total property and equipment 2,389,503 2,317,796
Intangible assets 27,454 28,129
Other assets 37,500 37,500
-------------- ------------
$ 12,251,934 $ 11,602,054
============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable $ 680,000 $ 340,000
Current maturities of long-term debt 293,643 296,250
Accounts payable 543,131 472,674
Accrued liabilities -
Payroll 178,705 213,296
Commissions 131,530 185,015
Taxes 275,644 197,573
Other 84,704 52,693
-------------- ------------
Total current liabilities 2,187,357 1,757,501
LONG-TERM DEBT 1,809,649 1,957,834
STOCKHOLDERS' EQUITY
Common stock 487,100 485,359
Additional paid-in capital 5,571,675 5,546,759
Less note receivable from officer/stockholder (162,500) (162,500)
Retained earnings 2,358,653 2,017,101
-------------- ------------
Total stockholders' equity 8,254,928 7,886,719
-------------- ------------
</TABLE>
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<TABLE>
REHABILICARE INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
December 31 December 31
-------------------------------- --------------------------------
1997 1996 1997 1996
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
NET SALES AND RENTAL REVENUE $ 3,102,104 $ 2,752,995 $ 6,032,006 $ 5,097,755
COST OF SALES AND RENTALS 846,715 726,031 1,604,743 1,342,941
------------- ------------- ------------- -------------
Gross profit 2,255,389 2,026,964 4,427,263 3,754,814
OPERATING EXPENSES:
Selling, general and administrative 1,818,661 1,603,428 3,575,795 2,910,595
Research and development 127,476 134,117 247,304 255,021
------------- ------------- ------------- -------------
1,946,137 1,737,545 3,823,099 3,165,616
------------- ------------- ------------- -------------
Income from operations 309,252 289,419 604,164 589,198
OTHER INCOME (EXPENSE):
Interest expense (58,587) (66,423) (115,374) (138,283)
Other income 20,052 17,143 26,762 23,395
------------- ------------- ------------- -------------
Income before income taxes 270,717 240,139 515,552 474,310
PROVISION FOR INCOME TAXES 91,000 82,000 174,000 166,000
------------- ------------- ------------- -------------
Net income $ 179,717 $ 158,139 $ 341,552 $ 308,310
============= ============= ============= =============
Weighted Average
Shares Outstanding 4,871,002 4,689,265 4,884,669 4,681,026
============= ============= ============= ============
Weighted Average
Common Stock Equivalents 4,964,687 4,898,820 4,956,565 4,877,789
============= ============= ============= ============
BASIC EARNINGS PER SHARE $ 0.04 $ 0.03 $ 0.07 $ 0.07
============= ============= ============= ============
DILUTED EARNINGS PER SHARE $ 0.04 $ 0.03 $ 0.07 $ 0.06
============= ============= ============= ============
</TABLE>
<PAGE>
<TABLE>
REHABILICARE INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Six Months Ended
December 31
--------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 341,552 $ 308,310
Adjustments to reconcile net income to net cash
generated by or used in operating activities:
Depreciation & Amortization 105,774 141,641
Changes in current assets and liabilities:
Receivables (681,655) (177,184)
Inventories 136,472 114,404
Prepaid expenses (58,194) 7,436
Accounts payable 70,457 (54,647)
Accrued liabilities 22,006 ( 51,001)
------------- -------------
Net cash generated by or (used in) operating activities (63,588) 289,468
INVESTING ACTIVITIES
Purchase of property and equipment, net (129,205) (76,873)
FINANCING ACTIVITIES
Principal payments on long-term debt, net (150,792) (150,180)
Proceeds from (payments on) line of credit, net 340,000 (80,000)
Proceeds from exercise of stock options 26,657 19,272
Proceeds from purchases of stock by employees --- ---
------------- -------------
Net cash provided by financing activities 215,865 (210,908)
Net increase in cash 23,072 1,687
CASH AT BEGINNING OF PERIOD 46,529 32,553
------------- -------------
CASH AT END OF PERIOD $ 69,601 $ 34,240
============= =============
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
Interest $ 115,374 $ 138,283
============= =============
Income taxes $ 95,570 $ 248,775
============= =============
</TABLE>
<PAGE>
REHABILICARE INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
Note A
The amounts set forth in the preceding financial statements are unaudited
as of and for the periods ended December 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 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.
Note B
Net earnings (loss) per share
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share" (SFAS No. 128). SFAS No. 128 applies to
entities with publicly held common stock and is effective for financial
statements for both interim and annual periods ending after December 15,
1997. After the effective date, all prior-period earnings (loss) per share
data presented shall be restated to conform to the provisions of this
statement. Under SFAS No. 128, the presentation of primary earnings (loss)
per share is replaced with a presentation of basic earnings (loss) per
share. SFAS No. 128 requires dual presentation of basic and diluted
earnings (loss) per share for entities with complex capital structures.
Basic earnings (loss) per share includes no dilution and is computed by
dividing net earnings (loss) available to common stockholders by the
weighted average number of common shares outstanding for the period.
Diluted earnings (loss) per share reflects the potential dilution of
securities that could share in the earnings of an entity and is similar to
the former fully diluted earnings (loss) per share calculation. The Company
has adopted SFAS No. 128 for the quarter ended December 31, 1997 and all
net earnings per share data presented complies with this statement. The
difference between basic and diluted earnings per share data as presented
is due to the dilutive impact from 75,000 outstanding warrants and stock
options whose exercise price was below the average common stock price for
the respective periods presented.
<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:
<TABLE>
<CAPTION>
Six Months Ended
December 31
-------------------------
1997 1996
--------- ----------
<S> <C> <C>
Net sales and rental revenue 100.0% 100.0%
Cost of sales and rentals 26.6 26.3
Gross profit 73.4 73.7
Operating expenses -
Selling, general and administrative 59.3 57.1
Research and development 4.1 5.0
Total operating expenses 63.4 62.1
Operating income 10.0 11.6
Other expense (1.4) (2.3)
Provision for income taxes 2.9 3.3
Net income 5.7 6.0
</TABLE>
Revenue was $3,102,000 for the second quarter of fiscal 1998, a 13%
increase from $2,753,000 in the second quarter of fiscal 1997. Revenue for
the six months ended December 31, 1997 increased 18% to $6,032,000 from
$5,098,000 in the first six months of fiscal 1997. Net sales and rental
revenue from direct distribution to patients increased 18% to $2,569,000
from $2,155,000 and accounted for approximately 83% and 78% of total
revenue, respectively, for the second quarter. Direct revenue for the first
six months of fiscal 1998 increased 21% to $4,987,000 from $4,124,000 in
the first six months of fiscal 1997. The increase was due primarily to a
more stable salesforce and a 20% growth in the number of new patients.
Revenue from the Company's traditional dealer business, excluding
international, increased by 23% to $489,000 in the second quarter of fiscal
1998 from $398,000. Revenue for domestic dealer business for the first six
months of fiscal 1998 increased 29% to $952,000 from $737,000 in the first
six months of fiscal 1997. The increase is due primarily to increased
purchases by several key dealers. International sales were $44,000 in the
second quarter of fiscal 1998 compared to $201,000 in the second quarter of
fiscal 1997. International revenue for the six months ended December 31,
1997 decreased to $93,000 from $237,000 in fiscal 1997. The primary reason
for the decrease was the fulfillment in fiscal 1997 of an order from the
Company's dealer in the United Kingdom for the BabiTENS(TM) product. Fiscal
1998 sales reflect ongoing accessory sales to that distributor for use with
those units.
<PAGE>
Gross profit increased 11% to $2,255,000 or 73% of revenue in the second
quarter of fiscal 1998 compared with $2,027,000 or 74% of revenue in the
second quarter of fiscal 1997. Gross profit for the six months ended
December 31, 1997 increased 26% to $4,428,000 or 73% of revenue compared
with $3,755,000 or 74% of revenue in fiscal 1997. Margins on dealer
business were 49% compared with 48% for the first six months of fiscal
1997, reflecting an increase in sales of more profitable products. Margins
on direct sales and rentals were 79% for the first six months of fiscal
1998 compared with 80% in fiscal 1997. These changes, as a percent of
revenue, are the result of product mix and the mix of sales and rentals.
Selling, general and administrative expenses increased 13% to $1,819,000 or
59% of revenue in the second quarter of fiscal 1998 from $1,603,000 or 58%
of revenue in fiscal 1997. For the six months ended December 31, 1997 those
expenses increased 23% to $3,576,000 or 59% of revenue from $2,911,000 or
57% of revenue in fiscal 1997. The increase resulted primarily from
increased variable expenses such as sales commissions, marketing costs
related to the CTDx(TM) and the new Ortho Dx product lines and an increased
provision for uncollectible retail receivables.
Operating income was $309,000 in the second quarter of fiscal 1998 compared
with $289,000 in fiscal 1997. Net income was $180,000 in fiscal 1998
compared with $158,000 for the second quarter of fiscal 1997. For the six
month period ending December 31 operating income was $604,000 in fiscal
1998 compared with $589,000 in fiscal 1997. Net income for that same period
was $342,000 or 6% of revenue in fiscal 1998 compared with $308,000 or 6%
of revenue in fiscal 1997. The effective tax rate of 34% for fiscal 1998
was lower than the 35% 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 $64,000 in operations during the first six months
of fiscal 1998. The Company generated $289,000 of cash in the first six
months 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 $682,000 in fiscal 1998 and $177,000 in fiscal 1997. During
fiscal 1998, the Company provided an additional $571,000 for uncollectible
receivables and wrote off $551,000 of accounts it considered uncollectible.
As a percent of receivables, the reserve decreased from 17.9% in fiscal
1997 to 17.4% 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 six months of fiscal 1998, an increase of $58,000 in
prepaid expenses was offset by decreases in inventory of $136,000 and an
increase in accounts payable of $70,000.
Cash of $129,000 was used in investing activities in fiscal 1998 compared
with $77,000 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 which are now year 2000 compliant.
<PAGE>
Financing activities provided cash of $216,000 in fiscal 1998 and used
$211,000 in fiscal 1997. The Company repaid approximately $150,000 of
long-term debt in both 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 December 31, 1997, the borrowing base
limit was approximately $2,000,000. Borrowings under the line were $680,000
on December 31, 1997 and $340,000 at June 30, 1997. 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;
and 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
filed Form 8-K on December 5, 1997 announcing that it had signed an
agreement to merge with Staodyn, Inc.
<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: February 13, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 69,601
<SECURITIES> 0
<RECEIVABLES> 7,904,424
<ALLOWANCES> 1,372,083
<INVENTORY> 2,345,342
<CURRENT-ASSETS> 9,797,477
<PP&E> 4,809,267
<DEPRECIATION> 2,419,764
<TOTAL-ASSETS> 12,251,934
<CURRENT-LIABILITIES> 2,187,357
<BONDS> 1,809,648
0
0
<COMMON> 487,100
<OTHER-SE> 5,409,175
<TOTAL-LIABILITY-AND-EQUITY> 12,251,934
<SALES> 6,032,006
<TOTAL-REVENUES> 6,032,006
<CGS> 1,604,743
<TOTAL-COSTS> 3,911,711
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 571,000
<INTEREST-EXPENSE> 115,374
<INCOME-PRETAX> 515,552
<INCOME-TAX> 174,000
<INCOME-CONTINUING> 515,552
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 341,552
<EPS-PRIMARY> 0.036
<EPS-DILUTED> 0.036
</TABLE>
