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