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>
<PAGE>


<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