SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(MARK ONE)
X Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 1996
_____ 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. 0-18785
OXBORO MEDICAL INTERNATIONAL, INC.
- -----------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Minnesota 41-1391803
- -------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
13828 Lincoln Street NE, Ham Lake, Minnesota 55304
- ----------------------------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (612) 755-9516
-------------------------
No Change
------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 12 months (or for such shorter period that the issuer was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes ____ No X
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
2,672,278 shares of Common Stock at July 31, 1996
OXBORO MEDICAL INTERNATIONAL, INC.
TABLE OF CONTENTS
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1996
(unaudited) and September 30, 3 1995
Condensed Consolidated Statements of Operations for Three Months
and Nine Months Ended 4 June 30, 1996 and 1995 (unaudited)
Condensed Consolidated Statements of Cash Flows for Nine Months
Ended June 30, 1996 and 5 1995 (unaudited) Notes to Condensed
Consolidated Financial Statements (unaudited) 6 Item 2.
Management's Discussion and Analysis 7 Part II. Other
Information Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 40,407 $ 689,420
Accounts receivable, less allowance for doubtful
accounts of $20,868 and $17,547, respectively 608,054 577,296
Interest receivable 16,485 15,134
Inventories 2,535,642 1,807,666
Deferred income taxes 74,000 74,000
Other current assets 120,266 122,710
----------- -----------
TOTAL CURRENT ASSETS 3,394,854 3,286,226
PROPERTY AND EQUIPMENT:
Building 884,812 472,020
Land 57,211 57,211
Furniture and equipment 1,134,420 728,802
----------- -----------
2,076,443 1,258,033
Less accumulated depreciation (569,394) (484,412)
----------- -----------
1,507,049 773,621
Construction in progress -- 196,727
----------- -----------
1,507,049 970,348
OTHER INVESTMENTS 388,238 323,847
OTHER ASSETS 200,884 206,978
----------- -----------
TOTAL ASSETS $ 5,491,025 $ 4,787,399
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term obligations $ 6,505 --
Note payable to bank 30,000 --
Accounts payable 231,323 $ 164,972
Accrued salaries, wages, payroll taxes 389,858 310,643
Other accrued expenses 43,337 62,193
----------- -----------
TOTAL CURRENT LIABILITIES 701,023 537,808
----------- -----------
LONG TERM OBLIGATIONS 393,495 --
DEFERRED INCOME TAXES 121,000 121,000
SHAREHOLDERS' EQUITY:
Common stock 26,722 26,722
Additional paid-in capital 2,276,111 2,276,111
Retained earnings 3,121,230 2,981,814
Less:
Receivable from ESOP (101,306) (108,806)
Stock subscription receivable (80,000) (80,000)
Deferred R&D expense (967,250) (967,250)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 4,275,507 4,128,591
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$ 5,491,025 $ 4,787,399
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
June 30 June 30
------------------------------------- -------------------------------------
1996 1995 1996 1995
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net sales $1,096,022 976,626 $3,075,627 $2,896,858
Cost of goods sold 315,639 234,300 877,237 699,547
---------------- ---------------- ---------------- ----------------
780,383 742,326 2,198,390 2,197,311
Selling, general and administrative
expenses 680,540 679,147 2,058,023 2,042,986
---------------- ---------------- ---------------- ----------------
99,843 63,179 140,367 154,325
Interest and other income (expense)
(22) 13,782 21,711 41,290
---------------- ---------------- ---------------- ----------------
Earnings before income taxes 99,821 76,961 162,078 195,615
Provisions for income taxes - 29,244 22,662 72,914
---------------- ---------------- ---------------- ----------------
Net earnings $ 99,821 $ 47,717 $ 139,416 $ 122,701
================ ================
================ ================
Net earnings per share of common
stock (based on weighted average)
$ .04 $.02 $.05 $.05
================ ================ ================
================
Weighted average common and common
equivalent shares 2,672,278 2,672,278 2,672,278 2,672,278
================ ================ ================ ================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
June 30
--------------------------------------
1996 1995
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 139,416 $ 122,701
Adjustments to reconcile net earnings to net cash used in operating
activities:
Depreciation and amortization 89,482 42,838
Loss from limited partnership - 10,590
Change in current assets and current liabilities:
Accounts receivable (30,758) (109,845)
Inventories (727,976) (338,536)
Other current assets 2,444 48,644
Accounts payable 66,351 (59,098)
Income taxes payable - 25,052
Accrued salaries, wages, payroll taxes and other accrued expenses
60,359 (16,446)
---------------- ----------------
NET CASH USED IN OPERATING ACTIVITIES (400,682) (274,100)
CASH FLOWS FROM INVESTING ACTIVITIES:
Long-term investment (64,391) -
(Additions to) reduction of other assets 243 (90,716)
Purchase of property, plant and equipment (621,683) (104,964)
---------------- ----------------
NET CASH USED IN INVESTING ACTIVITIES (685,831) (195,680)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on note payable to bank 30,000 -
Proceeds from issuance of long-term obligations 400,000 -
Receipt of stock subscriptions 7,500 40,000
---------------- ----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES
437,500 40,000
---------------- ----------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (649,013) (429,780)
CASH AND CASH EQUIVALENTS, at beginning of period 689,420 1,157,942
================ ================
CASH AND CASH EQUIVALENTS, at end of period $ 40,407 $ 728,162
================ ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the nine months ended June 30 for:
Income taxes $ - $ 47,862
Interest 7,071 266
</TABLE>
See accompanying notes to condensed consolidated financial statements.
OXBORO MEDICAL INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
1. Interim Financial Statements
The interim financial statements include the accounts of Oxboro Medical
International, Inc. ("Medical") and its wholly-owned subsidiary, Oxboro
Outdoors, Inc. ("Outdoors"). The interim financial statements are
unaudited but, in the opinion of management, reflect all adjustments
necessary for a fair presentation of results for such periods. The
results of operations for any interim period are not necessarily
indicative of results for the full year. These financial statements
should be read in conjunction with the financial statements and notes
thereto contained in the Company's Report on Form 10-KSB for the fiscal
year ended September 30, 1995.
2. Inventories
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
---------------- ------------------
<S> <C> <C>
Inventories consist of:
Raw materials $1,394,603 $ 863,694
Finished goods 1,141,039 943,972
---------------- ------------------
$2,535,642 $1,807,666
================ ==================
</TABLE>
3. Long-Term Investments
Long-term investments include:
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
---------------- ------------------
<S> <C> <C>
Investment in cash surrender value of life
insurance $ 326,712 $ 262,321
Investment in limited partnership 61,526 61,526
================ ==================
$ 388,238 $ 323,847
================ ==================
</TABLE>
The investment in limited partnership is a $142,000 cash investment for
a 30% limited partnership interest in a partnership formed to develop
processes or devices for inhibiting rejection in connection with organ
transplant procedures. The general partner of the limited partnership
is a corporation owned by a significant shareholder of the Company.
In addition, the Company placed 383,500 shares of common stock of the
Company in escrow for release pursuant to a Stock Award Agreement to
the general partner/shareholder on the attainment of specific
milestones in the development of the concept to be used in the limited
partnership project. The Stock Award Agreement expires October 31,
1998. These shares have been valued at $967,250.
4. Note Payable to Bank
The Company has a $500,000 revolving line of credit agreement with a
bank bearing interest at .50% over the bank's prime rate (effective
rate of 8.75% at June 30, 1996), collateralized by inventories and
accounts receivable.
5. Long-term Obligations
The Company has a note payable to a bank payable in monthly
installments of principal and interest at .50% over the bank's prime
rate (effective rate of 8.75% at June 30, 1996) through January 2001 at
which time all unpaid principal and interest is due, collateralized by
the Company's building.
6. Shareholders' Equity
Changes in shareholders' equity during the nine months ended June 30,
1996 were as follows:
Shareholders' equity at September 30, 1995 $4,128,591
Receipt on ESOP receivable 7,500
Net earnings 139,416
----------
Shareholders' equity at June 30, 1996 $4,275,507
==========
Item 2. Management's Discussion and Analysis
Liquidity and Capital Resources
As of June 30, 1996, the Company had working capital of $2,693,831 as compared
to $2,748,418 at September 30, 1995 and $400,000 in long-term obligations. As of
June 30, 1996, the Company had $40,407 in cash as compared to $689,420 at
September 30, 1995.
During the nine months ended June 30, 1996, the Company used $400,682 in
operating activities, including an increase of $727,976 in inventories offset by
an increase of $66,351 in accounts payable.
The Company used $685,831 in investing activities during the nine months ended
June 30, 1996, principally $621,683 for the purchase of property and equipment
used for the Company's expanded facility. The Company added approximately 15,000
square feet to its corporate headquarters. The cost for this project was
approximately $450,000, funded by a mortgage of $400,000 and cash from the
Company's operations. The Company has obtained a line of credit of $500,000,
subject to certain terms and conditions related to the Company's financial
performance. As of June 30, 1996, the Company has drawn $30,000 on this line of
credit.
Other than the matters discussed above, management is not aware of any trends,
commitments, events, or uncertainties that will or are reasonably likely to
result in the Company's liquidity increasing or decreasing in any material way.
Results of Operations
Net sales during the three-month and nine-month periods ended June 30, 1996,
increased by 12% and 6%, respectively, as compared to the corresponding periods
in the previous fiscal year. Medical sales for fiscal 1996 for the three-month
and nine-month periods were $1,028,360 and $2,947,001, representing increases of
9% and 5% compared to the corresponding prior periods. Oxboro Outdoors sales for
fiscal 1996 for the three-month and nine-month periods were $67,662 and
$128,626, respectively, representing increases of 82% and 67% over the prior
year periods.
The sales increases resulted from a combination of new customers for both Oxboro
Medical and Oxboro Outdoors, increased sales of current medical products to
existing medical customers, and sales of new medical products and Outdoors
products acquired during 1995. Medical unit sales increased by more than the
increase in dollar sales because of the Company's emphasis on increasing its
customer base in an increasingly competitive marketplace through aggressive
pricing strategies.
Gross margin was 71% for the third quarter and 72% for the nine-month period in
fiscal 1996, as compared to 76% for the corresponding periods in fiscal 1995.
The reductions in gross margin result from competitiveness in the markets
served, variation of the product mix and inefficiencies in manufacturing
initially encountered in late 1995. Management is attempting to resolve the
production problems in order to improve productivity and reduce manufacturing
costs.
Selling, general and administrative expenses during the three-month and
nine-month periods ended June 30, 1996, increased by less than 1% and 1%,
respectively, as compared to the corresponding periods in the previous fiscal
year. During the three months ended June 30, 1996, medical expenses decreased by
$8,527, or 2%, primarily as a result of reduced bonus, research and development,
sales samples and convention expenses. During the same period, Outdoors expenses
increased by $27,386, or 16%, reflecting increased wages, outside services,
consultation fees and rent, offset by reduced expenses for printing and
conventions.
Earnings before taxes during the three-month and nine-month periods ended June
30, 1996, increased by 109% and 14%, respectively, as compared to the
corresponding periods in the previous fiscal year. The increases are
attributable to increased sales of both Medical and Outdoors products and lower
selling, general and administrative expenses offset partially by costs
associated with manufacturing inefficiencies. Provision for income taxes for the
third quarter of 1996 includes recognition of research and development credits
received.
Forward-Looking Statements
Forward-looking statements herein are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. There are
certain important factors that could cause results to differ materially from
those anticipated by some of the statements made herein. Investors are cautioned
that all forward-looking statements involve risks and uncertainty. Among the
factors that could cause actual results to differ materially are the following:
acceptance of new products, pricing strategies of competitors, general
conditions in the industries served by the Company's products, and overall
economic conditions, including inflation and consumer buying patterns.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 - Per share earnings computation
27 - Financial Data Schedule
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the quarter ended
June 30, 1996.
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.
OXBORO MEDICAL INTERNATIONAL, INC.
Dated: August , 1996 By /s/ Harley Haase
-------------------------------------------
Harley Haase
Its President and Chief Executive Officer
Dated: August , 1996 By /s/ Larry A. Rasmusson
-------------------------------------------
Larry A. Rasmusson
Its Chief Financial and Accounting Officer
<TABLE>
<CAPTION>
EXHIBIT 11
OXBORO MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
PER SHARE EARNINGS COMPUTATION
(Unaudited)
Three Months Ended Nine Months Ended
June 30 June 30
----------------------------------- -----------------------------------
1996 1995 1996 1995
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Weighted average number of common shares
outstanding 2,672,278 2,672,278 2,672,278 2,672,278
Common stock equivalent due to assumed
exercise of options -0- -0- -0- -0-
--------------- --------------- --------------- --------------
Total shares 2,672,278 2,672,278 2,672,278 2,672,278
=============== =============== =============== ==============
Net earnings $ 99,821 $ 47,717 $ 139,416 $ 122,701
=============== =============== =============== ==============
Earnings per share $ .04 $ .02 $ .05 $ .05
=============== =============== =============== ==============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's financial statements for the 9 months ended June 30, 1996, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 40,407
<SECURITIES> 0
<RECEIVABLES> 608,054
<ALLOWANCES> 20,868
<INVENTORY> 2,535,642
<CURRENT-ASSETS> 3,394,854
<PP&E> 2,076,443
<DEPRECIATION> 569,394
<TOTAL-ASSETS> 5,491,025
<CURRENT-LIABILITIES> 701,023
<BONDS> 0
0
0
<COMMON> 26,722
<OTHER-SE> 4,248,785
<TOTAL-LIABILITY-AND-EQUITY> 5,491,025
<SALES> 3,075,627
<TOTAL-REVENUES> 3,075,627
<CGS> 877,237
<TOTAL-COSTS> 877,237
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,922
<INCOME-PRETAX> 162,078
<INCOME-TAX> 22,662
<INCOME-CONTINUING> 139,416
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 139,416
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
