SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(MARK ONE)
__X__ Quarterly Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended December 31, 1996
_____ Transition report under 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.
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(Exact name of small business issuer as specified in its charter)
Minnesota 41-1391803
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
13828 Lincoln Street NE, Ham Lake, Minnesota 55304
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (612) 755-9516
No Change
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(Former name, former address and former fiscal year, if changed since last
report)
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 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.
2,712,278 shares of Common Stock at January 31, 1997
TABLE OF CONTENTS
Page No.
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Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at December 31, 1996 3
(unaudited) and September 30, 1996
Condensed Consolidated Statements of Earnings for Three Months 4
Ended December 31, 1996 and 1995 (unaudited)
Condensed Consolidated Statements of Cash Flows for Three Months 5
Ended December 31, 1996 and 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
I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 1996 September 30, 1996
----------------- ------------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 11,886 $ 13,323
Receivables:
Trade, less allowance for doubtful accounts of $19,807
and $19,958, respectively 576,579 580,104
Interest 25,577 21,067
Inventories 1,986,020 1,810,949
Deferred income taxes 116,000 116,000
Other current assets 97,629 102,952
----------- -----------
TOTAL CURRENT ASSETS 2,813,691 2,644,395
PROPERTY AND EQUIPMENT:
Land 57,211 57,211
Building 884,812 884,812
Furniture and Equipment 1,194,257 1,127,294
----------- -----------
2,136,280 2,069,317
----------- -----------
Less accumulated depreciation (687,698) (642,427)
----------- -----------
1,448,582 1,426,890
OTHER ASSETS
Investments 430,552 410,816
Inventories 771,000 771,000
Other 269,102 203,945
----------- -----------
TOTAL ASSETS $ 5,732,927 $ 5,457,046
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to bank $ 302,000 $ 50,000
Current maturities of long-term obligation 7,521 7,521
Accounts payable 346,321 212,617
Accrued salaries, wages, payroll taxes 231,417 337,426
Income taxes payable 40,772 29,103
Other accrued expenses 22,743 70,986
----------- -----------
TOTAL CURRENT LIABILITIES 950,774 707,653
LONG-TERM OBLIGATION, less current maturities 390,454 392,060
DEFERRED INCOME TAXES 123,000 123,000
SHAREHOLDERS' EQUITY:
Common stock $0.01 par value 26,723 26,723
Additional paid-in capital 2,276,110 2,276,110
Retained earnings 3,114,422 3,080,056
----------- -----------
5,417,255 5,382,889
Less: Receivable from ESOP (101,306) (101,306)
Stock subscription receivable (80,000) (80,000)
Stock in escrow related to research and
development arrangement (967,250) (967,250)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 4,268,699 4,234,333
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 5,732,927 $ 5,457,046
=========== ===========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended
December 31
1996 1995
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<S> <C> <C>
Net sales $ 1,139,632 $ 939,335
Cost of goods sold 320,396 271,226
----------- -----------
Gross margin 819,236 668,109
Selling, general and administrative expenses 773,412 671,210
----------- -----------
Operating earnings (loss) 45,824 (3,101)
Interest expense (11,238) --
Interest and other income 10,162 13,155
----------- -----------
Earnings before income taxes 44,748 10,054
Income taxes 10,382 3,660
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Net earnings $ 34,366 $ 6,394
=========== ===========
Net earnings per common and common equivalent share $ .01 $ --
=========== ===========
Weighted average common shares outstanding 2,672,278 2,672,278
=========== ===========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
December 31
-------------------------
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 34,366 $ 6,394
Adjustments to reconcile net earnings to net cash used in
operating activities:
Depreciation and amortization 45,271 11,739
Change in operating assets and liabilities:
Receivables (985) 20,473
Inventories (175,071) (434,259)
Other current assets 5,323 (30,691)
Accounts payable 133,704 204,969
Accrued expenses (154,252) 41,253
Income taxes payable 11,669 --
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (99,975) (180,122)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Additions to) reduction of other assets (65,157) 8,469
Purchase of property and equipment (66,963) (58,844)
Investments (19,736) (19,736)
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NET CASH USED IN INVESTING ACTIVITIES
(151,856) (70,111)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Note payable to bank 252,000 --
Long term obligation payments (1,606) --
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 250,394 --
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,437) (250,233)
CASH AND CASH EQUIVALENTS, at beginning of period 13,323 689,420
--------- ---------
CASH AND CASH EQUIVALENTS, at end of period $ 11,886 $ 439,187
========= =========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
OXBORO MEDICAL INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 1996
(UNAUDITED)
1. Interim Financial Statements
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, 1996.
2. Inventories
<TABLE>
<CAPTION>
December 31, September 30,
1996 1996
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<S> <C> <C>
Inventories consist of:
Raw materials $1,343,822 $1,448,151
Finished goods 1,413,198 1,133,798
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$2,757,020 $2,581,949
========== ==========
The above amounts include portions of inventories classified as long
term.
3. Investments
December 31, September 30,
1996 1996
------------ -------------
Investments include:
Investment in cash surrender value of
life insurance $367,561 $347,825
Investment in limited partnership 62,991 62,991
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$430,552 $410,816
======== ========
</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. Shareholders' Equity
Changes in shareholders' equity during the three months ended December
31, 1996 were as follows:
Shareholders' equity at September 30, 1996 $4,234,333
Net earnings 34,366
----------
Shareholders' equity at December 31, 1996 $4,268,699
==========
5. Supplemental Disclosure of Cash Flow Information
The Company paid $11,238 and $0 in interest during the three months
ended December 31, 1996 and 1995, respectively, and received cash of
$2,911 and $7,572 as interest payments during the three months ended
December 31, 1996 and 1995, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Liquidity and Capital Resources
As of December 31, 1996, the Company had working capital of $1,862,917 as
compared to $1,936,742 at September 30, 1996 and long-term debt of $390,454. As
of December 31, 1996, the Company had $11,886 in cash as compared to $13,323 at
September 30, 1996.
During the quarter ended December 31, 1996, the Company used $99,975 in net cash
in operating activities, including increases of $133,704 in payables offset by
an increase of $175,071 in inventories.
The Company used $151,856 in investing activities during the quarter ended
December 31, 1996, primarily for equipment and tooling and intangibles for
Oxboro Outdoors ("Outdoors") products.
The Company has obtained a line of credit of $1,000,000 subject to certain terms
and conditions related to the Company's financial performance. As of December
31, 1996, the Company has drawn $302,000 on this line of credit. The Company
believes that additional funds, if needed, would be available in amounts
sufficient for the Company's fiscal 1997 operations.
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 for the three-month period ended December 31, 1996 were $1,139,632 as
compared to $939,335 for the corresponding period in the previous fiscal year.
This represents an increase of approximately 21%. The Company performed well in
both the medical and Outdoors markets.
Sales of medical and surgical products were $1,039,217, an increase of 13% or
$115,900 over the corresponding period in fiscal 1996. The largest dollar
increase in sales ($52,944 or 8%) came from direct sales to hospitals, while the
largest percentage sales increase (51%, or $49,385) was from sales to surgical
procedural kit packaging/OEM accounts. The competitiveness of the market
continues in the Company's medical product markets.
Outdoors sales for the three months ended December 31, 1996, were $100,415 as
compared to $16,018 for the corresponding period in the previous fiscal year.
This represents an increase of approximately 527%. In Fiscal 1996, Outdoors
entered into a license agreement with NFL(TM) Properties, Inc. that gave
Outdoors the right to manufacture and sell fishing tackle printed with logos and
names of National Football League(TM) teams. Currently, these logos and names
are printed on three types of tackle for each of the 30 NFL(TM) football teams.
Shipment of these products began in late October 1996 and accounted for
approximately 84% of first quarter sales of Outdoors products.
Gross margin for the first quarter of fiscal 1996 and 1997 was 72% and 71%,
respectively. The gross margin for first quarter 1997 represents an improvement
over the consolidated gross margin of 65% for Fiscal 1996, resulting from
improved efficiencies in manufacturing. Gross margin for the three-month period
ended December 31, 1996, for medical and surgical products improved by 4% from
72% to 76%. Gross margin for the same period for Outdoors declined by 29% from
57% to 28%, although Outdoors has improved its gross margin from a negative 10%
for Fiscal 1996 to the current 28%.
During the first quarter of fiscal 1997, selling, general and administrative
("SG&A") expenses increased by 15%, or $102,202, but decreased approximately 4%
as a percentage of sales as compared to the first quarter of Fiscal 1996.
Expenses increased for medical by $37,837, or 8%, resulting from increases in
outside services for temporary employees in the inventory/accounting areas,
increases in salaries and associated expenses related to the impact of annual
salary increases and additional personnel, increased bank/interest charges
related to the newly established credit line and increased legal and
depreciation expenses. These increases were partly offset by a reduction in
management bonuses, reduced research and development activities and a reduction
in the use of outside consultants.
Expenses increased for Outdoors by $64,365, or 40%, compared to the
corresponding period in the previous fiscal year. The increases were due to
increased royalty payments based on contractual obligations, increases in
advertising for national exposure of NFL(TM) tackle, increased medical
reimbursement to employees and increased use of outside consultants.
Earnings before income taxes for first quarter of fiscal 1997 was $44,748 as
compared to $10,054 for the first quarter of fiscal 1996, an increase of 345%.
The increase is mainly due to the improvement of gross margin for the medical
and surgical products due to improved manufacturing efficiencies and the
decrease of selling, general and administrative expenses as a percentage of net
sales.
Forward Looking Statements
Forward-looking statements herein are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Investors
are cautioned that all forward-looking statements involve risks and uncertainty.
There are certain important factors that could cause results to differ
materially from those anticipated by some of the statements made herein. 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
27 Financial Data Schedule
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the quarter ended
December 31, 1996.
SIGNATURES
Pursuant to the requirements of the Exchange Act, the Registrant caused
this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
OXBORO MEDICAL INTERNATIONAL,
INC.
Dated: February 13, 1997 By /s/ Harley Haase
---------------------------------------
Harley Haase
Its President and Chief Executive Officer
Dated: February 13, 1997 By /s/ Larry A. Rasmusson
---------------------------------------
Larry A. Rasmusson
Its Chief Financial and
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE QUARTER ENDED DECEMBER 31, 1996, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 11,886
<SECURITIES> 0
<RECEIVABLES> 596,386
<ALLOWANCES> 19,807
<INVENTORY> 2,757,020
<CURRENT-ASSETS> 2,813,691
<PP&E> 1,448,582
<DEPRECIATION> 687,698
<TOTAL-ASSETS> 5,732,927
<CURRENT-LIABILITIES> 950,774
<BONDS> 0
0
0
<COMMON> 26,723
<OTHER-SE> 4,241,976
<TOTAL-LIABILITY-AND-EQUITY> 5,732,927
<SALES> 1,139,632
<TOTAL-REVENUES> 1,139,632
<CGS> 320,396
<TOTAL-COSTS> 320,396
<OTHER-EXPENSES> 773,412
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,238
<INCOME-PRETAX> 44,748
<INCOME-TAX> 10,382
<INCOME-CONTINUING> 34,366
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,366
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
