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 March 31, 1997
[ ] 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 __X__ No ____
The number of shares of the issuer's Common Stock outstanding at
April 30, 1997 was 2,732,278 shares.
OXBORO MEDICAL INTERNATIONAL, INC.
TABLE OF CONTENTS
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets March 31, 1997 3
(unaudited) and September 30, 1996
Condensed Consolidated Statements of Operations for 4
Three Months and Six Months Ended March 31, 1997 and
1996 (unaudited)
Condensed Consolidated Statements of Cash Flows for 5
Six Months Ended March 31, 1997 and 1996 (unaudited)
Notes to Condensed Consolidated Financial Statements 6
(unaudited)
Item 2. Management's Discussion and Analysis 7
Part II. Other Information
Item 5. Other Information 9
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>
March 31, September 30,
1997 1996
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 24,280 $ 13,323
Accounts receivable, less allowance for doubtful
accounts of $19,965 and $19,958, respectively 578,862 580,104
Interest receivable 20,267 21,067
Inventories 2,037,619 1,810,949
Deferred income taxes 116,000 116,000
Other current assets 202,699 102,952
----------- -----------
TOTAL CURRENT ASSETS 2,979,727 2,644,395
PROPERTY AND EQUIPMENT:
Building 884,812 884,812
Land 57,211 57,211
Furniture and equipment 1,177,300 1,127,294
----------- -----------
2,119,323 2,069,317
Less accumulated depreciation (732,878) (642,427)
----------- -----------
1,386,445 1,426,890
INVESTMENTS 450,288 410,816
INVENTORIES 771,000 771,000
OTHER ASSETS 266,202 203,945
----------- -----------
TOTAL ASSETS $ 5,853,662 $ 5,457,046
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to bank $ 535,000 $ 50,000
Current maturities of long-term debt 7,521 7,521
Accounts payable 127,479 212,617
Accrued salaries, wages, payroll taxes 218,717 337,426
Income taxes payable 31,797 29,103
Other accrued expenses 40,026 70,986
----------- -----------
TOTAL CURRENT LIABILITIES 960,540 707,653
LONG-TERM DEBT 388,619 392,060
DEFERRED INCOME TAXES 123,000 123,000
SHAREHOLDERS' EQUITY:
Common stock 27,323 26,723
Additional paid-in capital 2,365,510 2,276,110
Retained earnings 3,129,726 3,080,056
----------- -----------
5,522,559 5,382,889
Less: Receivable from ESOP (93,806) (101,306)
Stock subscription receivable (80,000) (80,000)
Deferred R&D expense (967,250) (967,250)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 4,381,503 4,234,333
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'EQUITY $ 5,853,662 $ 5,457,046
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31 March 31
---------------------------- ----------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $1,161,663 $1,040,270 $2,301,295 $1,979,605
Cost of goods sold 317,978 290,372 638,374 561,598
---------- ---------- ---------- ----------
843,685 749,898 1,662,921 1,418,007
Selling, general and administrative
expenses 825,176 706,273 1,609,826 1,377,483
---------- ---------- ---------- ----------
18,509 43,625 53,095 40,524
Interest and other income 8,820 8,578 18,981 21,733
---------- ---------- ---------- ----------
Earnings before income taxes 27,329 52,203 72,076 62,257
Provisions for income taxes 12,025 19,002 22,407 22,662
---------- ---------- ---------- ----------
Net income $ 15,304 $ 33,201 $ 49,669 $ 39,595
========== ========== ========== ==========
Net income per share of common stock
(based on weighted average) $ .01 $ .01 $ .02 $ .01
========== ========== ========== ==========
Weighted average common shares
2,716,166 2,672,278 2,693,981 2,672,278
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
March 31
---------------------------
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 49,669 $ 39,595
Adjustments to reconcile net earnings to net cash used in
operating activities:
Depreciation 90,452 60,882
Change in current assets and current liabilities:
Accounts receivable 2,042 (42,598)
Inventories (226,670) (612,687)
Other current assets (99,747) (6,501)
Accounts payable (85,138) 130,496
Income taxes payable 2,694 -
Accrued salaries, wages, payroll taxes and other
accrued expenses (149,669) 69,670
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (416,367) (361,143)
CASH FLOWS FROM INVESTING ACTIVITIES:
Long-term investment (39,472) 176,245
(Additions to) reduction of other assets (62,257) 12,547
Purchase of property, plant and equipment (50,006) (366,330)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (151,735) (177,538)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options 90,000 --
Payment of ESOP subscription 7,500 --
Payments on long-term debt (3,441) --
Bank note proceeds 485,000 --
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 579,059 --
--------- ---------
NET INCREASE (DECREASE) IN CASH 10,957 (538,681)
CASH at beginning of period 13,323 689,420
========= =========
CASH at end of period $ 24,280 $ 150,739
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the six months ended March 31 for:
Income taxes $ 29,000 $ -
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
OXBORO MEDICAL INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED MARCH 31, 1997
(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
March 31, September 30,
1997 1996
---------- ----------
Inventories consist of:
Raw materials $1,376,223 $1,448,151
Finished goods 1,432,396 1,133,798
---------- ----------
$2,808,619 $2,581,949
========== ==========
3. Long-Term Investments
Long-term investments include:
March 31, September 30,
1997 1996
---------- ----------
Investment in cash surrender value of
life insurance $ 387,297 $ 347,825
Investment in limited partnership 62,991 62,991
========== ==========
$ 450,288 $ 410,816
========== ==========
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 six months ended March 31,
1997 were as follows:
Shareholders' equity at September 30, 1996 $4,234,333
Net earnings 49,670
Exercise of stock options 90,000
Receipt of ESOP receivable 7,500
----------
Shareholders' equity at March 31, 1997 $4,381,503
==========
5. Supplemental Disclosure of Cash Flow Information
The Company paid $29,299 and $149 in interest during the six months
ended March 31, 1997 and 1996, respectively, and received cash of
$10,133 and $0 as interest payments during the six months ended March
31, 1997 and 1996, respectively.
6. Recently Issued Accounting Standards
Financial Accounting Standards Board Statement No. 128, "Earnings per
Share" ("Statement No. 128"), issued in February 1997 and effective for
fiscal years ending after December 15, 1997, establishes and simplifies
standards for computing and presenting earnings per share ("EPS"). The
Company has not yet determined the impact of implementation of this
statement on the Company's computation or presentation of EPS.
Item 2. Management's Discussion and Analysis
Results of Operations
The Company develops, assembles and markets disposable medical products for use
in general and cardiovascular surgery ("Medical") and through its wholly-owned
subsidiary, Oxboro Outdoors, Inc. ("Outdoors"), develops and markets products
for outdoor recreational use.
Net sales during the three-month and six-month periods ended March 31, 1997,
increased by 11.7% and 16.3%, respectively, as compared to the corresponding
periods in the previous fiscal year. Medical sales for fiscal 1997 for the
three-month and six-month periods were $1,057,998 and $2,097,216, representing
increases of 6.3% and 9.3% compared to the corresponding prior periods.
Increases were realized in sales to dealer/distributors, surgical kit packing
companies, hospitals and international distributors.
Outdoors sales for the three-month and six-month periods of fiscal 1997 were
$103,665 and $204,079, compared to $44,945 and $60,964 for the comparable prior
periods. The increases in Outdoors sales result mainly from sales of tackle
products produced under the license from NFL(R) Properties, Inc.
Gross margin was 72.3% for the first six months of 1997 and 71.6% for the first
six months of 1996. Manufacturing processes resulting in improved efficiencies
accounted for substantially all of the improvement in gross margin.
Selling, general and administrative expenses during the three-month and
six-month periods ended March 31, 1997, increased by 16.8% and 16.9%,
respectively, as compared to the corresponding periods in the previous fiscal
year. Increases in Medical expenses were due mainly to increases in gross wages,
printing, repair and maintenance, insurance, and legal costs and depreciation
with offsetting decreases in annual meeting and bonus expenses. The increases in
Outdoors expenses were due mainly to royalty expenses associated with sales of
NFL(R) licensed products, and advertising, convention, and legal expense.
Earnings before taxes during the three-month and six-month periods ended March
31, 1997, were $27,329 and $72,076, which represents a decrease of 48% and an
increase of 25%, respectively, as compared to the corresponding periods.
Liquidity and Capital Resources
As of March 31, 1997, the Company had working capital of $2,019,187 as compared
to $1,936,742 at September 30, 1996 and $388,619 of long-term debt. As of March
31, 1997, the Company had $24,280 in cash as compared to $13,323 at September
30, 1996.
During the six months ended March 31, 1997, the Company used $416,367 in cash in
operating activities, including an increase of $226,670 in inventory offset by
an increase of $485,000 in notes payable to bank.
The Company used $151,735 in investing activities during the six months ended
March 31, 1997, mainly in the purchase of equipment and property used for
continuing operations.
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 March 31,
1997, the Company has drawn $535,000 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.
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.
PART II. OTHER INFORMATION
Item 5. Other Information
On March 21, 1997, the Company announced that Harley Haase will no
longer serve as the Company's president and chief executive officer.
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
March 31, 1997.
SIGNATURE
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: May 15, 1997 By /s/ Larry A. Rasmusson
-------------------------------
Larry A. Rasmusson
Its Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE 6 MONTHS ENDED MARCH 31, 1997, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 24,280
<SECURITIES> 0
<RECEIVABLES> 598,827
<ALLOWANCES> 19,965
<INVENTORY> 2,037,619
<CURRENT-ASSETS> 2,979,727
<PP&E> 2,199,323
<DEPRECIATION> 732,878
<TOTAL-ASSETS> 5,853,662
<CURRENT-LIABILITIES> 960,540
<BONDS> 388,619
0
0
<COMMON> 27,323
<OTHER-SE> 5,495,236
<TOTAL-LIABILITY-AND-EQUITY> 5,853,662
<SALES> 2,301,295
<TOTAL-REVENUES> 2,301,295
<CGS> 638,374
<TOTAL-COSTS> 638,374
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,299
<INCOME-PRETAX> 72,076
<INCOME-TAX> 22,407
<INCOME-CONTINUING> 49,669
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 49,669
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
