SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended March 31, 1999
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
Check whether the issuer (1) 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 registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes: X No:
Applicable only to corporate issuers: State the number of shares of the
issuer's Common Stock outstanding as of April 30, 1999: 2,160,128
shares.
Transitional Small Business Disclosure Format:
Yes: X No:
OXBORO MEDICAL INTERNATIONAL, INC.
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 1999 3
and September 30, 1998 (unaudited)
Condensed Consolidated Statements of Operations for Three 4
Months and Six Months Ended March 31, 1999 and 1998
(unaudited)
Condensed Consolidated Statements of Cash Flows for Six 5
Months Ended March 31, 1999 and 1998 (unaudited)
Notes to Condensed Consolidated Financial Statements 6
(unaudited)
Item 2. Management's Discussion and Analysis 6
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 8
Item 5. Other Information 8
Signature 9
2<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
OXBORO MEDICAL INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, September 30,
1999 1998
--------- ---------
ASSETS
CURRENT ASSETS:
Cash $167,500 $71,125
Accounts receivable, less allowance
for doubtful accounts of $21,950
and $24,601, respectively 764,757 717,014
Inventories 1,020,519 1,926,925
Deferred income taxes 103,000 103,000
Other current assets 107,594 102,405
--------- ---------
TOTAL CURRENT ASSETS 2,163,370 2,920,469
PROPERTY AND EQUIPMENT, NET 1,198,323 1,242,634
OTHER ASSETS
Investments -- Cash surrender value
of life insurance 132,325 287,029
Other 97,492 128,251
---------- ----------
$3,591,510 $4,578,383
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to bank $545,313 $288,313
Current maturities of long-term debt 7,621 7,621
Accounts payable 326,202 315,017
Accrued salaries, wages, payroll taxes 117,848 109,675
Other accrued expenses 340,773 538,472
------- -------
TOTAL CURRENT LIABILITIES 1,337,757 1,259,098
LONG-TERM DEBT 374,476 379,041
DEFERRED INCOME TAXES 103,000 103,000
SHAREHOLDERS' EQUITY:
Common stock 24,096 24,386
Additional paid-in capital 1,493,707 1,536,617
Retained earnings 477,780 1,538,747
--------- ---------
1,995,583 3,099,750
Stock subscription receivable (219,306) (262,506)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 1,776,277 2,837,244
--------- ---------
$3,591,510 $4,578,383
---------- ----------
See accompanying notes to condensed consolidated financial statements.
3<PAGE>
OXBORO MEDICAL INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
March 31 March 31
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
Net sales $1,387,916 $1,226,800 $2,608,139 $2,404,546
Cost of goods sold 1,455,021 402,582 1,939,893 813,863
--------- --------- --------- ---------
Gross margin (loss) (67,105) 824,218 668,246 1,590,683
Selling, general and
administrative expenses 927,599 957,317 1,731,728 1,607,045
-------- ------- --------- ---------
Operating loss (994,704) (133,099) (1,063,482) (16,362)
Interest expense (18,804) (11,942) (35,156) (22,526)
Interest and other income 0 8,272 37,671 12,883
------ ------ ------ ------
Loss before income taxes (1,013,508) 136,769) (1,060,967) (26,005)
Income tax benefit 0 (27,153) 0 (5,000)
-------- ------ --------- -----
Net loss ($1,013,508) ($109,616) ($1,060,967) ($21,005)
---------- -------- ---------- -------
---------- -------- ---------- -------
Net loss per share
Basic ($.47) ($.04) ($.46) ($.01)
----- ---- ---- ----
Diluted ($.47) ($.04) ($.46) ($.01)
----- ---- ---- ----
Weighted average common
and common equivalent
shares outstanding
Basic 2,160,128 2,730,552 2,299,353 2,493,840
--------- --------- --------- ---------
Diluted 2,160,128 2,730,552 2,299,353 2,493,840
--------- --------- --------- ---------
See accompanying notes to condensed consolidated financial statements.
4<PAGE>
OXBORO MEDICAL INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
March 31
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($1,060,967) ($21,005)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 86,905 99,258
Inventory adjustments 900,553 0
Compensation expense related to options 0 12,500
Change in current assets and current
liabilities:
Accounts receivable (47,743) 3,847
Inventories 5,853 (147,358)
Other current assets (5,190) 93,341
Accounts payable 11,185 38,232
Income taxes payable 0 (6,000)
Accrued salaries, wages, payroll taxes
and other accrued expenses (189,526) (143,550)
------- -------
NET CASH USED IN OPERATING ACTIVITIES (298,930) (70,735)
CASH FLOWS FROM INVESTING ACTIVITIES:
Long-term investment 154,704 0
Reductions in (additions to) other assets 30,759 (95,338)
Purchase of property and equipment (42,594) (41,595)
------ ------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 142,869 (136,933)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (4,564) (3,223)
Bank note proceeds 257,000 137,000
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 252,436 133,777
------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 96,375 (73,891)
CASH AND CASH EQUIVALENTS,
at beginning of period 71,125 124,815
------ -------
CASH AND CASH EQUIVALENTS,
at end of period $167,500 $50,924
------- ------
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the six months
ended March 31 for:
Income taxes 0 0
Interest 35,156 22,526
See accompanying notes to condensed consolidated financial statements.
5<PAGE>
OXBORO MEDICAL INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared by Oxboro Medical International, Inc. (the "Company"
or "Oxboro") pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. Although management believes that
the disclosures are adequate to make the information presented not
misleading, it is suggested that these interim consolidated financial
statements be read in conjunction with the Company's most recent audited
consolidated financial statements and notes thereto. In the opinion of
management, all adjustments (which include only normal recurring
adjustments) necessary for a fair presentation of the financial position,
results of operations and cash flows for the interim periods presented
have been made. Operating results for the six months ended March 31, 1999
are not necessarily indicative of the results that may be expected for
the year ending September 30, 1999.
2. INVENTORIES
March 31, 1999 September 30, 1998
-------------- ------------------
Inventories consist of:
Raw materials $690,554 $1,087,488
Finished goods 329,965 839,437
------- ---------
$1,020,519 $1,926,925
--------- ---------
3. NET EARNINGS (LOSS) PER SHARE
The Company's basic net loss per share amounts have been computed by
dividing net loss by the weighted average number of outstanding common
shares. The Company's diluted net loss per share is computed by dividing
net loss by the weighted average number of outstanding common shares and
common share equivalents relating to stock options, when dilutive. For
the six months ended March 31, 1999 and 1998, no common share equivalents
would have been included in the computation of diluted net income per
share had net income been achieved.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
The Company develops, assembles, and markets medical and surgical devices
and, through its wholly-owned subsidiary, Oxboro Outdoors, Inc.
("Outdoors"), develops, assembles and markets products for the fishing
markets. Principal medical products produced and sold by Oxboro include
silicone loops, silicone and fabric clamp covers, instrument guards,
suture aid booties and identification sheet and roll tape. Outdoors'
principal products fall into two groups. One group consists of products
licensed by professional sports organizations ("Licensed Products") and
is comprised of fishing lures products, earrings and key chains. Outdoors
has license agreements for such products with NFL Properties, Inc., Major
League Baseball, and National Association for Stock Car Auto Racing, Inc.
("NASCAR"), and other professional sports organizations. The other
product group consists of miscellaneous fishing related products,
including fishing tackle products (hooks, lures, leaders, weights,
artificial bait and lines), fishing tools and equipment, and fishing and
hunting accessory products (self-adhesive organizational foam and other
products).
RESULTS OF OPERATIONS
Net sales for the three-month period ended March 31, 1999 were $1,387,916
as compared to $1,226,800 for the corresponding period in the previous
fiscal year. This represents an increase of approximately 13%.
Net sales of medical and surgical products were $1,198,553, an increase
of 3.8%, or $44,542, as compared to the corresponding period in fiscal
1998. Strong competition continues in the Company's medical product
markets.
Outdoors sales for the three months ended March 31, 1999 were $189,363
as compared to $72,789 for the corresponding period in the previous
fiscal year, an increase of approximately 160%. For second quarter 1999,
shipment of "Licensed Products" accounted for approximately 66% of sales
of Outdoors products as compared to 53% of sales for the corresponding
period in fiscal 1998.
Gross margin for the second quarter of fiscal 1999 and 1998 was (-5%) and
67%, respectively. The 72% decrease in gross margin for second quarter
1999 resulted from adjustments to record inventory ($900,553) to net
realizable value. Gross margin for the three-month period ended March 31,
1999 for medical and surgical products decreased by 26% from 69% to 43%.
Gross margin for the same period for Outdoors decreased by 344% from 33%
to (-311%). Gross margin for the second quarter, before adjustments to
inventory, was 60% (Medical 64%, Outdoors 38%).
During the second quarter of fiscal 1999, selling, general and
administrative ("SG&A") expenses decreased by 3%, or $29,718 and
decreased from 78% to 67% as a percentage of sales, as compared to the
second quarter of fiscal 1998.
SG&A expenses for Oxboro decreased by approximately $86,182, or 11%,
resulting substantially from reduced annual meeting and proxy costs.
SG&A expenses for Outdoors increased by approximately $56,464, or 31%,
compared to the corresponding period in the previous fiscal year. The
increase was due mainly to bad debt expenses of $70,940.
The loss before income taxes for second quarter of fiscal 1999 was
$1,013,508 as compared to a loss of $136,769 in second quarter of fiscal
1998. The increased loss is mainly due to the inventory adjustments
discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company has typically financed its operations through internal
working capital and a bank line-of-credit. Financing of its building has
been through long-term bank financing. As of March 31, 1999, the Company
had working capital of $825,613 as compared to $1,661,371 at September
30, 1998, and long-term debt of $374,476 as compared to $379,041 at
September 30, 1998. As of March 31, 1999, the Company had $167,500 in
cash as compared to $71,125 at September 30, 1998.
During the quarter ended March 31, 1999, the Company used $65,982 of cash
in operating activities, primarily due to decrease of $ 44,959 in accrued
expenses. The Company generated $ 180,874 in investing activities during
the quarter ended March 31, 1999, primarily from borrowings against cash
value of life insurance.
As of March 31, 1999, the Company's outstanding balance on a $550,000
line of credit with Norwest Bank was $545,313, increased from $288,313 at
September 30, 1998. The line of credit expires on May 31, 1999. The
Company's management has discussed with Norwest Bank an extension of
credit beyond that date, and it has commenced negotiations for an
extension of credit.
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, changes in management of the Company,
maintenance of operating capital and bank financing, and overall economic
conditions, including inflation and consumer buying patterns.
YEAR 2000 ISSUES
The Company has assessed and continues to assess the impact of the Year
2000 issue on its reporting systems and operations. The Year 2000 issue
exists because many computer systems and applications currently use two-
digit fields to designate a year. As the century date occurs, date
sensitive systems may recognize the Year 2000 as 1900 or not at all. This
inability to recognize or properly treat the Year 2000 may cause systems
to process critical financial and operational information incorrectly.
The Company is currently installing a new computer system which is Y2K
compliant, and expects the computer system to be operational prior to the
end of the year. If Year 2000 modifications are not properly completed
either by the Company or any entities with whom the Company conducts
business, which include approximately 3,800 hospitals, the Company could
be unable to receive, process, or ship orders to customers on a timely
basis, if at all. In such case, the Company's revenues and financial
condition could be adversely impacted. At this time the Company believes
it is not necessary to adopt a contingency plan for the possibility that
assessments and potential corrections will not be completed in a timely
manner. However, the Company will continue to assess the need for a
contingency plan, particularly as it relates to the capabilities of its
customers.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of shareholders was held on March 4, 1999,
at which the only matter voted upon by the shareholders was the election
of John Sayer as a Class II director, to serve a three year term.
ITEM 5. OTHER INFORMATION
CHANGE IN MANAGEMENT
On February 15, 1999, Matthew E. Bellin joined the Company as President
and COO, replacing Christopher Turnbull, interim President. Mr. Bellin
has over 20 years in the medical industry. He was a founder of
Biomedical Dynamics Corp. and Medical Internet Communications Inc.
(MEDICOM).
NASDAQ LISTING REQUIREMENTS
After adjustments of $969,493 in inventory, bad debt and other
miscellaneous assets, net tangible assets were $1,776,277 as of March 31,
1999, or $223,723 below the minimum capital requirements for continued
listing on the NASDAQ Small Cap System. The Company expects to receive a
notice from NASDAQ requiring it to develop and execute a plan
satisfactory to NASDAQ, that would within approximately 60 days bring the
Company's net tangible assets back over $2,000,000. If the Company is
unable to accomplish that, the Company's common stock could be delisted
by NASDAQ. Although the Company's stock might then be eligible to trade
on the OTC Bulletin Board, there could be a negative impact on the price
and liquidity of the Company's common stock.
RASMUSSON LICENSE
Oxboro has been notified by a former officer of the Company, Larry
Rasmusson, that the Company is currently in default of royalty agreements
related to certain medical products. The company has been evaluating the
legal validity of such agreements and if it concludes that they are
voidable, it will seek to terminate, rescind and invalidate such
agreements and take such other actions as may to it seem appropriate,
including without limitation, the commencement of litigation. If such
agreements are found valid, or if any such litigation is determined
adversely to it, the Company may lose the right to manufacture and
distribute certain products. There could be a substantial negative
impact on the company's revenues and profits in such event until it
located and acquired or developed alternative products.
SIGNATURE
In accordance with 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: May 20, 1999 By /s/ Matthew E. Bellin
-------------------------
Matthew E. Bellin
Its President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENT FOR THE 6 MONTHS ENDED MARCH 31, 1999, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 167,500
<SECURITIES> 0
<RECEIVABLES> 786,707
<ALLOWANCES> 21,950
<INVENTORY> 1,020,519
<CURRENT-ASSETS> 2,163,370
<PP&E> 2,301,037
<DEPRECIATION> 1,102,714
<TOTAL-ASSETS> 3,591,510
<CURRENT-LIABILITIES> 1,337,257
<BONDS> 0
0
0
<COMMON> 24,096
<OTHER-SE> 1,752,181
<TOTAL-LIABILITY-AND-EQUITY> 3,591,510
<SALES> 2,608,139
<TOTAL-REVENUES> 2,608,139
<CGS> 1,939,893
<TOTAL-COSTS> 1,939,893
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,156
<INCOME-PRETAX> (1,060,967)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,060,967)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,060,967)
<EPS-PRIMARY> (.46)
<EPS-DILUTED> (.46)
</TABLE>
