<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(MARK ONE)
X Quarterly Report under to Section 13 or 15(d) of the Securities
------- Exchange Act of 1934
For the quarterly period ended June 30, 1999
Transaction report under Section 13 or 15(d) of the
------- Exchange Act
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 (IRS Employer
incorporation or organization) Identification No.)
13828 Lincoln Street N.E., Ham Lake, Minnesota 55304
- --------------------------------------------------- ------------------------
(Address of principal executive offices) (ZIP Code)
Issuer's telephone number: (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 June 30,
1999 was 2,187,155 shares.
<PAGE>
OXBORO MEDICAL INTERNATIONAL, INC.
FORM 10-QSB
QUARTER ENDED JUNE 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
June 30, 1999 (unaudited) and September 30, 1998 3
Condensed Consolidated Statements of Operations for Three Months
and Nine Months Ended June 30, 1999 and 1998 (unaudited) 4
Condensed Consolidated Statements of Cash Flows for
Nine Months Ended June 30, 1999 and 1998 (unaudited) 5
Notes to Condensed Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis 7
PART II. OTHER INFORMATION
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 14
Signature 14
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
1999 1998
----------------- -----------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 529,100 $ 71,125
Accounts receivable, less allowance for doubtful
accounts of $20,518 and $23,808, respectively 681,472 717,014
Note Receivable 140,000 -
Inventories 597,687 1,926,925
Income taxes receivable 52,758 46,758
Deferred income taxes 103,000 103,000
Other current assets 35,227 55,647
----------------- -----------------
TOTAL CURRENT ASSETS 2,139,244 2,920,469
PROPERTY AND EQUIPMENT:
Building 905,366 905,366
Land 57,211 57,211
Furniture and equipment 853,556 1,295,866
----------------- -----------------
1,816,133 2,258,443
Less accumulated depreciation (875,258) (1,015,809)
----------------- -----------------
940,875 1,242,634
CASH SURRENDER VALUE OF LIFE INSURANCE 143,687 287,029
OTHER ASSETS 1,041 128,251
----------------- -----------------
TOTAL ASSETS $ 3,224,847 $ 4,578,383
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long term obligation $ 7,621 $ 7,621
Note payable to bank 545,313 288,313
Accounts payable 164,276 315,017
Accrued salaries, wages, payroll taxes 97,953 109,675
Accrued consulting fees 226,449 428,531
Other accrued expenses 80,379 109,941
----------------- -----------------
TOTAL CURRENT LIABILITIES 1,121,991 1,259,098
LONG TERM OBLIGATION 371,893 379,041
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 329,466 1,538,747
Receivable from ESOP (174,306) (174,306)
Stock subscriptions receivable (45,000) (88,200)
----------------- -----------------
TOTAL SHAREHOLDERS' EQUITY 1,627,963 2,837,244
----------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,224,847 $ 4,578,383
================= =================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30 June 30
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 1,332,849 $ 1,367,603 $ 3,940,987 $ 3,772,149
Cost of goods sold 565,529 483,247 2,505,422 1,297,111
------------- ------------- ------------- ------------
Gross Profit 767,320 884,356 1,435,565 2,475,038
Selling, general and administrative expenses 737,785 871,068 2,469,512 2,478,111
------------- ------------- ------------- ------------
Operating income (loss) 29,535 13,288 (1,033,947) (3,073)
Loss on disposal of business segment (102,045) - (102,045) -
Interest and other income (expense) (75,804) (1,029) (73,289) (10,673)
------------- ------------- ------------- ------------
Earnings (loss) before income taxes (148,314) 12,259 (1,209,281) (13,746)
Income tax expense (benefit) - 2,500 - (2,500)
------------- ------------- ------------- ------------
Net earnings (loss) $ (148,314) $ 9,759 $ (1,209,281) $ (11,246)
============= ============= ============= ============
Net earnings (loss) per share
Basic $ (0.07) $ 0.00 $ (0.53) $ (0.00)
Diluted $ (0.07) $ 0.00 $ (0.53) $ (0.00)
Weighted average common and common
equivalent shares outstanding
Basic 2,187,155 3,168,942 2,261,954 2,740,852
Diluted 2,187,155 3,168,942 2,261,954 2,740,852
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
June 30
---------------------------------------------
1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,209,281) $ (11,246)
Loss on disposal of business segment 102,045 -
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 173,102 132,344
Loss on disposal of property and equipment 55,273
Compensation expense related to stock options - 12,500
Change in current assets and current liabilities:
Accounts receivable (74,819) (14,710)
Inventories 944,509 (84,922)
Other current assets 10,860 6,815
Accounts payable (70,231) (77,077)
Income taxes - (3,500)
Accrued expenses (236,542) (144,327)
--------------- -------------
NET CASH USED IN OPERATING ACTIVITIES (305,084) (184,123)
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (Increase) in cash surrender value life insurance 143,342 (51,065)
Disposal of other assets 39,574 38,275
Purchase of property and equipment (54,709) (72,628)
Proceeds from sale of business segment 385,000 -
--------------- -------------
NET CASH USED IN INVESTING ACTIVITIES 513,207 (85,418)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from ESOP payment - 7,500
Payment of long-term debt (7,148) (4,893)
Net borrowings under note payable to bank 257,000 257,000
--------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 249,852 259,607
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 457,975 (9,934)
CASH AND CASH EQUIVALENTS, at beginning of period 71,125 124,815
=============== =============
CASH AND CASH EQUIVALENTS, at end of period $ 529,100 $ 114,881
=============== =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the nine months ended June 30 for:
Income taxes $ - $ 6,360
Interest $ 55,687 $ 38,866
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
OXBORO MEDICAL INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 1999
1. Basis of Financial Statement Presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared by Oxboro Medical International,
Inc. ("Oxboro Medical" or the "Company") 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 three months and nine months ended June
30, 1999 are not necessarily indicative of the results that may be
expected for the year ending September 30, 1999.
2. Inventories
<TABLE>
<CAPTION>
June 30, September 30,
1999 1998
------------------- ------------------
<S> <C> <C>
Inventories consist of:
Raw materials $ 340,189 $ 1,087,488
Finished goods 257,498 839,437
------------------- ------------------
$ 597,687 $ 1,926,925
=================== ==================
</TABLE>
3. Net earnings (loss) per share
The Company's basic net earnings (loss) per share amounts have
been computed by dividing net earnings (loss) by the weighted
average number of outstanding common shares. The Company's diluted
net earnings (loss) per share is computed by dividing net earnings
(loss) by the weighted average number of outstanding common shares
and common share equivalents relating to stock options, when
dilutive. For the nine months ended June 30, 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.
4. On June 30, 1999, the Company sold its wholly owned subsidiary,
Oxboro Outdoors, Inc. (Outdoors), to a group of private investors.
The transaction was effected pursuant to the terms of a stock
purchase agreement at a purchase price of $650,000. The purchase
price was paid $385,000 in cash and $265,000 in the form of a
90-day, 9% promissory note. The purchase price is subject to
offsets in the event current licenses with Outdoors are
discontinued by the licensor within 90 days of the execution of
the promissory note. The Company has recorded a reserve of
$125,000 related to these offsets. The stock purchase agreement
also provides, among other things, that the Company will enter
into a lease agreement with the purchasers for the lease of space
previously used by Outdoors.
<PAGE>
OXBORO MEDICAL INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 1999
Item 2. Management's Discussion and Analysis
Overview
The Company develops, assembles, markets and sells medical and surgical
devices used in hospital operating rooms. On June 30, 1999, the Company sold
its wholly owned subsidiary Oxboro Outdoors, Inc. Sales, gross margin,
expenses and earnings amounts include Outdoors' results for the three and
nine month periods ending June 30, 1999.
Net sales during the three-month and nine month periods ended June 30, 1999
decreased 2.5% and increased 4.5%, respectively, as compared to the
corresponding periods in the previous fiscal year.
Oxboro Medical net sales for the three-month and nine-month periods were
$1,155,146 and $3,395,014, respectively, representing an increase of less
than 1% for both periods. Slight increases were noted in sales to
dealers/distributors and international customers with a slight decrease in
sales to hospitals and kit packing companies.
Outdoors net sales for the three-month and nine-month periods were $177,703
and $545,973, respectively, representing a three month decrease of 18.1% and
a nine month increase of 34.4% for comparable prior periods. The three month
sales decrease is the result of a decline in sales of NFL licensed product.
The nine month increase is the result of sales of Nascar licensed products
which were introduced in August of 1998.
Consolidated gross margin was 57.6% for the three month period and 36.4% for
the nine month period ended June 30, 1999, as compared to 64.7% and 65.6%,
respectively, for the same periods in fiscal 1998.
Oxboro Medical's gross margin was 62.8% and 56.5% for the three month and nine
month periods ended June 30, 1999, respectively, as compared to 68.4% and
69.0% for the same periods in fiscal 1998.
Outdoors' gross margin was 23.6% and -88.5% for the three month and nine month
periods ended June 30, 1999, respectively, as compared to 45.0% and 37.6% for
the same periods in fiscal 1998.
The decreases in gross margin for Oxboro Medical were due primarily to
inventory write-offs of slow moving items and increased labor costs compared
to fiscal 1998.
The decreases in gross margin for Outdoors were due primarily to inventory
write-offs of slow moving items and sales discount incentives.
Selling, general and administrative ("S,G&A") expenses decreased by 15.3% for
the three month period and less than 1.0% for the nine month period as
compared to the prior periods.
Oxboro Medical S,G&A expenses decreased 9.2% for the three month period as
result of a reduction in wages and consultation fees compared to the prior
period. For the nine month period, expenses increased 1.2% as reductions in
wages and FDA compliance costs were offset by increases in advertising and
non-compete payments made to a former officer of the Company.
Outdoors' S,G&A expenses decreased 35.1% for the three month period as a
result of a reduction in advertising and marketing related expenses compared
to the prior period. For the nine month period, expenses decreased 5.4% as
reductions in advertising and marketing expenses were offset by increases in
bad debt expenses.
Operating income (loss) during the three month and nine month periods ended
June 30, 1999 was $29,535 and ($1,033,947), respectively, compared to $13,288
and ($3,073), respectively, for the corresponding periods of fiscal 1998.
<PAGE>
OXBORO MEDICAL INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 1999
Item 2. Management's Discussion and Analysis
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999, the Company had working capital of $1,017,253, compared
to $1,661,371 at September 30, 1998, and long-term debt (net of current
maturities) of $371,893. As of June 30, 1999, the Company had $529,100 in
cash compared to $71,125 at September 30, 1998.
During the nine months ended June 30, 1999, the Company used $305,084 net
cash in operating activities, including a $236,542 decrease in accrued
expenses.
The Company generated $513,207 in investing activities primarily as a result
of the sale of Oxboro Outdoors.
The Company's financing activities provided $249,852 primarily from $257,000
in bank borrowings.
As of June 30, 1999, the Company's outstanding balance on a $550,000 line of
credit was $545,313, an increase of $257,000 from September 30, 1998. The
line of credit expired on May 31, 1999. The Company has negotiated a 90 day
extension of the line of credit.
YEAR 2000
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 made 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.
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: market acceptance of new products, changes in competitive
environment, general conditions in the industries served by the Company's
products, personnel changes and associated costs, financial obligations under
retirement agreements with senior management, continued availability of bank
financing and related costs, overall economic conditions including inflation,
potential business combinations or divestitures, and timeliness and cost of
regulatory compliance activities and any related impact on sales.
<PAGE>
OXBORO MEDICAL INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 1999
Item 2. Management's Discussion and Analysis
The following are important factors that could cause actual results to differ
materially from those anticipated in any forward looking statements made by
or on behalf of the Company:
RISKS RELATED TO OUR BUSINESS
We have sustained losses in the past due to subsidiary operations.
We have incurred substantial losses in recent years that have
depleted our working capital and reduced our stockholders' equity. Our
business incurred a net loss of $1,060,967 for the six months ended March 31,
1999 and $1,453,544 for the fiscal year ended September 30, 1998. These
losses have resulted principally from expenses incurred in the development of
our subsidiary, Oxboro Outdoors, Inc., and expenses due to payment of
severance packages to our former officers in connection with related proxy
litigation. We have recently completed the sale of Oxboro Outdoors. However,
prior to the sale and as a result of losses in Oxboro Outdoors, we incurred
significant operating losses. Although we have taken measures to increase our
sales revenues and profit margins and expect to show further improvement
following the sale of Oxboro Outdoors, there can be no assurance that our
core business will operate profitably in the future.
If we cannot maintain adequate operating capital and bank financing, our
business will suffer.
Our most recent bank examination indicates that we currently have
the minimum qualifying inventory and receivables, excluding the assets of
Oxboro Outdoors, to cover our existing loan balance. The sale of Oxboro
Outdoors will permit us, if needed, to pay down approximately 50% of our loan
balance. However, there can be no assurance that we will have sufficient
inventory and accounts receivable in the future to pay our remaining loan
balance. Failure to meet our loan obligations would have a material adverse
effect on our business.
If we do not remain competitive in the markets we serve, our business will be
adversely affected.
There is growing pressure on healthcare providers in general, and
the surgical area in particular, to reduce costs. The trend is towards
hospitals purchasing through buying groups and other large distributors,
which generally occurs at lower prices than selling direct to the customer.
This trend will make it difficult to maintain and grow sales at our historic
profit margins. If we are not able to introduce new products into such an
economic environment and compete at lower prices than other larger
distributors, our business will be adversely affected.
We are dependent on our management and key personnel to succeed.
Our principal executive officers and key personnel have extensive
experience in sales of medical products, which requires research and
development efforts to bring our products to market. Our success also depends
on our development of a marketing and sales program to implement and close
the sales. Competition for qualified sales and marketing personnel is
intense. The loss of the services of any of our executive officers or other
key personnel, or our failure to attract and retain other skilled and
experienced personnel on acceptable terms, could impede the achievement of
our business objectives and have a material adverse effect on our business.
The pricing strategies of our competitors and our response to those
strategies may result in a decline in our revenues.
The medical products market is extremely competitive. We believe
that the principal competitive factors in our market are selection, price,
customer service, convenience, product quality, reliability and speed of
order fulfillment. We believe that among our direct competitors are firms
with longer operating histories, larger customer bases, greater financial and
marketing capability, and greater resources and experience than we have. We
compete with companies including Scanlon Instruments, Key Surgical and
Healthmark. In addition, our competitors are often able to offer lower prices
than we can and thus can limit our penetration and market share. These
factors may have an adverse impact upon our business.
If we do not prevail in a license dispute with a former officer, our revenues
and profits could decline.
Larry A. Rasmusson, our former Chief Executive Officer and a former
director of Oxboro, has notified us that he believes we are currently in
default on exclusive license agreements that we executed with him relating to
some of our medical products, including bulldogs, fabric ties, Radiopaque
fabric clamp covers, bulk and fabric tape, loops, surgical booties, various
types of instrument and specialty guards, a tape stripper, patient hangars
and patient care holders, and, as a result, Mr. Rasmusson has taken the
position that the rights to these medical products have reverted back to him.
We believe we are not in default and, moreover, that the agreements may be
legally invalid. If necessary and appropriate, we will seek to terminate such
agreements and take whatever other actions may be appropriate, including
commencing litigation, to terminate the agreements or have them declared
invalid or both. If, however, the royalty agreements are found valid and
any resulting litigation is determined adversely to us, we may lose the right
to manufacture and distribute products related to the royalty agreements.
This would have a substantial negative impact on our revenues and profits
until we were able to acquire or develop alternate products.
<PAGE>
OXBORO MEDICAL INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 1999
Item 2. Management's Discussion and Analysis
The success of competitive products could have an adverse effect on our
business.
The medical products industry is intensely competitive and hospitals
have a wide variety of product choices and technologies from which to choose.
The success of any competing alternative product to those provided by Oxboro
could have a material adverse effect on our business, financial condition and
results of operations. We believe that our competitors include companies that
have substantially greater financial capabilities for product development and
marketing than we do and can therefore market their products or procedures to
hospitals and the medical community in a more effective manner. In addition,
companies having proprietary rights to the products we sell could choose to
market their products directly to our customers and competitors selling the
same or similar products may duplicate our marketing methods and reduce our
ability to effectively sell our product lines. In either event, our business
would be materially adversely affected by these actions.
If we fail to acquire products or develop new products, our business will be
adversely affected.
Part of the proceeds of this offering will be used to acquire
product lines and develop new products. Although we have no present plans to
include new product lines, it is likely that the focus of new product
development will center on the surgical products market. There can be no
assurance that we will be able to acquire or successfully develop new
products. Failure to do so would have a materially adverse effect on our
business.
Fluctuations in our quarterly operating results may negatively affect our
stock price.
We may experience variability in our net sales and operating profit
on a quarterly basis as a result of many factors, including, among other
things, the buying habits of our customers, size and timing of orders by
certain customers, shifts in demand for types of products, technological
changes and industry announcements of new products. If revenues do not meet
expectations in any given quarter, operating results may be materially
adversely affected.
The failure of key suppliers and our reporting system to be Year 2000
compliant could negatively affect our business.
We may realize exposure and risk if the systems on which we are
dependent to conduct our operations are not Year 2000 compliant. Our
potential areas of exposure include products purchased from third parties,
computers, software, telephone systems and other equipment used internally.
If our present efforts to address Year 2000 compliance issues are not
successful, or if distributors, suppliers and other third parties with whom
we conduct business, which includes approximately 3,800 hospitals, do not
successfully address these issues, we could be unable to receive, process, or
ship orders to customers on a timely basis, which would materially adversely
affect our business.
We are currently installing a new financial computer system that is
Year 2000 compliant and expect the system to be operational prior to December
31, 1999. We anticipate that we will complete all of our reprogramming
efforts by September 30, 1999, allowing adequate time for testing of the new
reporting system. There can be no assurance, however, that the systems of
other companies, on which our systems rely, will also be converted in a
timely manner. Moreover, we cannot be certain that any such failure to
convert by another company would not have a material adverse effect on our
business, financial conditions or results of operations.
We are not expecting to have a material accounts receivable exposure
or significant amount of revenues with any one customer after December 31,
1999. Therefore, we are not pursuing verification of customer Year 2000
compliance at this time. Any failure to pay in a timely manner, or place
orders for our products, by a significant number of individual customers or
by a customer with a material accounts receivable balance, due to Year 2000
compliance issues would have material adverse effects on our business,
financial condition or results of operations.
At this time, we do not believe it is necessary to develop a
contingency plan for the possibility that assessments and potential
corrections will not be completed in a timely manner. However, we will
continue to assess the need for a contingency plan, particularly as it
relates to the capabilities of our customers.
<PAGE>
OXBORO MEDICAL INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 1999
Item 2. Management's Discussion and Analysis
We depend upon third party suppliers.
We currently purchase our component materials from several sources.
Alternative suppliers for these materials exist should the current suppliers
discontinue production or distribution. However, we would need to investigate
the materials obtained from any new suppliers for quality and performance.
Additionally, limited notice of the need to switch suppliers for any reason
could affect on our ability to fulfill customer orders, which would have a
material adverse effect on our profitability. We have not experienced any
difficulty with suppliers to date. However, there can be no assurance that
delays in the distribution or sale of our products will not occur in the
future.
If a product we sell injures a user, we could be subject to a product
liability exposure.
We sell medical products which may involve product liability risk.
We carry general casualty insurance, including coverage for product liability
claims up to $1 million per incident and $2 million aggregate per year. We
also carry liability umbrella coverage of $3 million. However, there can be
no assurance that this coverage will be adequate for any claims that may be
raised. We are not aware of any pending product liability claims against us.
However, a successful product liability suit could materially adversely
affect our business operations.
RISKS RELATED TO OUR RIGHTS OFFERING
The price of rights issued in our offering has not been determined by an
investment bank and may not reflect the the market price of our common stock.
We have not employed an investment bank or other similar party in
connection with our proposed rights offering. The purchase price determined
for the offering is based upon management's review of our current financial
condition and prospects. There can be no assurance that the purchase price in
the offering will adequately reflect the current market price of the shares
of our common stock on completion of the offering.
After the rights offering, some of our directors will have the ability to
influence corporate actions.
Prior to the rights offering, three of our shareholders own greater
than 10% each of the outstanding shares of our common stock and may continue
to hold these percentages if they elect to exercise their full purchase
rights under the offering. In addition, Kenneth W. Brimmer, one of our
current directors, holds greater than 5% of the outstanding shares of our
common stock and Gary E. Copperud, another director, controls greater than
10% of the outstanding shares through a privately owned company. Each of
these shareholders and directors has the ability to influence our management
and affairs. In connection with the offering, Directors Brimmer and Copperud,
have individually agreed to exercise their respective purchase rights and
also to exercise their respective stock options in order to purchase a number
of shares to generate sufficient proceeds for us to meet the net capital
requirement for our continued listing on the Nasdaq SmallCap Market. Messrs.
Brimmer and Copperud are also entitled and may elect to purchase additional
shares and warrants in the offering pursuant to the oversubscription
privilege and, as a result, may increase their respective percentages of
share ownership. As a result, each of the shareholders and named directors,
by virtue of their share ownership, will have the ability to influence our
management and affairs.
If we are unable to continue our Nasdaq listing, our stock price and our
business could suffer.
We are currently listed on the Nasdaq SmallCap Market System. After
adjustments of $969,493 in inventory, bad debt and other miscellaneous
assets, our 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 SmallCap Market. We received a notice, dated May 21, 1999, from the
Nasdaq Stock Market, Inc. notifying us of this deficiency and requiring us to
develop and execute a plan, satisfactory to Nasdaq, that would within
approximately 60 days bring our net tangible assets up to the required
$2,000,000 minimum. We provided Nasdaq with a compliance plan including,
among other things, the sale of Oxboro Outdoors, Inc., the execution of a
rights offering and the commitment of two of our directors to purchase a
sufficient number of shares in the rights offering to provide proceeds to
enable us to meet the minimum capital requirement. Following the sale of
Oxboro Outdoors on June 30, 1999, we filed a Current Report on Form 8-K
indicating that, as of March 31, 1999, our net tangible assets on a pro forma
basis were $1,653,108, or approximately $347,000 below the $2,000,000 minimum
capital requirement for continued listing on the Nasdaq SmallCap Market.
Nasdaq subsequently extended our deadline for compliance to September 30,
1999, subject to our demonstrating at that date that we are in compliance
with all other applicable SmallCap listing requirements. If we are unable to
execute our compliance plan, including the rights offering, in order to meet
the minimum capital requirement, our stock will be delisted by Nasdaq.
Although our stock may then be eligible to trade on the OTC Bulletin Board,
the delisting would have a materially adverse effect on the price and
liquidity of our common stock. In addition to the rights offering, we intend
to effect a 1-for-5 reverse stock split prior to the offering that will cause
the number of our outstanding shares of common stock to temporarily fall
below the Nasdaq SmallCap minimum listing requirement. We intend to correct
this deficiency through sales of shares in the rights offering. However,
there can be no assurance that we will be able to sell a sufficient number of
shares of common stock to restore the total number of outstanding shares to
the required minimum or that we will be able to consistently maintain
compliance with all of the other applicable Nasdaq SmallCap listing
requirements. Failure to do so will cause our shares to be delisted from
Nasdaq.
<PAGE>
OXBORO MEDICAL INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 1999
Item 2. Management's Discussion and Analysis
A significant number of our shares are eligible for sale and their sale could
depress the market price of our stock and reduce our liquidity.
As of July 1, 1999, there were 2,187,155 pre-split shares of our
common stock issued and outstanding. Prior to this offering, and taking into
account our proposed 1-for-5 reverse stock split on those shares, we will
have 437,431 shares outstanding and approximately 47,200 shares reserved for
issuance upon exercise of outstanding options. Assuming all rights in the
proposed rights offering are exercised and all of the underlying shares are
purchased and that all of the warrants purchased are fully exercised, we
expect to issue 1,312,293 shares of common stock as a result of the offering
and will have a total of 1,749,724 shares outstanding after the offering.
However, there can be no assurance that all of the rights in the rights
offering will be exercised and all of the shares issued. The overall
reduction in our issued and outstanding shares from 2,187,155 shares to
1,749,724 shares as a result of the proposed reverse split, even assuming all
shares are sold in the offering, could depress the market price of our common
stock and otherwise reduce our liquidity.
Shareholders who hold less than 100 shares may pay disproportionate
commissions on sale of their shares.
Partially as a result of our proposed 1-for-5 reverse stock split
intended to become effective prior to the rights offering, we have a number of
shareholders that hold fewer than 100 shares. It is our understanding that
the minimum unit for our common stock traded by broker-dealers in the Nasdaq
SmallCap market is a round lot of 100 shares. Because of this, and the fact
that a number of brokerage firms have minimum commission amounts, persons
holding fewer than 100 shares of our common stock might pay a
disproportionately high level of commissions upon sale of their shares.
There is no assurance that future capital will be available to us, and
additional capital will dilute the holdings of our stockholders.
Our stockholders have no preemptive rights. If we:
1. commence a subsequent public or private offering of common stock,
convertible debt, or preferred stock; or
2. issue preferred stock or shares of common stock upon exercise of
warrants to consultants or other parties providing goods or
services to us in lieu of or in addition to cash consideration,
our stockholders, who may not participate in any future stock issuance, will
experience dilution of their equity investment. At this time, we cannot
determine the potential dilution to our stockholders.
We cannot assure that additional financing will be available, or if
available, that it will be available on terms favorable to our stockholders.
If funds are not available to satisfy our short-term and long-term operating
requirements, we may limit or suspend our operations in the entirety or,
under certain circumstances, seek protection from creditors. We believe that
future financing undertaken may contain terms that could result more
substantial dilution than we now have, which would adversely affect our
business.
<PAGE>
OXBORO MEDICAL INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 1999
Item 2. Management's Discussion and Analysis
Our stock price may be materially affected by market volatility.
The stock market has, from time to time, experienced significant
price and volume fluctuations that have affected the market prices of
companies similar to ours and these fluctuations often have been unrelated to
the operating performance of such companies. Factors not directly related to
our performance, such as negative industry reports or disappointing earnings
announcements by publicly traded competitors, may have an adverse impact on
the market price of our common stock. In the past, following periods of
volatility in the market price of a company's securities, securities class
action claims have often been brought against that company. This litigation
could result in substantial costs and a diversion of management's attention
and resources.
We may be adversely affected by statutory anti-takeover provisions.
As a Minnesota corporation, we are subject to certain anti-takeover
provisions of the Minnesota Business Corporation Act. The authority of the
Board with regard to the anti-takeover provisions of the Act could have the
effect of delaying, deferring or preventing a change in control of the
Company, may discourage bids for our common stock at a premium over the then
prevailing market price, and may adversely affect the market price of, and
the voting and other rights of the holders of our common stock. If we issue
additional shares, whether for purposes of raising additional capital or
otherwise, it could have the effect of making a takeover more difficult.
RISKS RELATED TO GOVERNMENT REGULATION AND LEGAL UNCERTAINTY
Changes in government regulation of the products we sell may negatively
affect our business.
Our products are regulated by government agencies in the United
States and foreign countries. In the United States, our products are
regulated by the Food and Drug Administration. The FDA regulates, among other
things, (1) the content of our products, (2) the product labels, (3) the
claims in our product literature and advertising, and (4) the manufacture of
the products. The FDA and other government agencies may in the future issue
new regulations, or issue new interpretations of existing regulations, which
affect the manufacture, marketing and sale of our products. Our operations
may also be affected if Congress passes new legislation or if courts issue
new rulings with respect to existing legislation. We can offer no assurance
that we will not be adversely affected by new, or newly interpreted,
regulatory requirements.
Item 5. Other Information
NASDAQ LISTING REQUIREMENTS
Net tangible assets of Oxboro Medical were $1,627,963 as of June 30, 1999 or
$372,037 below the minimum capital requirements for the Company's continued
listing on the NASDAQ SmallCap System. The Company has received notice from
NASDAQ that failure to meet the listing requirements by September 30, 1999
will result in the Company being delisted. The Company has submitted a plan
that will attempt to bring its net tangible assets back over $2,000,000. The
plan includes a stock rights offering planned for August 1999 to raise up to
$1,200,000 in additional equity financing.
REVERSE STOCK SPLIT
Effective August 13, 1999, Oxboro Medical approved a 1-for-5 reverse
stock split on its shares of Common Stock. The reverse split will reduce the
number of authorized shares of capital stock from 10,000,000 shares to
2,000,000 shares and, based upon Common Stock outstanding at July 1, 1999,
will reduce the number of outstanding shares of Common Stock of Oxboro
Medical from 2,187,155 shares to approximately 437,431 shares.
RASMUSSON LICENSE
Oxboro Medical 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 and Mr. Rasmusson has taken the position
that the rights to these medical products have reverted back to him. The
Company believes that it is not in default and, moreover, that the agreements
may be legally invalid. If necessary and appropriate, Oxboro Medical will
seek to terminate the agreements or have them declared invalid or both. If,
however, the royalty agreements are found valid and any resulting litigation
is determined adversely to it, the Company may lose the right to manufacture
and distribute products related to the royalty agreements. 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.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2.1 Purchase Agreement made as of the 30th day of June
1999 by and among Oxboro Medical International, Inc.
and John McGuire, Stephen Kaminski and Charles Kruse.
2.2 Promissory Note dated as of the 30th day of
June 1999.
99.1 The Company's Press Release dated June 24, 1999.
99.2 The Company's Press Release dated June 30, 1999.
(b) Reports on Form 8-K
On July 8, 1999, the Company filed a Current Report on
Form 8-K dated June 30, 1999, reporting under Item 2 the sale of
Oxboro Outdoors, Inc. and under Item 7 the following unaudited pro
forma financial information:
Pro Forma Consolidated Balance Sheet at March 31, 1999
Pro Forma Consolidated Statement of Operations for the 6
months ended March 31, 1999
Pro Forma Consolidated Statement of Operations for the
year ended September 30, 1998
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.
Dated: August 13, 1999 OXBORO MEDICAL INTERNATIONAL, INC.
By /s/ Matthew E. Bellin
-----------------------------------
Matthew E. Bellin
Its President
(Principal executive officer and
principal financial officer)
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
Exhibit 2.1 Agreement for Purchase and Sale of Stock,
effective as of June 30, 1999, by and among Oxboro
Medical International, Inc. and John McGuire,
Stephen Kaminski and Charles Kruse
Exhibit 2.2 Promissory Note dated June 30, 1999 of John McGuire,
Stephen Kaminski and Charles Kruse to Oxboro Medical
International, Inc.
Exhibit 99.1 The Company's Press Release dated June 24, 1999
Exhibit 99.2 The Company's Press Release dated June 30, 1999
<PAGE>
EXHIBIT 2.1
AGREEMENT FOR PURCHASE AND SALE OF STOCK
THIS AGREEMENT FOR PURCHASE AND SALE OF STOCK, is made and entered into
effective as of the 30th day of June, 1999, by and among OXBORO MEDICAL
INTERNATIONAL, INC., a Minnesota corporation ("Medical") and JOHN MCGUIRE,
STEPHEN KAMINSKI and CHARLES KRUSE, all individuals residing in the State of
Minnesota (collectively, the "Buyers").
WITNESSETH:
WHEREAS, Medical owns all of the issued and outstanding stock of
OXBORO OUTDORS, INC. (the "Corporation"); and
WHEREAS, the Buyers desire to purchase from Medical and Medical
desires to sell to the Buyers all of the issued and outstanding stock of the
Corporation (the "Shares");
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and mutual promises of the parties hereto and the mutual benefits
to be gained by the performance thereof, the parties hereto agree as follows:
1.) PURCHASE AND SALE OF SHARES. Subject to the terms and conditions
set forth in this agreement, on the Closing Date, Medical shall transfer, assign
and convey the Shares to the Buyers as provided on SCHEDULE 1, and the Buyers
shall acquire the Shares from Medical.
2.) PURCHASE PRICE. As full payment for the Shares, the Buyers shall
pay to Medical a purchase price (the "Purchase Price") equal to Six Hundred
Fifty Thousand Dollars ($650,000). At the Closing, the Purchase Price shall be
paid by the Buyers to Medical as follows:
(a) CASH. Three Hundred Eighty-Five Thousand Dollars ($385,000) by
Cashier's Check or money order and made payable to Medical.
(b) PROMISSORY NOTE. A promissory note in the form of SCHEDULE 2(b)
attached hereto (the "Promissory Note"), duly executed by the Buyers
and Medical and Payable to Medical in a principal amount of Two Hundred
Sixty-Five Thousand Dollars ($265,000).
3.) REPRESENTATIONS AND WARRANTIES OF MEDICAL. Medical represents and
warrants to the Buyers as follows:
(a) ORGANIZATION. The Corporation is a Minnesota corporation duly
organized, validly existing, and in good standing under the laws of
the State of Minnesota and has all the necessary corporate powers to
own its
<PAGE>
properties and to carry on its business as now owned and operated by
it. The Corporation is now, and has been at all times since its
creation, duly authorized, qualified and licensed to carry on its
business in the places and in the manner as conducted at the time
such businesses were conducted. The Corporation is duly qualified to
do business as a foreign corporation and in good standing in all
jurisdictions in which it leases real property or in which the
conduct of its business requires such qualification, except where
failure to be so qualified would not have a material adverse effect
on its business.
(b) CAPITAL. The authorized capital stock of the Corporation consists
of one million (1,000,000) shares of common stock, having a par value
of One Cent ($.01) per share, of which twenty-five thousand (25,000)
shares are issued and outstanding. All of the shares are validly
issued, fully paid, and nonassessable. No subscriptions, options,
rights, warrants, convertible securities, or other agreements or
commitments of any kind exist which obligate the Corporation to issue
or transfer from treasury any of its authorized by unissued capital
stock.
(c) TITLE. Medical is the owner, beneficially and of record, of
all the Shares free and clear of all liens, encumbrances, security
agreements, equities, options, claims, charges, and restrictions.
(d) SUBSIDIARIES. The Corporation does not own, directly or
indirectly, any interest or investment (whether equity or debt) in
any corporation, limited liability company, partnership, business,
trust, or other entity.
(e) FINANCIAL STATEMENTS. Attached as SCHEDULE 3(e) are copies of the
following financial statements of the Corporation (collectively, the
"Financial Statements"):
(1) The balance sheet as of May 31, 1999 and statement of
income for the eight (8) month period then ended;
(2) The consolidated balance sheets of Medical and the
Corporation as of September 30, 1998 and September 30,
1997, and the related statements of operations and
shareholders' equity for the two (2) years ending on these
dates. These Financial Statements agree to the completed
audited Financial Statements as reported by the
Corporation's independent public accountants; and
(3) The unaudited statements of income of the Corporation for
the fiscal years ending September 30, 1998 and 1997.
<PAGE>
The audited Financial Statements have been prepared in
accordance with generally accepted accounting principles (and
the unaudited have generally been prepared in accordance with
generally accepted accounting principles) both consistently
followed by the Corporation throughout the periods indicated,
and fairly present the financial position and results of
operations of the Corporation as of the respective dates of the
balance sheets and statements of operations included in the
Financial Statements.
(f) ABSENCE OF CHANGES. Since the date of the most recent balance
sheet attached hereto, there has not been any:
(1) Transaction by the Corporation except in the ordinary
course of business as conducted on that date;
(2) Capital expenditure by the Corporation exceeding One
Thousand Dollars ($1,000);
(3) Material adverse change in the financial condition,
liabilities, assets, business, or prospects of the
Corporation;
(4) Destruction, damage to, or loss of any asset of the
Corporation (whether or not covered by insurance) that
materially and adversely affects the financial
condition, business, or prospects of the Corporation;
(5) Labor trouble or other event or condition of any
character materially and adversely affecting the
financial condition, business, assets, or prospects of
the Corporation;
(6) Change in accounting methods or practices (including,
without limitation, any change in depreciation or
amortization policies or rates) by the Corporation;
(7) Reevaluation by the Corporation of any of its assets;
(8) Declaration, setting aside for payment of a dividend or
other distribution in respect to the capital stock of
the Corporation, or any direct or indirect redemption,
purchase, or other acquisition by the Corporation of
any of its shares of capital stock;
(9) Increase in the salary or other compensation payable or
to become payable by the Corporation to any of its
officers, directors, or employees, or the declaration,
payment, or
<PAGE>
commitment or obligation of any kind for the payment
of a bonus or other additional salary or compensation
to any such person;
(10) Sale or transfer of any asset of the Corporation,
except in the ordinary course of business;
(11) Amendment or termination of any contract, agreement, or
license to which the Corporation is a party, except in
the ordinary course of business;
(12) Loans by the Corporation to any person or entity, or
guaranty by the Corporation of any loan;
(13) Mortgage, pledge, or other encumbrance of any asset of
the Corporation;
(14) Waiver or release of any right or claim of the
Corporation, except in the ordinary course of business;
(15) Other event or condition of any character that has or
might reasonably have a material and adverse effect on
the financial condition, business, assets, or profit of
the Corporation;
(16) Issuance or sale by the Corporation of any shares of
its capital stock of any class, or of any other of its
securities; or
(17) Agreement by the Corporation to do any of the things
described in the preceding clauses (1) through (16).
(g) ABSENCE OF UNDISCLOSED LIABILITIES. Attached as SCHEDULE 3(g)
is a complete and accurate list of accounts payable of the
Corporation as of May 31, 1999, as reflected in the balance sheet of
that date, included in the Financial Statements, together with an
accurate aging of these accounts. These accounts payable, and all
accounts payable of the Corporation after that date, arose from
transactions in the ordinary course of business. Except as provided
on SCHEDULE 3(g), in Section 3(ff) or any future liabilities
relating to the licenses attached hereto as SCHEDULE 3(o), the
Corporation has no debt, liability, or obligation of any nature,
whether accrued, absolute, contingent, or otherwise (including any
due to Medical except as provided on SCHEDULE 3(g)), and whether due
or to become due, that is not reflected or reserved against in the
most recent balance sheet included in the Financial Statements,
except for those that may have been incurred after the date of that
balance sheet. All debts, liabilities, and obligations incurred
after that date were incurred in the ordinary course of business,
and are usual and normal in amount both individually and in the
aggregate.
<PAGE>
(h) TAX RETURNS. Attached as SCHEDULE 3(h) are the tax returns of the
Corporation for the tax years ending on September 30, 1998 and 1997.
Within the times and in the manner prescribed by law, the Corporation
has filed all federal, state, and local tax returns required by law and
has paid all taxes, assessments, and penalties due and payable. There
are no present disputes as to taxes of any nature payable by the
Corporation.
(i) REAL PROPERTY. Attached as SCHEDULE 3(i) is a copy of the lease
agreement by and between the Corporation and Medical (the "Lease
Agreement"). All representations and warranties relating to the real
property that are contained in the Lease Agreement are incorporated
herein by reference and, as such, shall be an integral part of this
Agreement. Notwithstanding the foregoing, there are no existing
violations of any environmental, pollution or hazardous waste laws,
rules regulations affecting the real property. In addition, the Buyers
and the Corporation may rely on the representations and warranties
contained in the Lease Agreement regardless of any inspection which the
Buyers or the Corporation may make of the real property.
(j) INVENTORY. Attached as SCHEDULE 3(j) is a complete and accurate
list of the inventories of raw materials, work in process, and finished
goods (collectively, the "Inventories") as shown on the Corporation's
most recent balance sheet included in the Financial Statements. Such
Inventories consist of items of a quality substantially similar to the
quality of the items at the time of purchase of such Inventory. Except
for sales made in the ordinary course of business since that date, all
the Inventories are the property of the Corporation. As of the Closing
Date, no items have been pledged as collateral or are held by the
Corporation on consignment from others. The Inventories are based upon
quantities determined by physical count or measurement, taken within
the preceding six (6) months, and are valued at a cost basis consistent
with that of prior years.
(k) OTHER PROPERTY. Attached as SCHEDULE 3(k) is a complete and
accurate list of all personal property of the Corporation including,
but not limited to, all trucks, automobiles, machinery, equipment,
furniture, supplies, tools, dies, jigs, molds, patterns, drawings,
and all other tangible personal property, that is used by the
Corporation in connection with its business (except inventories of
raw materials, work in process, and finished goods). As of the
Closing Date, the Corporation has good title to the properties and
assets used by it and all such properties and assets are free and
clear of all security interest, liens or other claims. The property
listed on SCHEDULE 3(k) constitutes all such tangible personal
property necessary for the conduct by the Corporation of its
business as now conducted. Except as provided on SCHEDULE 3(k), no
personal property used by the Corporation in connection
<PAGE>
with its business is held under any lease or conditional sales
contract or is other than in the possession and under the control of
the Corporation.
(l) ACCOUNTS RECEIVABLE. Attached as SCHEDULE 3(l) is a complete and
accurate list of the accounts receivable of the Corporation as of May
31, 1999, as reflected in the balance sheet as of that date, included
in the Financial Statements, together with an accurate aging of these
accounts. These accounts receivable, and all accounts receivable of the
Corporation after that date, arose from valid sales in the ordinary
course of business.
(m) TRADE NAMES AND RIGHTS. Attached as SCHEDULE 3(m) is a schedule
of all trade names, trademarks, service marks, and copyrights and their
registration, owned by the Corporation or in which it has any rights or
licenses, together with a brief description of each. To best of the
Corporation's knowledge, the Corporation has not infringed, and is not
now infringing, on any trade name, trademark, service mark, or
copyright belonging to any other person, firm, or corporation. The
Corporation owns adequate licenses or other rights to use all
trademarks, service marks, trade names, and copyrights necessary for
its business as now conducted by it, and that ownership or use does
not, and will not, conflict, infringe on, or otherwise violate any
rights of others.
(n) PATENTS. Attached as SCHEDULE 3(n) is a complete schedule of all
patents, inventions, industrial models, processes, designs, and
applications for patents owned by the Corporation or in which it has
any rights, licenses, or immunities. The patents and applications for
patents listed on SCHEDULE 3(n) are valid and in full force and effect
and are not subject to any taxes, maintenance fees, or actions falling
due within ninety (90) days after the Closing Date. There have not been
any interference actions or other judicial, arbitration, or other
adversary proceedings concerning the patents or applications for
patents listed on SCHEDULE 3(n). The manufacture, use, or sale of the
inventions, models, designs, and systems covered by the patents and
applications for patents listed on SCHEDULE 3(n) do not violate or
infringe on any patent or any proprietary or personal right of any
person, firm, or corporation; and the Corporation has not infringed and
is not now infringing on any patent or other right belonging to any
person, firm, or corporation.
(o) LICENSES AND PERMITS. Attached as SCHEDULE 3(o) are true and
correct copies of all licenses in which the Corporation is a party.
Except for the licenses attached as SCHEDULE 3(o), there are no pending
(or to Medical's knowledge threatened) revocations of any licenses or
permits required to operate the business of the Corporation, nor has
Medical received notice that any additional permits or licenses are or
will be required for the operation of the business of the Corporation.
Except for the licenses included on SCHEDULE 3(o), the Corporation is
not a party to any license, agreement, or arrangement, whether as
licensee, licensor, or otherwise, with respect to any
<PAGE>
patent, application for patent, invention, design, model, process,
trade secret, or formula. The Corporation has the right and
authority to use such inventions, trade secrets, processes, models,
designs, and formulas as are necessary to enable it to conduct and
to continue to conduct all phases of its business in the manner
presently conducted by it, and that use, to the best of the
Corporation's knowledge, does not, and will not, conflict with,
infringe on, or violate any patent or other right of others.
(p) NAME. Medical represents, warrants, and covenants that it has
granted to the Corporation the right, in perpetuity, to use the name
"Oxboro Outdoors" as part of the Corporation's name for and in
connection with all business of whatever kind and character conducted
previously or in the future by the Corporation, and that it has not
granted to any other person, firm, or corporation the right to use its
name as part of the corporate or firm name of any other such firm,
corporation, or business.
(q) TITLE TO ASSETS. The Corporation has good and marketable title to
all its assets and interests in assets, whether real, personal, mixed,
tangible, or intangible, which constitute all of the assets and
interests in assets used in the business of the Corporation. Except as
provided on SCHEDULE 3(o), all of these assets are free and clear of
restrictions on or conditions to transfer or assignment, and free and
clear of mortgages, liens, pledges, charges, encumbrances, equities,
claims, easements, rights-of-way, covenants, conditions, or
restrictions, except for:
(1) Those disclosed in the Corporation's most recent
balance sheet, included in the Financial Statements;
and
(2) Possible minor matters that, in the aggregate, are not
substantial amounts and do not materially detract from
or interfere with the present or intended use of any of
these assets, or materially impair business operations.
The tangible personal property of the Corporation is generally in good
operating condition and repair, ordinary wear and tear excepted. The
Corporation is in possession of all premises leased to and from others.
Except for the Lease Agreement, neither Medical, nor any officer,
director, or employee of the Corporation, nor any spouse, child, or
other relative of any of these persons, owns, or has any interest,
directly or indirectly, in any of the real or personal property owned
by or leased to the Corporation or any copyrights, patents, trademarks,
trade names, or trade secrets licensed by the Corporation. To the best
of the Corporation's knowledge, the Corporation does not occupy any
real property in violation of any law, regulation, or decree.
<PAGE>
(r) CUSTOMERS. Attached as SCHEDULE 3(r) is a correct and current
list of the ten (10) largest customers of the Corporation. Medical has
no information and is not aware of any facts, indicating any of these
customers intend to cease doing business with the Corporation or
materially alter the amount of the business that they are presently
doing with the Corporation.
(s) EMPLOYMENT CONTRACTS. Attached as SCHEDULE 3(s), and except as
provided on SCHEDULE 3(x), is a list of all employment contracts,
collective bargaining agreements, and all pension, bonus, profit
sharing, stock option, or other agreements providing for employee
remuneration or benefits to which the corporation is a party or by
which the Corporation is bound. All of these contracts and arrangements
are in full force and effect, and neither the Corporation nor any other
party is in default under them. There have been no claims of default
and, to the best knowledge of Medical, there are no facts or conditions
which if continued, or on notice, will result in a default under these
contractual arrangements. There is no pending or, to Medical's
knowledge, threatened labor dispute, strike, or work stoppage affecting
the Corporation's business.
(t) INSURANCE POLICIES. Attached as SCHEDULE 3(t) is a description of
all insurance policies held by the Corporation concerning its business
and properties. The Corporation (through Medical) has maintained and
now maintains (i) insurance on all its assets and businesses of a type
customarily insured, covering property damage and loss of income by
fire or other casualty, and (ii) adequate insurance protection against
all liabilities, claims, and risks against which it is customary to
insure.
(u) EMPLOYEE BENEFIT PLANS. Attached as SCHEDULE 3(u) is a
complete and accurate and complete list of all employee benefit
plans, within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), whether or not
any such employee benefit plans are otherwise exempt from the
provisions of ERISA, established, maintained, or contributed to by
the Corporation including all employers which, by reason of common
control, are treated together with the Corporation and/or Medical as
a single employer within the meaning of Section 414(c) of the
Internal Revenue Code.
<PAGE>
(v) OTHER CONTRACTS. The Corporation is a party to numerous
distributor/broker agreements all of which are usual and customary in
duration and amount. A copy of a standard "Broker Agreement" for
licensed products of the Corporation is attached hereto as SCHEDULE
3(v) as well as a current listing of such brokers. Except as provided
on SCHEDULE 3(v), the Corporation is not a party to, nor is its
property bound by, any distributors' or manufacturers' representative
or agency agreement, any output or requirements agreements, any
agreement not entered into in the ordinary course of business, any
indenture, mortgage, deed of trust, lease, or any agreement that is
unusual in nature, duration, or amount. To the best of the
Corporation's knowledge, there is no default or event that with notice
or lapse of time, or both, would constitute a default by any party to
any of these agreements. The Corporation has not received notice that
any party to any of these agreements intends to cancel or terminate any
of these agreements or to exercise or not exercise any options under
any of these agreements. The Corporation is not a party to, nor is the
Corporation or its properties bound by, any agreement that is
materially adverse to the business, properties, or financial condition
of the Corporation.
(w) COMPLIANCE WITH LAWS. To the best of the Corporation's knowledge,
the Corporation has complied with all, and is not in violation of any,
applicable federal, state, or local statutes, laws, and regulations
(including, without limitation, any applicable building, zoning, or
other law, ordinance, or regulation) affecting its property or the
operation of its business.
(x) LITIGATION. Except as provided on SCHEDULE 3(x), there is no
suit, action, arbitration, or legal, administrative, or other
proceeding, or governmental investigation pending or, to the best
knowledge and belief of Medical, threatened against or affecting the
Corporation, or any of its businesses, assets, or financial
condition. The matters set forth in SCHEDULE 3(x), if decided
adversely to the Corporation, will not result in a material adverse
change in the business, assets, or financial condition of the
Corporation. The Corporation is not in default with respect to any
order, writ, injunction, or decree of any federal, state, local, or
foreign court, department, agency, or instrumentality. The
Corporation is not presently engaged in any legal action to recover
monies due either of them or damages sustained by either of them
with respect to the business of the Corporation.
(y) NO BREACH OR VIOLATION. The consummation of the transactions
contemplated by this Agreement will not result in or constitute any
of the following:
(1) A breach of any term or provision of this Agreement;
<PAGE>
(2) A default or an event that, with notice or lapse of time
or both, would be a default, breach, or violation of the
Articles of Incorporation or Bylaws of the Corporation or
any lease, license, promissory note, conditional sales
contract, commitment, indenture, mortgage, deed of trust,
or other agreement, instrument, or arrangement to which
Medical or the Corporation, or their property, is bound;
(3) An event that would permit any party to terminate any
agreement (except as provided on SCHEDULE 3(o)) or to
accelerate any maturity of any indebtedness or other
obligation of the Corporation; or
(4) The creation or imposition of any lien, charge, or
encumbrance on any of the properties of the Corporation.
(z) AUTHORITY. Medical has the right, power, legal capacity, and
authority to enter into and perform its obligations under this
Agreement and no approvals and consents of any person other than
Medical is necessary. The execution and delivery of this Agreement by
Medical, and the performance of its obligations hereunder, has been
duly authorized by its Board of Directors.
(aa) INTEREST IN CUSTOMERS, SUPPLIERS AND COMPETITORS. Except as
provided on SCHEDULE 3(aa), neither Medical, nor any officer, director,
or employee of the Corporation, nor any spouse or child of any of them,
has any direct or indirect controlling interest in any competitor,
supplier, or customer of the Corporation or in any person from whom or
to whom the Corporation leases any real or personal property, or in any
other person with whom the corporation is doing business.
(bb) CORPORATE DOCUMENTS. The Corporation has furnished to the
Buyers for their examination the following:
(1) Copies of the Articles of Incorporation and Bylaws of the
Corporation;
(2) The minute book of the Corporation containing all records
required to be set forth of all proceedings, consents,
actions, and meetings of the shareholders and Board of
Directors of the Corporation;
(3) All permits, orders, and consents issued with respect to
the Corporation, or any security of the Corporation and
all applications for such permits, orders, and consents;
and
<PAGE>
(4) The stock transfer books of the Corporation setting forth
all transfers of any capital stock.
(cc) PERSONNEL. Attached as SCHEDULE 3(cc) is a list of the names
of all officers, directors, and employees of the Corporation,
stating the rates of compensation payable to each.
(dd) BANKING. Attached as SCHEDULE 3(dd) is a list of the names
and addresses of all banks or other financial institutions in which
the Corporation has an account, deposit, or safe deposit box, with
the names of all persons authorized to draw on these accounts or
deposits or to these boxes.
(ee) FULL DISCLOSURE. None of the representations and warranties
made by Medical herein or made in any written certificate or
memorandum furnished (or to be furnished) by Medical (or on its
behalf), contains or will contain any untrue statement of material
fact, or omit any material fact the omission of which would be
misleading.
(ff) INTERCOMPANY LOAN. Medical acknowledges, agrees and
represents that any amounts due to Medical from the Corporation
including, but not limited to, the intercompany loan listed in the
Financial Statements for the month ended May 31, 1999 in the amount
of One Million Six Hundred Twenty-Nine Thousand and Twenty-Four
Dollars ($1,629,024) (and other than accounts payable of less than
Five Thousand Dollars ($5,000)) have been converted to equity of
the Corporation. Furthermore, such amount is not a liability or
obligation of the Corporation and neither the Corporation nor the
Buyers shall have any responsibility or liability to pay such
amount to Medical.
(gg) SURVIVAL. Regardless of any investigation made by the Buyers
or their representatives, or any knowledge which they may have that
any such representation or warranty is or may be untrue or
incorrect, the representations and warranties made in this Section
3 shall be true and accurate in all respects as of the Closing Date
and shall survive the Closing of this Agreement, for a period of
two (2) years after the Closing Date, except that Medical's
representations and warranties set forth in Sections 3(a), (b),
(c), (d), (h), (u) and (z) shall survive forever.
4.) CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE.
(a) CONDITIONS. The obligations of the Buyers to purchase the
Shares pursuant to this Agreement are subject to the satisfaction
at or before closing, of all the conditions set forth in this
Section 4. The Buyers may waive any or all of these conditions in
whole or in part without prior notice provided, however, that no
such waiver of a condition shall constitute a
<PAGE>
waiver by the Buyers of any of their other rights or remedies at
law or in equity, if Medical shall be in default of any of its
representations, warranties, or covenants under this Agreement.
(b) ACCURACY OF REPRESENTATIONS. Except as otherwise permitted by
this Agreement, all representations and warranties of Medical
contained in this Agreement (or in any written statement delivered
to the Buyers by Medical) shall be true on and as of the Closing
Date as though made at that time.
(c) PERFORMANCE OF MEDICAL. Medical shall have performed,
satisfied, and complied with all covenants, agreements, and
conditions required by this Agreement to be performed or complied
with by them on or before the Closing Date.
(d) CONSENTS. All necessary agreements and consents of any
parties to the consummation of the transactions contemplated by
this Agreement, or otherwise pertaining to the matters covered by
it, shall have been obtained by Medical and delivered to the Buyers.
(e) APPROVAL OF DOCUMENTS. The form and substance of all
certificates, instruments, and other documents delivered to the
Buyers under this Agreement shall be satisfactory in all reasonable
respects to the Buyers and their counsel.
(f) RESIGNATIONS. Medical shall have caused to be delivered to
the Buyers, except as otherwise requested by the Buyers, the
written resignation or termination of all the officers and
directors of the Corporation, and will cause any other action to be
taken with respect to these resignations that the Buyers may
reasonably request.
5.) CONDITIONS PRECEDENT TO PERFORMANCE OF THE BUYERS. The
obligations of Medical and the Corporation to sell and transfer the Shares
under this Agreement are subject to the Buyers having performed and complied
with all covenants and agreements, and satisfied all conditions that it is
required by this Agreement to perform, comply with, or satisfy, before or at
the closing.
6.) CLOSING. The Closing of the transactions contemplated herein
shall take place at the offices of Larkin, Hoffman, Daly & Lindgren, Ltd.,
1500 Norwest Financial Center, 7900 Xerxes Avenue South, Bloomington,
Minnesota 55431, on June 30, 1999, or such other place or earlier date as may
be agreed upon by Medical and the Buyers (the "Closing Date"). The
transactions which occur on the Closing Date shall be deemed to have taken
place at the beginning of business on the Closing Date. "Closing" shall refer
to the Closing Date and the transactions to occur on that date.
<PAGE>
7.) MEDICAL'S OBLIGATIONS AT CLOSING. At Closing, Medical shall
deliver, or cause to be delivered, the following to the Buyers against
delivery of the items specified in Section 8:
(a) A certificate or certificates representing the Shares,
registered in the name of Medical, duly endorsed by Medical
for transfer or accompanied by an assignment of the Shares duly
executed by Medical. Upon submission of that certificate or
certificates to the Corporation for transfer, the Corporation shall
issue to the Buyers certificates, as provided on SCHEDULE 1 and
representing the Shares, registered in the name of the Buyers;
(b) The stock books, stock ledgers, minute books, and corporate
seal of the Corporation;
(c) The written resignations or terminations of all the officers
and directors of the Corporation;
(d) All certificates, schedules, exhibits and attachments in a
complete form and specifying the information required by the
provisions of this Agreement;
(e) Certified copies of corporate authorizations of Medical to
enter into the transaction herein contemplated;
(f) The Promissory Note by and among Medical and the Buyers in the
form attached hereto as SCHEDULE 2(b);
(g) The Lease Agreement by and between Medical and the Corporation
in the form attached hereto as SCHEDULE 3(i); and
(h) Such other documents as may be reasonably requested by the
Buyers to evidence the performance by Medical of its obligations
hereunder.
Simultaneously with the delivery of the aforementioned documents,
Medical will put the Buyers into full possession and enjoyment of the
Corporation and its business.
8.) THE BUYERS' OBLIGATIONS AT CLOSING. At Closing, the Buyers shall
deliver, or cause to be delivered, the following to Medical against delivery of
the items specified in Section 7:
(a) The Promissory Note, duly executed by the Buyers;
(b) Three Hundred Eighty-Five Thousand Dollars ($385,000) by
cashier's check or money order :
(c) The Lease Agreement duly executed by the Corporation; and
<PAGE>
(d) Such other documents as may be reasonably requested by Medical
to evidence the performance by the Buyers of their obligations
hereunder.
9.) MEDICAL'S POST-CLOSING OBLIGATIONS.
(a) MEDICAL'S INDEMNIFICATION. Medical agrees, for a period of
two (2) years after the Closing Date, to indemnify, defend, and
hold the Buyers and the Corporation harmless from and against and
in respect of any and all claims, demands, losses, costs, expenses,
obligations, liabilities, damages, recoveries, and deficiencies,
including interest, penalties, and reasonable attorneys' fees the
Buyers or the Corporation may incur or suffer, which arise, result
from, or relate to any breach of, or failure by Medical to perform,
any of its representations, warranties, covenants, or agreements in
this Agreement or any schedule, certificate, exhibit, or other
instrument furnished or to be furnished by Medical under this
Agreement provided, however, the maximum total dollar amount that
the Sellers shall be required to indemnify the Buyers or the
Corporation hereunder shall be limited to the amount paid for the
Shares pursuant to Section 2. Notwithstanding the foregoing, there
shall be no indemnification limitation pursuant to Sections 3(h)
and (x).
(b) SET-OFF. In addition to the obligation to indemnify the
Buyers and the Corporation as set forth in Section 9(a), and
without prejudicing the Buyers' or the Corporation's other
remedies, the Buyers shall be entitled to offset and withhold the
following amounts against any part of the obligation owed to the
Medical pursuant to the Promissory Note:
(1) In the event that any of the fourteen (14) entities or
persons listed below refuses, in writing and during the
term of the Promissory Note, to the continuation of the
license they have entered into with the Corporation, the
amount due and payable pursuant to the terms of the
Promissory Note shall be reduced by Ten Thousand Dollars
($10,000) for each such license: ISC Race Tracks; Jeff
Gordon; Terry Lebonte; Mark Martin; Rusty Wallace; Wally
Dallenbach; Jeff Burton; Chad Little; Bobby Hamilton;
Bobby Labonte; Tony Stewart; Ricky Rudd,; NASCAR Drivers
and NASCAR Logo. Notwithstanding the foregoing, if the
Buyers reduce the amount due under the Promissory Note
pursuant to this Section 9(b)(1) and the Corporation (or
any affiliate thereof) then enters into a like or similar
license with such person or entity within forty-five (45)
days after the reduction of the Promissory Note, such
amount shall be due and payable within thirty (30) days
thereafter.
(2) In the event that NFL Properties refuses, in writing and
during the term of the Promissory Note, to the
continuation of the
<PAGE>
license with NFL Properties (a copy of which is attached
hereto as SCHEDULE 9(b)) after the purchase of the Shares
by the Buyers, the amount due and payable pursuant to the
terms of the Promissory Note shall be reduced by One
Hundred Twenty-Five Thousand Dollars ($125,000).
Notwithstanding the foregoing, if the Buyers reduce the
amount due under the Promissory Note pursuant to this
Section 9(b)(2) and the Corporation (or any affiliate
thereof) then enters into a like or similar license with
the NFL Properties within forty-five (45) days after the
reduction of the Promissory Note, such amount shall be
due and payable within thirty (30) days thereafter.
(c) NONCOMPETITION. Medical agrees that it shall not, for a
period of five (5) years after Closing, directly or indirectly, for
its own account or for the account of others, whether as principal
or agent or through the agency of any corporation, partnership or
other business entity, engage in the sale of licensed or unlicensed
sports products. In the event of a violation of this Section 9(c)
by Medical, it is agreed that the Buyers and the Corporation shall
be entitled to money damages or injunctive relief, or both.
Furthermore, Medical agrees to indemnify the Buyers and the
Corporation for all costs and expenses, including reasonable
attorneys' fees and court costs, incurred in any action brought to
enforce this Agreement. The provisions of this Section 9 may be
enforced by an injunction. Medical, the Buyers and the Corporation
agree that if any claim is made by any person asserting that the
covenant contained in this Section 9(c) is unenforceable,
predicated upon the length of the term, geographic area, or
otherwise, the provision or provisions upon which such
unenforceability is predicated shall not be rendered unenforceable
but instead shall be modified so as to be valid and fully
enforceable for the maximum duration and geographic area (but never
for a longer period or greater area than set forth above) that any
court of competent jurisdiction shall find to be reasonable,
necessary, valid and legally enforceable.
(d) COSTS. If any legal action or other proceeding is brought for
the enforcement of this Agreement, or because of an alleged
dispute, breach, default, or misrepresentation in connection with
any of the provisions of this Agreement, the successful or
prevailing party or parties shall be entitled to recover reasonable
attorneys' fees and all other costs incurred in that action or
proceeding, in addition to any other relief to which it may be
entitled.
10.) TAX ELECTIONS
(a) SECTION 338(h)(10) ELECTION. The purchase and sale of the
Shares is intended to qualify as a "qualified stock purchase" under
Section 338(d)(3) of the Internal Revenue Code and Medical, the
Corporation and the Buyers
<PAGE>
shall join in making a timely election under Section 338(h)(10) of
the Internal Revenue Code and similar elections under state, local
and foreign laws, as applicable (the "Election"). Medical and the
Buyers acknowledge and agree that, for U.S. federal income tax
purposes, the purchase and sale of the Shares pursuant to the
Election will be treated as a sale of assets of the Corporation
followed by the complete liquidation of the Company.
(b) PURCHASE PRICE ALLOCATION. The Purchase Price and the
liabilities and obligations assumed by Buyer pursuant to this
Agreement shall be allocated among the properties and assets
acquired by Buyer in accordance with the manner and timing
prescribed by the Treasury Department regulations promulgated under
Section 338 of the Internal Revenue Code and as set forth on
SCHEDULE 10(b) attached hereto. Medical and the Buyers covenant and
agree that such person will not take any position on any Tax
Return, before any governmental body charged with the collection of
any income tax or in any judicial proceeding that is in any way
inconsistent with the provisions of this Section 10 and SCHEDULE
10(b). Both Medical and the Buyers shall notify the other as soon
as reasonably practicable of any audit adjustment or proposed audit
adjustment by any governmental body that affects the allocation
under this Section 10(b).
11.) MISCELLANEOUS.
(a) ARBITRATION. In the event there is any dispute between the
parties hereto arising out of or relating to this Agreement and the
parties hereto cannot resolve such dispute themselves, the parties
hereto agree to refer and submit such dispute to the American
Arbitration Association, Minneapolis, Minnesota (the
"Association"), for arbitration, and any such proceeding shall be
conducted in the Minneapolis, Minnesota metropolitan area. Any such
arbitration shall be before a panel of three (3) arbitrators and
shall be conducted in accordance with the rules of the Association,
except that the parties shall be permitted discovery prior to any
hearing in accordance with the Federal Rules of Civil Procedure,
and the Federal Rules of Evidence and Federal Rules of Civil
Procedure shall apply at any hearing. No arbitrator shall have any
connection to the parties to this Agreement. The arbitrators shall
have the right to award or include in their award any relief they
deem proper, including without limitation, money damages, interest,
specific performance, attorneys fees, cost and expenses incurred,
but not exemplary or punitive damages. The award decision of the
arbitrators shall be conclusive and binding upon all parties and
may be entered in any court of competent jurisdiction. The parties
agree to bring all claims in this arbitration which relate to the
original claim. This provision shall continue after any expiration
or termination of this Agreement.
(b) BROKER FEE. Medical and the Buyers acknowledge that no fees
or commissions in the nature of finder, originator, or broker fees
in connection
<PAGE>
with the subject matter of this Agreement have been incurred by any
of them. Each party to this Agreement shall indemnify the others
and hold them harmless against any claim for brokerage or to other
commissions from any person claiming to have worked on its behalf
relative to the transactions contemplated by this Agreement.
(c) EXPENSES. Whether or not the transactions contemplated by
this Agreement are consummated, each of the parties hereto shall
pay the fees and expenses of its respective counsel, accountants,
other experts and all other expenses incurred by such party
incidental to the negotiations, preparation, and execution of this
Agreement.
(d) CAPTIONS. Article, paragraph, or section titles or other
headings contained in this Agreement are for convenience only and
shall not be deemed a part of the context of this Agreement.
(e) ASSIGNMENT; BINDING EFFECT; AMENDMENT. This Agreement and the
rights hereunder may not be assigned (except by operation of law)
and shall be binding upon and shall inure to the benefit of the
parties hereto, the successors of the corporate parties hereto, and
the respective heirs and legal representatives of the Shareholder.
This Agreement, upon execution and delivery, constitutes a valid
and binding agreement of the parties hereto enforceable in
accordance with its terms and may be modified or amended only by a
written instrument executed by all parties hereto.
(f) NO WAIVER. No delay of, or omission in the exercise of any
right, power or remedy accruing to any party as a result of any
breach or default by any other party under this Agreement, shall
impair any such right, power or remedy, nor shall it be construed
as a waiver of or acquiescence in any such breach or default, or in
any similar breach or default occurring later; nor shall any waiver
of any-single breach or default be deemed a waiver of any other
breach of default occurring before or after that waiver.
(g) NOTICE. Any notice required or permitted to be given under
this Agreement shall be sufficient if in writing and if sent by
registered or certified mail to the parties at the addresses set
forth below their respective names or at such other place as the
parties shall designate in writing by certified or registered mail.
As to Medical Mr. Matthew Bellin
President
Oxboro Medical International, Inc.
13828 Lincoln Street NE
Ham Lake, Minnesota 55304
<PAGE>
With a copy to: Richard P. Keller, Esq.
Keller & Lokken, P.A.
332 Minnesota Street
St. Paul, Minnesota 55101
As to the Buyers: Mr. John McGuire
Mr. Stephen Kaminski
Mr. Charles Kruse
________________________
________________________
With a copy to: Stephen J. Kaminski, Esq.
Larkin, Hoffman, Daly & Lindgren, Ltd.
1500 Norwest Financial Center
7900 Xerxes Avenue South
Bloomington, MN 55431
(h) SCHEDULES. All documents and other papers included as a part
of any exhibits and schedules referred to in this Agreement are
hereby incorporated into this Agreement by reference.
(i) ENTIRE AGREEMENT. This Agreement is the final, complete and
exclusive statement and expression of the agreement among the
parties hereto with relation to the subject matter of this
Agreement, it being understood that there are no oral
representations, understandings or agreements covering the same
subject matter as this Agreement. This Agreement supersedes, and
cannot be varied, contradicted or supplemented by evidence of any
prior or contemporaneous discussions, correspondence, or oral or
written agreements of any kind.
(j) COUNTERPARTS. This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed an
original and all of which together shall constitute but one and the
same instrument.
(k) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of
Minnesota, without giving effect to any choice or conflict of law
provision or rule (whether of the State of Minnesota or any other
jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Minnesota.
(l) SEVERABILITY. In case any provision of this Agreement shall
be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and
enforceable but so as most nearly to retain the intent of the
parties. If such modification is not possible, such provision
<PAGE>
shall be severed from this Agreement. In either case the validity,
legality and enforceability of the remaining provisions of this
Agreement shall not in any way be affected or impaired thereby.
(m) FURTHER ASSURANCES. At any time, and from time to time before
and after the Closing, the Buyers, the Corporation and Medical
shall, at the request of the other party, and without additional
consideration, execute, acknowledge, and deliver such other
documents and instruments, and take such other actions as may be
reasonably necessary, in order to consummate the transactions
contemplated by this Agreement and to accomplish the purposes of
this Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement
as of the day and year first above written.
MEDICAL: THE BUYERS:
OXBORO MEDICAL INTERNATIONAL, INC. JOHN MCGUIRE
By: /s/ Matthew E. Bellin /s/ John McGuire
------------------------ ------------------------
Its: President John McGuire
STEPHEN KAMINSKI
/s/ Stephen Kaminski
------------------------
Stephen Kaminski
CHARLES KRUSE
/S/ Charles Kruse
------------------------
Charles Kruse
<PAGE>
EXHIBIT 2.2
$265,000 Minneapolis, Minnesota
June 30, 1999
PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned (collectively, the "Makers"),
jointly and severally, hereby promise to pay to the order of OXBORO MEDICAL
INTERNATIONAL, INC., a Minnesota corporation (the "Payee") at 13828 Lincoln
Street N.E., Ham Lake, Minnesota 55304, or at such other place as the holder
hereof may designate in writing from time to time, the principal sum of TWO
HUNDRED SIXTY-FIVE THOUSAND DOLLARS ($265,000), together with interest on the
unpaid principal balance from the date hereof at the rate of nine percent
(9%) per annum. All principal and accrued interest due hereon shall be due
and payable on September 30, 1999. The Makers shall have the right to prepay
all amounts due hereunder at any time without penalty. All payments made
hereon shall be applied first to interest, then to principal
Notwithstanding the foregoing, this Note is subject to the Makers'
right of setoff as provided in Section 9(b) of the Agreement for Purchase and
Sale of Stock of even date herewith, by and among the Makers and the Payee
and the Makers and the Payee agree that such provisions are incorporated
herein and are binding upon the parties hereto.
The Makers agree that upon the occurrence of any one or more of the
following events, all principal and interest due on this Note shall become
immediately due and payable at the option of the Payee, without notice:
1. The Makers fail to pay any amount hereunder when due;
2. A Maker: (i) commits an act of bankruptcy under the provisions of
any state insolvency law or under the provisions of the Federal
Bankruptcy Act; or (ii) initiates or has initiated against him,
voluntarily or involuntarily, any action, process or proceeding
under any insolvency law or other statute or law providing for
the modification or adjustment of the rights of creditors; or
3. A Maker admits, in writing, of his inability to pay his debts as
they become due.
The Makers shall also be liable for all costs of collection incurred
in connection with this Note, including attorneys' fees. A waiver by the
holder hereof of a breach of the payment provisions hereof shall not operate
as, or be construed to be, a waiver of a subsequent breach of any such
provisions. The Makers hereby waive presentment, demand for payment, notice
of dishonor, notice of protest, protest, and all other notices or demands in
connection with the delivery, acceptance or performance of, or default under,
this Note. This Note shall be
<PAGE>
governed by and construed in accordance with the internal laws of the State
of Minnesota, without giving effect to the conflict of laws principles of
such state.
IN WITNESS WHEREOF, the undersigned have executed this Note,
intending to be legally bound thereby, as of the above date.
THE PAYEE: THE MAKERS:
OXBORO MEDICAL INTERNATIONAL, INC. JOHN MCGUIRE
By: /S/ MATTHEW E. BELLIN /S/ JOHN MCGUIRE
Its: PRESIDENT AND CHIEF EXECUTIVE OFFICER --------------------
John McGuire
STEPHEN KAMINSKI
/S/ STEPHEN KAMINSKI
--------------------
Stephen Kaminski
CHARLES KRUSE
/S/ CHARLES KRUSE
--------------------
Charles Kruse
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000350557
<NAME> OXBORO
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 529,100
<SECURITIES> 0
<RECEIVABLES> 701,990
<ALLOWANCES> 20,518
<INVENTORY> 597,687
<CURRENT-ASSETS> 2,139,244
<PP&E> 1,816,133
<DEPRECIATION> (875,258)
<TOTAL-ASSETS> 3,224,847
<CURRENT-LIABILITIES> 1,121,991
<BONDS> 0
0
0
<COMMON> 24,096
<OTHER-SE> 1,603,867
<TOTAL-LIABILITY-AND-EQUITY> 3,224,847
<SALES> 3,940,987
<TOTAL-REVENUES> 3,940,987
<CGS> 2,505,422
<TOTAL-COSTS> 2,505,422
<OTHER-EXPENSES> 2,469,512
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 73,289
<INCOME-PRETAX> (1,209,281)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,209,281)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,209,281)
<EPS-BASIC> (.53)
<EPS-DILUTED> (.53)
</TABLE>
<PAGE>
EXHIBIT 99.1
FOR IMMEDIATE RELEASE:
Oxboro Medical Announces Proposed Sale of its Outdoors Subsidiary
MINNEAPOLIS, June 24, 1999 Oxboro Medical International Inc., Minneapolis, MN
(NASDAQ: OMED) announced today that it has signed a letter of intent with a
private group of investors to sell its Oxboro Outdoors Inc. subsidiary
("Outdoors").
Oxboro Medical International Inc. develops, assembles, and markets medical
and surgical products, and through its wholly-owned Outdoors subsidiary,
develops, assembles, and markets fishing tackle and outdoor recreational
licensed products. For its 2nd fiscal quarter ended March 31, 1999, sales of
Outdoors' products accounted for approximately 14% of the Company's
$1,387,916 total sales.
Matthew E. Bellin, President of Oxboro Medical International Inc., stated:
"The sale of our Outdoors subsidiary will allow the company to focus its
financial and human resources on our medical products business."
Under terms of the proposed agreement, Oxboro Medical International Inc. will
receive up to $650,000 in the form of cash and a note, subject to certain
adjustments. Closing of the transaction is subject to certain conditions,
including the negotiation and execution of a definitive agreement.
Forward-looking Statements
The Company may from time to time make written or oral "forward-looking
statements", whether in its news releases, its filings with the SEC or in its
reports to stockholders, or elsewhere. By their very nature, forward-looking
statements are subject to known and unknown risks and uncertainties relating
to the Company's future performance that may cause the actual results,
performance or achievements of the Company, or industry results, to differ
materially from those expressed or implied in any such "forward-looking
statements". Investors are cautioned that any such forward-looking statement
is qualified by and subject to the warnings and cautionary statements
contained above and in the Company's filings with the SEC. The Company does
not undertake and assumes no obligation to update any forward-looking
statement that may be made from time to time by or on behalf of the Company.
FOR FURTHER INFORMATION:
Matthew E. Bellin, President
Oxboro Medical International, Inc.
612-755-9516 telephone
612-755-9466 fax
<PAGE>
EXHIBIT 99.2
FOR IMMEDIATE RELEASE:
Oxboro Medical Announces Closing of Sale of its Outdoors Subsidiary
MINNEAPOLIS, June 30, 1999 Oxboro Medical International Inc., Minneapolis, MN
(NASDAQ: OMED) announced today that it had completed the sale of its Oxboro
Outdoors Inc. subsidiary ("Outdoors") to a group of private investors. For
its 2nd fiscal quarter ended March 31, 1999, sales of Outdoors' products
accounted for approximately 14% of the Company's $1,387,916 total sales.
The sale price was $650,000, partially in the form of cash and partially as a
note, subject to certain adjustments within 90 days.
As previously reported, Matthew E. Bellin, President of Oxboro Medical
International Inc., stated: "The sale of our Outdoors subsidiary will allow
the Company to focus its financial and human resources on our medical
products business."
John McGuire, one of the private investors, stated that he and his investment
group were very excited about the long term growth opportunities of Oxboro
Outdoors. He said that Oxboro Outdoors expects to continue to sell a full
range of licensed specialty products as well as unlicensed fishing and other
sports products.
Oxboro Medical International Inc. develops, assembles, and markets medical
and surgical products. Previously, through its wholly-owned Outdoors
subsidiary it developed, assembled, and marketed fishing tackle and outdoor
recreational licensed products.
Forward-looking Statements
The Company may from time to time make written or oral "forward-looking
statements", whether in its news releases, its filings with the SEC or in its
reports to stockholders, or elsewhere. By their very nature, forward-looking
statements are subject to known and unknown risks and uncertainties relating
to the Company's future performance that may cause the actual results,
performance or achievements of the Company, or industry results, to differ
materially from those expressed or implied in any such "forward-looking
statements". Investors are cautioned that any such forward-looking statement
is qualified by and subject to the warnings and cautionary statements
contained above and in the Company's filings with the SEC. The Company does
not undertake and assumes no obligation to update any forward-looking
statement that may be made from time to time by or on behalf of the Company.
FOR FURTHER INFORMATION:
Matthew E. Bellin, President
Oxboro Medical International, Inc.
612-755-9516 telephone
612-755-9466 fax
