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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

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FORM 10-QSB

|/x/ | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ---------------------------------------------------------------------------------

For the Quarterly Period Ended December 31, 1999

OR

|/ / | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ----------------------------------------------------------------------------------

For the transition period from  to

Commission file number 0-18785

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OXBORO MEDICAL INTERNATIONAL, INC.(Exact name of small business issuer as specified in its charter)

|Minnesota(State or other jurisdiction of
incorporation or organization) |  | 41-1391803(IRS Employer Identification No.)
|----------------------------------------------------------------------- |  | -------------------------------------------

13828 Lincoln Street N.E., Ham Lake, Minnesota 55304(Address of principal executive offices)

(612) 755-9516(Issuer's telephone number)

Not Applicable(Former name, former address and former fiscal year, if changed since last report)

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Check
whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days: YES /x/  No / /

At
February 11, 2000, 1,338,102 shares of the issuer's Common Stock were outstanding.

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## 

OXBORO MEDICAL INTERNATIONAL, INC.   INDEX TO FORM 10-QSB

|                              |  |                                                                                                       |  | PAGE
|----------------------------- |  | ----------------------------------------------------------------------------------------------------- |  | ----
|PART IFINANCIAL INFORMATION:
|Item 1.                       |  | Condensed Financial Statements (unaudited)                                                            |  | 3   
|                              |  | Condensed Balance Sheets at December 31, 1999 and September 30, 1999                                  |  | 3   
|                              |  | Condensed Statements of Operations for the Three Months Ended December 31, 1999 and December 31, 1998 |  | 4   
|                              |  | Condensed Statements of Cash Flows for the Three Months Ended December 31, 1999 and December 31, 1998 |  | 5   
|                              |  | Notes to Unaudited Condensed Financial Statements                                                     |  | 6   
|Item 2.                       |  | Management's Discussion and Analysis or Plan of Operation                                             |  | 8   
|PART IIOTHER INFORMATION:   
|Item 5.                       |  | Other Information                                                                                     |  | 10  
|Item 6.                       |  | Exhibits and Reports on Form 8-K                                                                      |  | 10  
|SIGNATURES                    |  | 11                                                                                                   



## 

Part IFinancial Information

Item 1. Financial Statements

OXBORO MEDICAL INTERNATIONAL, INC.

CONDENSED BALANCE SHEETS

(unaudited)

|                                               |  | December 31,
1999 |           | September 30,
1999
|---------------------------------------------- |  | ----------------- | --------- | ------------------
|ASSETS                                         |  |                   |           |                   
|Current Assets:                                |  |                   |           |                   
|Cash                                           |  | $                 | 1,434,806 |                   
|Rights proceeds due from trustee               |  |                   |          |                   
|Trade receivables, net                         |  |                   | 736,606   |                   
|Inventories                                    |  |                   | 665,928   |                   
|Income taxes receivable                        |  |                   |          |                   
|Deferred income taxes                          |  |                   | 94,000    |                   
|Receivable from sale of business segment       |  |                   | 70,000    |                   
|Other current assets                           |  |                   | 14,425    |                   
|                                               |  |                   |           |                   
|Total current assets                           |  |                   | 3,015,765 |                   
|PROPERTY AND EQUIPMENT, NET                    |  |                   | 1,157,188 |                   
|OTHER ASSETS                                   |  |                   | 107,335   |                   
|                                               |  |                   |           |                   
|Total assets                                   |  | $                 | 4,280,288 |                   
|                                               |  |                   |           |                   
|LIABILITIES AND SHAREHOLDERS' EQUITY           |  |                   |           |                   
|CURRENT LIABILITIES:                           |  |                   |           |                   
|Note payable to bank                           |  | $                 |          |                   
|Current maturities of long-term obligations    |  |                   | 44,555    |                   
|Accounts payable                               |  |                   | 264,201   |                   
|Accrued salaries, wages, payroll taxes         |  |                   | 144,873   |                   
|Accrued consulting fees                        |  |                   | 141,455   |                   
|Other accrued expenses                         |  |                   | 62,669    |                   
|                                               |  |                   |           |                   
|Total current liabilities                      |  |                   | 657,753   |                   
|LONG-TERM OBLIGATIONS, less current maturities |  |                   | 418,094   |                   
|DEFERRED INCOME TAXES                          |  |                   | 94,000    |                   
|SHAREHOLDERS' EQUITY:                          |  |                   |           |                   
|Common stock, $0.01 par value                  |  |                   | 13,381    |                   
|Additional paid-in capital                     |  |                   | 2,242,524 |                   
|Retained earnings                              |  |                   | 854,536   |                   
|                                               |  |                   |           |                   
|Total shareholders' equity                     |  |                   | 3,110,441 |                   
|                                               |  |                   |           |                   
|TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY     |  | $                 | 4,280,288 |                   
|                                               |  |                   |           |                   

See
accompanying notes to condensed financial statements.

OXBORO MEDICAL INTERNATIONAL, INC.

CONDENSED STATEMENTS OF OPERATIONS

(unaudited)

|                                                                  |  | For the Three Months Ended
December 31, |          
|----------------------------------------------------------------- |  | --------------------------------------- | ---------
|
|Net sales                                                         |  | $                                       | 1,154,429
|Cost of goods sold                                                |  |                                         | 381,309  
|                                                                  |  |                                         |          
|Gross profit                                                      |  |                                         | 773,120  
|Selling, general and administrative expenses                      |  |                                         | 543,115  
|                                                                  |  |                                         |          
|Operating earnings                                                |  |                                         | 230,005  
|Interest expense                                                  |  |                                         | 11,912   
|Interest and other income                                         |  |                                         | 45,388   
|                                                                  |  |                                         |          
|Income from continuing operations                                 |  |                                         | 263,481  
|Loss from discontinued operations                                 |  |                                         |         
|                                                                  |  |                                         |          
|Net income (loss)                                                 |  | $                                       | 263,481  
|                                                                  |  |                                         |          
|Income per share from continuing operations:                      |  |                                         |          
|Basic                                                             |  | $                                       | 0.27     
|Diluted                                                           |  |                                         | 0.26     
|Loss per share from discontinued operations:                      |  |                                         |          
|Basic                                                             |  |                                         |         
|Diluted                                                           |  |                                         |         
|Net income (loss) per share:                                      |  |                                         |          
|Basic                                                             |  |                                         | 0.27     
|Diluted                                                           |  |                                         | 0.26     
|Weighted average common and common equivalent shares outstanding: |  |                                         |          
|Basic                                                             |  |                                         | 989,923  
|Diluted                                                           |  |                                         | 1,024,926
|                                                                  |  |                                         |          

See
accompanying notes to condensed financial statements.



OXBORO MEDICAL INTERNATIONAL, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(unaudited)

|                                                                                              |  | For the Three Months Ended
December 31, |          
|--------------------------------------------------------------------------------------------- |  | --------------------------------------- | ---------
|
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                         |  |                                         |          
|Net income (loss)                                                                             |  | $                                       | 263,481  
|Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: |  |                                         |          
|Discontinued operations                                                                       |  |                                         |         
|Depreciation and amortization                                                                 |  |                                         | 26,969   
|Change in operating assets and liabilities not including changes in discontinued items:       |  |                                         |          
|Trade receivables                                                                             |  |                                         | (56,064  
|Inventories                                                                                   |  |                                         | 1,893    
|Other current assets                                                                          |  |                                         | (14,425  
|Accounts payable                                                                              |  |                                         | (99,471  
|Accrued wages, salaries and payroll taxes                                                     |  |                                         | 66,742   
|Accrued consulting fees                                                                       |  |                                         | (60,625  
|Other accrued expenses                                                                        |  |                                         | (2,333   
|Income taxes receivable                                                                       |  |                                         | 52,758   
|                                                                                              |  |                                         |          
|NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                                           |  |                                         | 178,925  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                         |  |                                         |          
|Proceeds on receivable from sale of business segment                                          |  |                                         | 175,000  
|Purchase of property and equipment                                                            |  |                                         | (143,073 
|Additions to other assets                                                                     |  |                                         | (7,263   
|                                                                                              |  |                                         |          
|NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                                           |  |                                         | 24,664   
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                         |  |                                         |          
|Net borrowings (payments) under note payable to bank                                          |  |                                         | (145,313 
|Net proceeds from rights offering                                                             |  |                                         | 1,083,220
|Payments on long-term obligation                                                              |  |                                         | (9,850   
|                                                                                              |  |                                         |          
|NET CASH PROVIDED BY FINANCING ACTIVITIES                                                     |  |                                         | 928,057  
|                                                                                              |  |                                         |          
|NET INCREASE (DECREASE) IN CASH                                                               |  |                                         | 1,131,646
|CASH, AT BEGINNING OF PERIOD                                                                  |  |                                         | 303,160  
|                                                                                              |  |                                         |          
|CASH, AT END OF PERIOD                                                                        |  | $                                       | 1,434,806
|                                                                                              |  |                                         |          

See
accompanying notes to condensed financial statements.



## 

OXBORO MEDICAL INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

DECEMBER 31, 1999

Note 1Basis of Financial Statement Presentation

The accompanying unaudited condensed financial statements have been prepared 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.

In
the opinion of management, the unaudited condensed financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the
financial position and results of operations. Results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year or of the results for any
future periods.

In
preparation of the Company's financial statements, management is required to make estimates and assumptions that affect reported amounts of assets and liabilities and related
revenues and expenses. Actual results could differ from the estimates used by management.

Note 2Inventories

|                        |  | December 31, 1999 |         | September 30, 1999
|----------------------- |  | ----------------- | ------- | ------------------
|Inventories consist of: |  |                   |         |                   
|Raw materials           |  | $                 | 330,738 |                   
|Finished goods          |  |                   | 335,190 |                   
|                        |  |                   |         |                   
|                        |  | $                 | 665,928 |                   
|                        |  |                   |         |                   

Note 3Net Income (Loss) Per Share

The Company's basic net income (loss) per share amounts have been computed by dividing net income (loss) by the weighted average number of outstanding common
shares. The Company's diluted net
income (loss) per share is computed by dividing net income (loss) by the weighted average number of outstanding common shares and common share equivalents relating to stock options, when dilutive. For
the three months ended December 31, 1999, 35,003 shares of common stock equivalents were included in the computation of diluted net income per share. For the three months ended
December 31, 1998, the Company reported a net loss and as such, no common share equivalents were included in the computation of diluted net loss per share. However, if the Company would have
reported net income in the three months ended December 31, 1998, 16,000 common share equivalents would have been included in the computation of diluted net income per share.

Options
to purchase 50,400 and 42,073 shares of common stock with a weighted average exercise price of $6.81 and $5.84 were outstanding at December 31, 1999 and 1998,
respectively, but were excluded from the computation of common share equivalents because their exercise prices were greater than the average market price of the common shares on such dates.

Note 4Sale of Oxboro Outdoors, Inc.

On June 30, 1999, the Company sold the stock of its subsidiary, Oxboro Outdoors, Inc., a maker of outdoor recreational products, for $385,000 in
cash, a 9% promissory note of $265,000, less a contingency reserve of $20,000, and the assumption of liabilities of approximately $87,000. The Company received a $175,000 payment on the promissory
note in October 1999 with the remaining balance of $70,000 outstanding at December 31, 1999.

Note 5Income Taxes

At December 31, 1999, the Company utilized net operating loss carry-forwards to offset income tax expense during the quarter ended December 31,
1999. Accordingly, the Company did not report income tax expense for the quarter.

Note 6Rights Offering

The Company initiated a common stock rights offering in 1999. For each share of common stock owned, shareholders were given a right to purchase two shares of
common stock and one warrant to purchase one additional share of common stock for a total purchase price of $2.50. The term of the warrant is one year with an exercise price of $2.75.

As
of September 30, 1999, 148,528 rights were sold which resulted in the issuance of 297,056 shares of common stock and warrants to purchase 148,528 additional shares of common
stock. Gross proceeds of $371,320 were held by the trustee at September 30, 1999 and were received by the Company on October 5, 1999. Net proceeds from the offering as of
September 30, 1999 were $221,123.

The
Company completed the rights offering on November 30, 1999. Additional rights sold in the period from October 1, 1999 to November 30, 1999 totaled 296,884
which resulted in the issuance of 593,768 shares of common stock and warrants to purchase 296,884 additional shares of common stock. Net proceeds from the sale of rights subsequent to
September 30, 1999 totaled $711,900.



Item 2. Management's Discussion and Analysis or Plan of Operation

Overview

Oxboro Medical International, Inc. ("the Company" or "Oxboro") develops, assembles, and markets medical and surgical devices. Principal medical products
produced and sold by Oxboro include silicone loops, silicone and fabric clamp covers, instrument guards, suture aid booties, identification sheet and roll tape, and various holders and organizers for
instruments used in the operating room.

Results of Operations

Net sales for the three-month period ended December 31, 1999 were $1,154,429 as compared to $1,041,314 for the corresponding period in the previous
fiscal year. This represents an increase of approximately 11%. Strong competition continues in the Company's medical products markets.

Gross
margin for the first quarter of fiscal 2000 and 1999 was 67% and 64%, respectively. The increase in gross margin percentage for first quarter of fiscal year 2000 results from
production expenses incurred in the first quarter of the prior year related to compliance activities for ISO 9000, European CE Mark certification and various regulatory matters.

During
the first quarter of fiscal 2000, selling, general and administrative ("S, G & A") expenses decreased by 14%, or $90,314, compared to the first quarter of fiscal 1999.
This decrease is primarily the result of a reduction in legal and consulting expenses pertaining to management changes during fiscal 1999.

Income
from continuing operations for the first quarter of fiscal year 2000 was $263,481 as compared to $59,156 in the first quarter of fiscal year 1999. The increase is mainly due to
the improvement in gross margin and the decrease in S, G & A expenses.

On
June 30, 1999, the Company sold its subsidiary, Oxboro Outdoors, Inc. Accordingly, the activity of Oxboro Outdoors through that date is reported as a discontinued
operation.

Liquidity and Capital Resources

The Company has typically financed its operations through internal working capital and a bank line-of-credit. Financing of its building
has been through long-term bank financing. As of December 31, 1999, the Company had working capital of $2,358,012 as compared to $1,515,848 at September 30, 1999, and
long-term debt of $418,094. As of December 31, 1999, the Company had $1,434,806 in cash as compared to $303,160 at September 30, 1999.

During
the quarter ended December 31, 1999, the Company generated $178,925 in net cash from operating activities primarily due to net earnings and receipt of income taxes
receivable offset by the payment of accrued consulting and professional fees. The Company generated $24,664 from investing activities during the quarter ended December 31, 1999, primarily due
to the proceeds from the disposal of Oxboro Outdoors, Inc. offset by the purchase of equipment. The Company generated $928,057 in cash from financing activities due to the net proceeds from its
stock rights offering completed on November 30, 1999.

The
Company's bank line of credit of $550,000 expires on March 31, 2000 and bears interest at prime plus 1%. As of December 31, 1999, the Company had no outstanding
balance on this line of credit, a decrease of $145,313 from September 30, 1999. Although not assured, the Company expects to maintain or replace the line of credit under terms similar to those
in effect at December 31, 1999, and believes it has adequate capital to meet its cash requirements for the next twelve months.

Forward-Looking Statements

This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. In addition, forward-looking
statements may be made orally in the future by or on behalf of the Company. When used in this report, the words "believe," "expect," "will," "can," "estimate," "anticipate" and similar expressions are
intended to identify such forward-looking statements. The Company wishes to caution readers not to place undue reliance on any forward-looking statements and to recognize that the statements are not
predictions of actual future results. Actual results could differ materially from those anticipated in the forward-looking statements due to the risks and uncertainies set forth in our 1999 Annual
Report on Form 10-KSB under the caption "Risks Related to Our Business," as well as others not now anticipated. These risks and uncertainties include, without limitation: market
acceptance of the Company's products and our ability to acquire new products, pricing strategies of competitors, general conditions in the industries served by our products, including consolidation of
customers and the potential loss of those customers or their ability to demand discounted pricing on our products, changes in management of the Company, maintenance of operating capital and bank
financing, the continuing licensing dispute with one of our former officers, the success of competitive products, continuing relationships with our third party suppliers, and overall economic
conditions, including inflation and consumer buying patterns.

Year 2000 Compliance

The Company continues to monitor the impact of the Year 2000 issue on its reporting systems and operations. The Year 2000 issue arose because many computer
systems and applications used only two-digit fields to designate a year in the data field. As a result, these systems and applications may not recognize the Year 2000 or may recognize it
as 1900. If not corrected, this inability to recognize or properly incorporate the Year 2000 may cause systems to fail, create erroneous results, or otherwise process critical financial and
operational information incorrectly.

We
believe our internal information technology systems remain Year 2000 compliant. To date, we are not aware of any significant issues that have developed related to Year 2000
compliance, either from within the Company or from those outside vendors and suppliers with whom we do business. However, we are currently unable to predict to what extent the Year 2000 issue may
affect our outside suppliers or vendors, or to what extent we would be vulnerable to any failure by them to be Year 2000 compliant. The failure of a supplier or vendor to remediate any Year 2000
issues could have a material adverse effect on our business, financial condition or results of operations.



## 

PART IIOTHER INFORMATION

Item 5.    Other Information

The Company has been notified by Larry A. Rasmusson that it is currently in default of royalty agreements related to certain medical products. 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. If Mr. Rasmusson were to initiate a legal
action to terminate such agreements, the Company would aggressively defend itself in such action and would challenge the validity of such agreements. In the event and if necessary and appropriate, the
Company 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.

On
November 30, 1999, the Company completed a rights offering to its shareholders of record for sale of shares of common stock and warrants to purchase common stock of the
Company. The offering, which had become effective on September 1, 1999, was made pursuant to a registration statement filed with the Commission on Form S-3. On completion of the rights
offering, the Company had issued 888,590 shares of common stock and 444,295 warrants for purchase of common stock. The Company expects to promptly file a post-effective amendment to the
Form S-3 registration statement to deregister the remaining 2,234 shares of common stock and 1,117 warrants not sold in the rights offering.

Item 6.    Exhibits and Reports on Form 8-K:

|(a) |  | Exhibits: Exhibit 27.1 Financial Data Schedule
|--- |  | ----------------------------------------------
|(b) |  | Reports on Form 8-K:                          
|    |  |                                               
|    |  |                                               
|    |  |                                               
|    |  |                                               



SIGNATURES

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.

|Date: February 14, 2000 |  | OXBORO MEDICAL INTERNATIONAL, INC.
|----------------------- |  | ----------------------------------
|                        |  | By:                               



## QuickLinks

OXBORO MEDICAL INTERNATIONAL, INC. INDEX TO FORM 10-QSB

Part IFinancial Information

Item 2. Management's Discussion and Analysis or Plan of Operation

PART IIOTHER INFORMATIONSIGNATURES