<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(MARK ONE)
( X ) QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 0-9899
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MEDICAL GRAPHICS CORPORATION
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(Exact name of small business issuer as specified in charter)
Minnesota 41-1316712
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
350 Oak Grove Parkway
St. Paul, Minnesota 55127-8599
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(Address of principle executive offices) ( Zip Code)
(612) 484-4874
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(Issuer's telephone number)
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(Former name, former address and former fiscal year, if changed since last
report)
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 for such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the last practicable date: 2,559,143 as of November 8, 1996
--------------------------------
Transitional Small Business Disclosure Format (check one): Yes : No X
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Item 1. Financial Statements
MEDICAL GRAPHICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
THIRD QUARTER AND NINE MONTHS 1996
(UNAUDITED)
(In thousands, except per share data)
<TABLE>
Three Months Ended Nine Months Ended
Sept. 30 Sept. 30
---------- ---------- ---------- ----------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Equipment sales $ 4,632 $ 4,348 $ 12,662 $ 12,475
Service and supply revenue 1,378 1,263 3,751 3,508
--------- --------- --------- ---------
Total revenue 6,010 5,611 16,413 15,983
Cost of equipment sales 2,779 2,451 7,557 7,271
Cost of service and supply 981 553 2,356 1,621
--------- --------- --------- ---------
Cost of products and services 3,760 3,004 9,913 8,892
--------- --------- --------- ---------
Gross margin on sales 2,250 2,607 6,500 7,091
Gross margin as a percent of sales 37.4% 46.5% 39.6% 44.4%
Expenses:
Selling and marketing 1,997 1,912 5,502 5,494
Administrative and general 753 517 2,267 2,111
Research and development 695 442 1,716 1,544
--------- --------- --------- ---------
3,445 2,871 9,485 9,149
--------- --------- --------- ---------
Operating loss (1,195) (264) (2,985) (2,058)
Other income - SensorMedics Settlement 1,317 -- 1,317 --
Interest expense (49) (38) (113) (51)
--------- --------- --------- ---------
Income (loss) before income taxes 73 (302) (1,781) (2,109)
Income tax (benefit) expense -- (87) (60) (542)
--------- --------- --------- ---------
Net income (loss) $ 73 $ (215) $ (1,721) $ (1,567)
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income (loss) per share $ 0.03 $ (0.09) $ (0.68) $ (0.64)
Weighted average common and common
equivalent shares outstanding 2,555,643 2,443,533 2,538,808 2,441,490
</TABLE>
(2)
<PAGE>
Item 1. Financial Statements
MEDICAL GRAPHICS CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
UNAUDITED
(In thousands)
SEPT. 30 DEC. 31
1996 1995
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ASSETS
Current Assets:
Cash and cash equivalents $ 373 $ 31
Accounts receivable, net 7,777 9,182
Inventories:
Purchased components and work in process 4,548 3,746
Finished goods 2,919 2,414
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7,467 6,160
Refundable income taxes - 443
Prepaid expenses and other current assets 507 169
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Total Current Assets 16,124 15,985
Equipment and Fixtures 4,553 3,932
Less accumulated depreciation (3,074) (2,725)
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1,479 1,207
Software Production Costs, net 392 397
Other Assets 30 38
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$18,025 $17,627
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,796 $ 1,826
Bank line of credit 2,550 1,675
Employee compensation 661 957
Deferred service contract revenue 1,093 1,157
Warranty reserve 430 240
Other liabilities and accrued expenses 481 462
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Total Current Liabilities 8,011 6,317
Deferred Compensation 119 -
Shareholders' Equity
Common stock 128 125
Additional paid-in capital 10,224 9,921
Retained earnings (deficit) (457) 1,264
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9,895 11,310
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$18,025 $17,627
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(3)
<PAGE>
Item 1. Financial Statements
MEDICAL GRAPHICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
THIRD QUARTER 1996
(UNAUDITED)
Nine Months Ended
September 30
-------------------------
1996 1995
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CASH FLOWS FROM:
OPERATING ACTIVITIES
Net loss $(1,721) $(1,567)
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH USED IN OPERATING ACTIVITIES
Depreciation 349 268
Amortization 195 141
Provision for deferred income taxes -- 15
Provision for warranty reserve 190 --
Changes in operating assets and
liabilities:
Accounts receivable 1,405 (14)
Inventory and prepaid expenses (1,645) (1,545)
Refundable income taxes 443 --
Other assets 8 24
Accounts payable and accrued expenses 812 69
Income taxes payable -- (432)
Deferred service contract income (64) 102
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NET CASH USED IN OPERATING ACTIVITIES (28) (2,939)
CASH FLOWS FROM:
INVESTING ACTIVITIES
Software production costs (190) (117)
Capital expenditures (621) (304)
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NET CASH USED IN INVESTING ACTIVITIES (811) (421)
CASH FLOWS FROM:
FINANCING ACTIVITIES:
Borrowing on bank line of credit 875 1,550
Proceeds from stock transactions 306 199
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NET CASH PROVIDED BY LAWSUIT AND
FINANCING ACTIVITIES 1,181 1,749
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INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 342 (1,611)
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD 31 1,726
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END OF PERIOD $ 373 $ 115
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(4)
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE A - MANAGEMENT OPINION
The financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-QSB and Rule 10-01 of regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments considered necessary for a fair
presentation of results have been included. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-KSB for the fiscal year ended December 31,
1995.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Revenues for the third quarter of 1996 were $6,010,000, an increase of 7.1
percent over revenues of $5,611,000 in the same period of 1995. The Company
reported a profit of $73,000, or three cents per share in the 1996 period versus
a net loss of $215,000, or nine cents per share, in the prior year.
The Company reported sales of $16,413,000 for the first nine months of 1996, a
gain of 2.7 percent over revenues of $15,983,000 for the first nine months of
1995. The year to date net loss for 1996 was $1,721,000 or $.68 cents per
share, compared to a net loss of $1,567,000 or $.64 cents per share in the same
period of 1995. The year to date loss is net of the $1,317,000 SensorMedics
lawsuit settlement.
Gross margins as a percentage of sales decreased to 37.4 percent in the third
quarter of 1996 from 46.5 percent for the third quarter of 1995. This decrease
in the third quarter gross margin percentage is primarily due to competitive
pricing strategy, a $200,000 increase in warranty reserve for a more competitive
warranty program and a shift in product mix to lower margin products for the
quarter. Gross margins for the nine-month period decreased to 39.6 percent from
44.4 percent due to the factors described above.
Sales and marketing expenses increased by $85,000 for the quarter, yet were
relatively flat for the nine month period. The quarterly increase is attributed
to a larger sales force and increased marketing programs as compared to the
third quarter in 1995.
Administrative expenses increased by $236,000 for the quarter and $156,000 for
the nine month period. This increase was caused primarily by additional senior
management hired during the past nine months.
As part of our strategic plan to maintain our position as technological leader
in our market and to decrease the size and cost of our existing products to
broaden their appeal, R & D expenses were increased $253,000 in the third
quarter of 1996 in comparison to the same period in 1995.
(5)
<PAGE>
FINANCIAL CONDITION
As of September 30, 1996, the Company had cash and cash equivalents of $373,000
working capital of $8,113,000 and $950,000 available to borrow under its
$3,500,000 bank line of credit. The Company believes that current working
capital combined with projected revenues and the existing bank line of credit
will provide sufficient working capital through 1996.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Results for the third quarter and nine months of 1996 include non-operating
income of $1,317,000 which is the net payment received for the present value of
the future payments due the Company under a lawsuit settlement from SensorMedics
Corporation as a result of the acquisition of SensorMedics by ThermoElectron
Corporation.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Statement re: Computation of per share earnings (loss)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the third quarter of 1996.
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.
MEDICAL GRAPHICS CORPORATION
(Registrant)
Date November 8, 1996 /s/ Eric W. Sivertson
--------------------------------------
Eric W. Sivertson, Chief Executive
Officer (Principal Executive Officer)
(6)
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ----------- ----
11 Statement re: Computation of
Per Share Earnings (Loss) 8
27 Financial Data Schedule
(7)
<PAGE>
EXHIBITT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (LOSS)
MEDICAL GRAPHICS CORPORATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS NINE MONTHS ENDED
ENDED SEPT. 30 SEPT. 30
-------------------- --------------------
1996 1995 1996 1995
--------- --------- --------- ---------
PRIMARY AND FULLY DILUTED:
Weighted average shares
outstanding 2,555,643 2,443,533 2,538,808 2,441,490
Net effect of dilutive stock
options -- based on the treasury
stock method using period-end
market price, if higher than
average market price 37,139 -- -- --
--------- --------- --------- ---------
TOTAL 2,592,782 2,443,533 2,538,808 2,441,490
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income (loss) $ 73 $ (215) $ (1,721) $ (1,567)
Net income (loss) per share of
Common Stock $ 0.03 $ (0.09) $ (0.68) $ (0.64)
(8)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MEDICAL
GRAPHICS CORPORATION FOR NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 373
<SECURITIES> 0
<RECEIVABLES> 8,012
<ALLOWANCES> (235)
<INVENTORY> 7,467
<CURRENT-ASSETS> 16,124
<PP&E> 4,553
<DEPRECIATION> (3,074)
<TOTAL-ASSETS> 18,025
<CURRENT-LIABILITIES> 8,011
<BONDS> 0
0
0
<COMMON> 128
<OTHER-SE> 9,767
<TOTAL-LIABILITY-AND-EQUITY> 18,025
<SALES> 16,413
<TOTAL-REVENUES> 16,413
<CGS> 9,913
<TOTAL-COSTS> 9,913
<OTHER-EXPENSES> 9,485
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 113
<INCOME-PRETAX> (1,781)
<INCOME-TAX> (60)
<INCOME-CONTINUING> (1,721)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,721)
<EPS-PRIMARY> (.68)
<EPS-DILUTED> (.68)
</TABLE>
