<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: JANUARY 30, 1998
--------------------------------
(Date of Earliest Event Reported)
MEDICAL GRAPHICS CORPORATION
----------------------------
(Exact name of registrant as specified in its charter)
MINNESOTA 0-9899 41-1316712
--------- ------ ----------------
(State or other (Commission (I.R.S. Employer
jurisdiction File Number) Identification No.)
of Incorporation)
350 OAK GROVE PARKWAY
SAINT PAUL, MN 55127
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(Address of principal executive offices)
Registrant's telephone number, including area code: (612) 484-4874
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ITEM 1. CHANGES IN CONTROL OF REGISTRANT.
Not applicable.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
Not applicable.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP.
Not applicable.
ITEM 4. CHANGES IN CERTIFYING ACCOUNTANT.
Not applicable.
ITEM 5. OTHER EVENTS.
On January 30, 1998 and February 10, 1998, Medical Graphics
Corporation (the "Company") closed on two installments constituting in the
aggregate the second tranche of a private equity investment by FAMCO II LLC,
Special Situations Fund III, L.P., Special Situations Private Equity Fund, L.P.
and Special Situations Cayman Fund, L.P. (the "Investment"). In connection with
the Investment, the Company issued 363,636 shares of its Common Stock at a per
share price of $4.125 with net proceeds to the Company of $1,470,000.
On February 2, 1998, the Company reported unaudited gross revenues of
approximately $19,173,000 and an unaudited net loss of approximately $4,962,000
for the year ended December 31, 1997. A copy of the Company's press release is
attached hereto as Exhibit 99.1
As a result of its losses in 1997, at December 31, 1997, the Company
had total assets of approximately $10,366,000 and total shareholders' equity of
approximately $1,128,000. After giving effect to the net proceeds of the
Investment, however, the Company's unaudited pro forma shareholders' equity was
$2,598,000 as of December 31, 1997. A copy of the Company's unaudited pro forma
balance sheet as of December 31, 1997 and unaudited income statement for the
year ended December 31, 1997 are attached hereto as Exhibits 99.2 and 99.3,
respectively.
ITEM 6. RESIGNATIONS OF DIRECTORS.
Not applicable.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
Exhibits
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99.1 Press release dated February 2, 1998
99.2 Unaudited Pro Forma Balance Sheet as of December 31, 1997
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99.3 Unaudited Income Statement for the year ended December 31, 1997
ITEM 8. CHANGE IN FISCAL YEAR.
Not applicable.
ITEM 9. SALES OF EQUITY SECURITIES.
Not applicable.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MEDICAL GRAPHICS CORPORATION
By /s/ Glenn D. Taylor
-------------------------------------
Glenn D. Taylor
Chief Executive Officer
March 5, 1998
<PAGE>
EXHIBIT 99.1
MEDICAL GRAPHICS ANNOUNCES UNAUDITED FOURTH
QUARTER AND YEAR-END RESULTS
ST. PAUL, Minn., Feb. 2 /PRNewswire/ -- Medical Graphics Corporation (Nasdaq:
MGCC) announced today its fourth quarter and year-end 1997 results reflecting
record domestic sales in the fourth quarter and significant improvements in
reducing operating expenses, increasing gross margins, and decreasing net
losses. Revenues for the fourth quarter ending December 31, 1997 were $5.2
million, a 33 percent increase compared to $3.9 million in the fourth quarter of
1996. Total revenues included $3.3 million in domestic sales, the largest
quarterly domestic sales level in the company's history. Domestic sales growth
was primarily caused by sales of the company's new diagnostic system for sleep
disorders that was released to the U.S. market at the end of September. For the
year ending December 31, 1997, revenues were $19.2 million compared to $20.3
million in 1996. Domestic revenues increased 10 percent, while international
sales decreased 35 percent and service and supply sales were relatively flat
compared to last year's sales. International revenues were depressed by the
closing of the company's German office at the end of 1996 as part of its overall
restructuring actions. In addition, the continued strength of the dollar
negatively affected European sales. Net loss for the quarter was $584,000, or
$0.18 per share, compared to $7.3 million, or $2.87 per share, for the same
period in 1996. Excluding $154,000 in non-recurring restructuring expenses for
the quarter, net loss would have been $430,000, a 94 percent improvement. The
company attributes this improvement to a $4.4 million reduction in operating
expenses, a 27 percent improvement, combined with a 32 percent improvement in
gross margins. Net loss for 1997 was $5.0 million compared with $9.1 million in
1996. Excluding $1.7 million in nonrecurring restructuring expenses, losses were
$3.3 million in 1997.
"Excluding non-recurring restructuring expenses and accounting for
improvements in gross margin, Medical Graphics improved its operating results by
70 percent," said Mark W. Sheffert, chairman, "due to our restructuring actions
early in 1997 to improve results. Although there is still work to be done, we
are pleased with our progress to date. Medical Graphics is showing positive
trends in all major financial areas." The company's gross margin percent
increased 32 percent to 36.7 percent in 1997 from 27.8 percent in 1996. The
gross margin percent for the fourth quarter was 38.4 percent in 1997 compared to
a negative margin of 21.9 percent in 1996. Operating expenses decreased 61
percent for the quarter to $2.5 million compared to $6.4 million in the same
period in 1996. For the year, operating expenses were $11.7 million compared to
$16.0 million in 1996. The improved operating results continue to reflect the
company's restructuring efforts in early 1997 and an ongoing effort to operate
more efficiently. In October, the company engaged the investment banking firm of
Goldsmith, Agio, Helms and Company to explore its strategic options. "Interest
in the company has been positive, and we are at various stages of discussions
with interested parties. We are encouraged by these discussions to date,"
Sheffert added.
Medical Graphics Corporation ( www.medgraph.com ) develops,
manufactures and markets non-invasive cardiorespiratory diagnostic systems for
the management and improvement of cardiorespiratory health. Except for
historical financial information, the information contained in this news release
is forward-looking and subject to certain risks as described in the company's
filings with the Securities and Exchange Commission including the company's Form
10-KSB for fiscal year ended December 31, 1996 and the company's Form 10-QSB for
the quarters ended March 31, June 30, and September 30, 1997. Copyright 1998,
PR Newswire
CONTACT: Mark W. Sheffert of Medical Graphics Corporation, 612-338-4722
<PAGE>
MEDICAL GRAPHICS CORPORATION
PRO FORMA BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
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ACTUAL ADJUSTMENT PRO FORMA
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<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 387 $ 1,500 $ 1,887
Accounts receivable, net 3,890 3,890
Inventories: 4,240 4,240
Prepaid expenses 272 272
----------- ----------- -----------
TOTAL CURRENT ASSETS 8,789 1,500 10,289
EQUIPMENT AND FIXTURES 4,072 4,072
Less accumulated depreciation 3,110 3,110
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962 0 962
SOFTWARE PRODUCTION COSTS (NET) 602 602
OTHER ASSETS 13 13
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$ 10,366 $ 1,500 $ 11,866
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 3,406 $ 30 $ 3,436
Note payable 2,254 2,254
Employee compensation 786 786
Deferred service contract revenue 896 896
Warranty reserve 414 414
Other liabilities and accrued expenses 675 675
----------- ----------- -----------
TOTAL CURRENT LIABILITIES 8,431 30 8,461
LONG-TERM ACCOUNTS PAYABLE FINANCED WITH VENDORS 807 807
SHAREHOLDERS' EQUITY
Common stock 171 18 189
Additional paid-in-capital 13,726 1,452 15,178
Retained deficit (12,769) (12,769)
----------- ----------- -----------
1,128 1,470 2,598
----------- ----------- -----------
$ 10,366 $ 1,500 $ 11,866
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
<PAGE>
MEDICAL GRAPHICS CORPORATION
STATEMENTS OF OPERATIONS
UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, % DECEMBER 31, %
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1997 1996 CHANGE 1997 1996 CHANGE
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<S> <C> <C> <C> <C> <C> <C>
REVENUES
Equipment revenue $ 4,034 $ 2,760 46.2 $ 14,492 $ 15,422 (6.0)
Service and supply revenue 1,138 1,116 2.0 4,681 4,867 (3.8)
---------- ---------- ---------- ---------- ---------- ----------
Total Revenues 5,172 3,876 33.4 19,173 20,289 (5.5)
COST OF GOODS SOLD
Cost of equipment sales 2,622 3,793 (30.9) 9,635 11,352 (15.1)
Cost of service and supply 564 931 (39.4) 2,509 3,288 (23.7)
---------- ---------- ---------- ---------- ---------- ----------
Cost of goods sold 3,186 4,724 (32.6) 12,144 14,640 (17.0)
Gross margin 1,986 (848) (334.2) 7,029 5,649 24.4
---------- ---------- ---------- ---------- ---------- ----------
Gross margin percent 38.4% (21.9%) 36.7% 27.8%
Expenses:
Selling and marketing 1,701 2,685 (36.6) 6,282 8,186 (23.3)
General and administrative 344 1,981 (82.6) 1,802 4,369 (58.8)
Research and development 280 1,047 (73.3) 1,867 2,762 (32.4)
Provision for closing German office 0 700 (100.0) 0 700 (100.0)
Restructuring 154 0 n/m 1,711 0 n/m
---------- ---------- ---------- ---------- ---------- ----------
2,479 6,413 (61.3) 11,662 16,017 (27.2)
---------- ---------- ---------- ---------- ---------- ----------
Operating loss (493) (7,261) (93.2) (4,633) (10,368) (55.3)
Nonoperating income (expense)
Sensormedics settlement income 0 0 0 1,438 (100.0)
Interest expense (91) (76) 19.7 (329) (189) 74.1
---------- ---------- ---------- ---------- ---------- ----------
Loss before income taxes (584) (7,337) (92.0) (4,962) (9,119) (45.6)
Income tax benefit (expense) 0 (12) (100.0) 0 48 (100.0)
---------- ---------- ---------- ---------- ---------- ----------
Net loss $ (584) $ (7,349) (92.1) $ (4,962) $ (9,071) (45.3)
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Net loss per share of common stock $ (0.18) $ (2.87) (93.7) $ (1.67) $ (3.56) (53.1)
---------- ---------- ---------- ----------
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Weighted average common shares outstanding 3,244 2,559 2,966 2,545
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</TABLE>
