<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended September 30, 1998
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 0-9899
MEDICAL GRAPHICS CORPORATION
(Exact name of small business issuer as specified in its charter)
MINNESOTA 41-1316712
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
350 OAK GROVE PARKWAY, SAINT PAUL, MINNESOTA 55127-8599
(Address of principal executive offices)
Registrant's telephone number, including area code: (612) 484-4874
Indicate by check mark 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
----- -----
As of November 12, 1998, the Company had outstanding 5,607,736 shares of Common
Stock, $.05 par value, and 444,445 shares of Class A Stock, $.05 par value. Each
share of Class A Stock is convertible into 3.375 shares of Common Stock.
Transitional Small Business Disclosure Format: Yes No X
----- -----
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MEDICAL GRAPHICS CORPORATION
BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
-------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $0 $387
Accounts receivable, net of allowance for doubtful
accounts of $143 and $164 4,157 3,890
Inventories:
Purchased components and work in process 3,351 2,604
Finished goods 1,677 1,636
-------------- -------------
5,028 4,240
Prepaid expenses 194 272
-------------- -------------
Total Current Assets 9,379 8,789
-------------- -------------
EQUIPMENT AND FIXTURES 4,095 4,072
LESS ACCUMULATED DEPRECIATION 3,560 3,110
-------------- -------------
535 962
SOFTWARE PRODUCTION COSTS, NET OF ACCUMULATED
AMORTIZATION OF $1,119 AND $855 594 602
OTHER ASSETS 8 13
-------------- -------------
$10,516 $10,366
-------------- -------------
-------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $2,570 $2,261
Accounts payable financed with vendors - current 833 1,145
Line of credit 2,513 2,254
Employee compensation 529 786
Deferred service contract revenue 888 896
Warranty reserve 374 414
Other liabilities and accrued expenses 576 675
-------------- -------------
Total Current Liabilities 8,283 8,431
COMMITMENTS AND CONTINGENCIES
LONG-TERM ACCOUNTS PAYABLE FINANCED WITH VENDORS 210 807
SHAREHOLDERS' EQUITY
Class A stock; liquidation preference
of $3.375 per share 22 22
Common stock 196 148
Additional paid-in capital 15,848 13,727
Retained deficit (14,043) (12,769)
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2,023 1,128
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$10,516 $10,366
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</TABLE>
See accompanying notes to financial statements
2
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MEDICAL GRAPHICS CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ----------------------
1998 1997 1998 1997
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Equipment sales $3,193 $3,062 $11,002 $10,458
Service and supplies revenues 1,295 1,169 3,678 3,543
--------- --------- ---------- ----------
Total revenues 4,488 4,231 14,680 14,001
COST OF REVENUES 2,762 2,654 8,889 8,958
--------- --------- ---------- ----------
Gross margin 1,726 1,577 5,791 5,043
OPERATING EXPENSES:
Selling and marketing 1,346 1,511 4,076 4,581
General and administrative 443 574 1,470 1,458
Research and development 351 528 1,207 1,587
Provision for restructuring 61 1,557
--------- --------- ---------- ----------
2,140 2,674 6,753 9,183
--------- --------- ---------- ----------
LOSS FROM OPERATIONS (414) (1,097) (962) (4,140)
Interest expense (115) (90) (312) (238)
--------- --------- ---------- ----------
LOSS BEFORE INCOME TAXES (529) (1,187) (1,274) (4,378)
Income tax benefit 0 0 0 0
--------- --------- ---------- ----------
NET LOSS ($529) ($1,187) ($1,274) ($4,378)
--------- --------- ---------- ----------
--------- --------- ---------- ----------
NET LOSS PER WEIGHTED AVERAGE SHARE
Basic ($0.09) ($0.26) ($0.23) ($1.02)
Diluted ($0.09) ($0.26) ($0.23) ($1.02)
--------- --------- ---------- ----------
--------- --------- ---------- ----------
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 5,739 4,575 5,646 4,311
Diluted 5,739 4,575 5,646 4,311
</TABLE>
See accompanying notes to financial statements
3
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MEDICAL GRAPHICS CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($1,274) ($4,378)
Adjustments to reconcile net loss to
net cash provided (used) in operating activities
Issuance of common stock warrants $608
Depreciation 450 436
Amortization 264 208
Changes in operating assets and liabilities
Accounts receivable (267) 1,549
Inventory (788) 1,677
Prepaid expenses and other assets 83 (29)
Accounts payable and accrued expenses (359) (496)
Warranty reserve (40) 157
Deferred service contract revenue (8) (106)
--------------- ---------------
Net cash used in operating activities (1,939) (374)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Software production costs (256) (125)
Capital expenditures (23) (107)
--------------- ---------------
Net cash used in investing actitivities (279) (232)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (payments) on bank line of credit 259 (843)
Payments on long-term accounts payable financed with vendors (597) (377)
Net proceeds from issuances of common stock 2,169 1,532
--------------- ---------------
Net cash provided by financing activities 1,831 312
--------------- ---------------
NET DECREASE IN CASH (387) (294)
CASH AT BEGINNING OF PERIOD 387 545
--------------- ---------------
CASH AT END OF PERIOD $0 $251
--------------- ---------------
--------------- ---------------
CASH PAID FOR INTEREST EXPENSE $292 $225
--------------- ---------------
--------------- ---------------
</TABLE>
See accompanying notes to financial statements
4
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NOTES TO FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying 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 notes 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. The balance sheet at December 31,
1997 was derived from the audited financial statements as of that date.
Operating results for the three and nine month periods ended September 30, 1998
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1998. For further information, refer to the financial
statements and notes thereto included in the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1997.
2. RECLASSIFICATIONS
Certain amounts in the Company's Form 10-QSB for the three and nine month
periods ended September 30, 1997 have been reclassified to conform to the 1998
presentation. These reclassifications had no effect on net loss or shareholders'
equity as previously reported.
3. PROVISION FOR RESTRUCTURING
During the quarter ended March 31, 1997, the Company implemented a restructuring
plan which included the termination of certain employees and the renegotiation
of the Company's bank line of credit. A total of $1,557,000 in restructuring
expenses were recorded during the nine months ended September 30, 1997 related
to severance, legal, consulting and accounting expenses.
4. AMENDMENT TO BANK LINE OF CREDIT
The Company amended its line of credit agreement in March, August and September
1998.
5. NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income", which was adopted by the Company beginning January 1, 1998. SFAS No.
130 requires the disclosure of comprehensive income and its components in the
general-purpose financial statements. The adoption by the Company of
SFAS No. 130 did not have a material effect on the Company's financial
statements for the three months ended September 30, 1998 or 1997. Total
comprehensive loss for the three months ended September 30, 1998 and 1997 was
$529,000 and $1,187,000, respectively. Total comprehensive loss for the
nine months ended September 30, 1998 and 1997 was $1,274,000 and $4,378,000,
respectively.
Effective January 1, 1998, the Company adopted SFAS No. 131, "Disclosure about
Segments on an Enterprise and Related Information". SFAS No. 131 redefines how
operating segments are determined and requires disclosures of certain financial
and descriptive information about a Company's operating segments. This statement
does not have a material impact on results reported in the financial statements.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENTS
Statements included in this Quarterly Report on Form 10-QSB that are not
historical or current facts are "forward-looking statements" made pursuant to
the safe harbor provision of the Private Securities Litigation Reform Act of
1995 and are subject to certain risks and uncertainties that could cause
actual results to differ materially. Among these risks and uncertainties are
(i) the fact that the Company has incurred losses of $1,274,000 for the nine
months ended September 30, 1998, and losses of $4,962,000, $9,071,000 and
$1,731,000 for the fiscal years ended December 31, 1997, 1996 and 1995,
respectively; (ii) the ability of the Company's distributors to successfully
market and sell the Company's product in markets outside the United States;
(iii) the Company's ability to successfully market its product in the United
States at a favorable margin considering significant price competition in the
industry; (iv) the extent to which physicians and health plan administrators
are motivated to use non-invasive diagnostic testing to detect early signs of
disease; (v) the Company's ability to successfully upgrade its product
software systems to a Windows-Registered Trademark- environment; and (vi) the
Company's ability to develop future products which are technologically
advanced and accepted by the marketplace.
In addition, the Company's statement regarding the Year 2000 issue contained in
the Section, "Year 2000", includes statements regarding the timetable for Year
2000 compliance, the Company's related costs and capital expenditures, the
success of the Company's efforts and others' efforts to achieve compliance, and
the effects of the Year 2000 issue on the Company's future financial condition
and results of operations. The following important factors, among others, could
affect the accuracy of those statements: (i) the inherent uncertainty of the
costs and timing of achieving compliance on the wide variety of systems used by
the Company; (ii) the reliance on the efforts of vendors, customers, government
agencies and other third parties to achieve adequate compliance and avoid
disruption of the Company's business in early 2000; and (iii) the uncertainty of
the ultimate costs and consequences of any unanticipated disruption in the
Company's business resulting from the failure of one of the Company's
applications or of a third party's systems.
For an additional description of these and other factors, see "Management's
Discussion and Analysis of Financial Condition or Plan of Operations,
Forward-Looking Statements," contained in Item 6, Part II, of the Company's
1997 Form 10-KSB. In addition, the foregoing list is not exhaustive, and the
Company disclaims any obligation subsequently to revise any forward-looking
statements to reflect events or circumstances after the date of such
statements or to reflect the occurrence of anticipated or unanticipated events.
RESULTS OF OPERATIONS
The Company recorded net losses of $529,000 and $1,187,000 for the three months
ended September 30, 1998 and 1997, respectively. Included in the 1997 loss was
$61,000 of restructuring expenses. For the nine months ended September 30, the
Company recorded net losses of $1,274,000 and $4,378,000 for 1998 and 1997,
respectively. The nine month loss for 1997 included $1,557,000 of restructuring
expenses.
6
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REVENUES
Revenues consist of equipment sales and service and supply revenues. Equipment
sales reflect revenues from the Company's pulmonary function analysis systems,
gas exchange testing systems and sleep diagnostic systems. Service and supply
revenues reflect sales of peripherals and supplies, contract revenues from
extended warranties and revenues from non-warranty service visits.
Third quarter revenues increased 6.1% to $4,488,000 in 1998 compared to
$4,231,000 in 1997. Domestic revenue increased 17.8% to $2,659,000 in 1998
compared to $2,258,000 in 1997. The increase in 1998 domestic revenue was
primarily due to sales of sleep diagnostic systems, which were introduced in
September, 1997. International revenue decreased 33.5% to $534,000 in 1998 from
$804,000 in 1997. The strong U. S. Dollar, aggressive competition in Europe and
economic difficulties being experienced by Asian Pacific countries all
contributed to a decline in international revenue. Third quarter service and
supply revenue increased 10.8% to $1,295,000 in 1998 from $1,169,000 in 1997 due
to increases in both non-warranty service revenue and supply revenue, offset by
decreased revenue from warranty service contracts.
For the nine months ended September 30, revenues increased 4.9% to $14,680,000
in 1998 from $14,001,000 in 1997. Year to date domestic revenues increased 17.9%
to $9,044,000 in 1998 from $7,672,000 in 1997 on the strength of sleep
diagnostic systems which were introduced in September, 1997. Internationally,
revenues decreased 29.7% to $1,958,000 in 1998 from $2,786,000 in 1997 due to a
strong U. S. Dollar and aggressive European competition. Year to date service
and supply revenue increased 3.8% to $3,678,000 in 1998 from $3,543,000 in 1997
reflecting increased non-warranty service revenue offset by decreases in
revenue from warranty service contracts and supplies.
GROSS MARGIN
Gross margin percentage increased to 38.5% of revenue for the three months ended
September 30, 1998 from 37.3% in 1997. For the nine months ended September 30,
gross margin percentage increased to 39.4% in 1998 from 36.0% in 1997. The
increase for both the three and nine month periods reflects the Company's
ongoing efforts to decrease costs of manufacturing through increased
efficiencies, partially offset by sales of lower margin distributed sleep
diagnostic systems as well as lower pricing associated with introduction of
those new products. In addition, year to date margins were positively affected
by reductions in reserves for inventory write-downs that were no longer
necessary and improved average selling prices for pulmonary and gas exchange
systems.
SELLING AND MARKETING
Selling and marketing expenses for the three months ended September 30, 1998
decreased by 10.9% to $1,346,000 in 1998 from $1,511,000 in 1997. Year to date
selling and marketing expenses decreased 11.0% to $4,076,000 in 1998 from
$4,581,000 in 1997. Both the three month and nine month periods reflect
increased commissions on higher domestic revenue and expenses associated with
expanding the Company's domestic sales force. However, these third quarter
increases were offset by savings related to less travel and other cost
containment actions. Year to date selling and marketing increases were offset by
a reduction of reserves that were no longer required as well as savings
associated with the Company's 1997 decision to sell its asthma business unit and
reduce focus on the sports medicine market.
7
<PAGE>
GENERAL AND ADMINISTRATIVE
General and administrative expenses decreased 22.8% to $443,000 in the third
quarter of 1998 from $574,000 in 1997. Year to date general and administrative
expenses increased modestly by 0.8% to $1,470,000 in 1998 from $1,458,000 in
1997. Both periods reflect somewhat increased personnel costs generally offset
by lower allowances for doubtful accounts receivable and savings due to cost
containment actions. In addition, the third quarter decrease is attributed to
lower consulting expenses while the year to date increase includes costs
associated with the Company exploration of strategic growth opportunities.
RESEARCH AND DEVELOPMENT
Research and development expenses decreased 33.5% to $351,000 in the third
quarter of 1998 from $528,000 in 1997. For the nine months ended September
30, research and development expenses deceased 23.9% to $1,207,000 in 1998
from $1,587,000 in 1997. These decreases reflect the Company's 1997
restructuring decision to use in-house software engineers rather than
independent software contractors as part of the Company's transition of its
product software to a Windows95-Registered Trademark- platform. The third
quarter decrease also reflects lower costs due to an increasing proficiency
of Company employees developing product software upgrades.
PROVISION FOR RESTRUCTURING
Restructuring expenses for the three and nine months ended September 30, 1997
were $61,000 and $1,557,000, respectively. They included severance, legal,
accounting and consulting expenses associated with the restructuring implemented
during the first quarter of 1997.
LIQUIDITY AND FINANCIAL RESOURCES
At September 30, 1998, the Company had no cash and working capital of
$1,096,000. In addition, the Company had a balance outstanding under its bank
line of credit of $2,513,000 and additional availability of $608,000.
During the nine months ended September 30, 1998, the Company used $1,939,000 of
cash in operating activities, primarily resulting from a net loss of $1,274,000,
increases of $267,000 in accounts receivable and $788,000 in inventory and a
decrease of $359,000 in accounts payable and accrued expenses. The Company used
$279,000 for investing activities, consisting of software production costs of
$256,000 and capital expenditures of $23,000. The Company generated $1,831,000
from financing activities, primarily from $2,169,000 in net proceeds from the
private placement of its common stock and net borrowings of $259,000 under its
line of credit, offset by a decrease of $597,000 in long-term accounts payable
with vendors.
During the nine months ended September 30, 1997, the Company used $374,000 of
cash in operating activities, primarily resulting from a net loss of $4,378,000
and a decrease of $496,000 in accounts payable and accrued expenses, which were
partially offset by noncash charges totaling $1,252,000, a decrease of
$1,677,000 in inventory and a decrease of $1,549,000 in accounts receivable. The
Company used $232,000 for investing activities, consisting of capital
expenditures of $107,000 and software production costs of $125,000. The Company
generated $312,000 from financing activities, primarily from $1,500,000 in
proceeds from the private placement of its Class A Stock and net borrowings of
$2,557,000 under its new line of credit, partially offset by a $3,400,000
payoff of its former bank line of credit and a decrease of
8
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$377,000 in long-term accounts payable with vendors.
At September 30, 1998 the Company had no material commitments for capital
expenditures.
The Company believes that cash generated from operations, together with cash and
borrowings available under its line of credit facility will be adequate to
satisfy its liquidity and capital resource needs for the next twelve months.
YEAR 2000
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. The Company's computer
equipment, software, devices and products with imbedded technology that are
time-sensitive may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices or engage in similar normal business
activities.
STATE OF READINESS
In late 1997, the Audit Committee of the Board of Directors of the Company
directed the Company's management to initiate a Year 2000 compliance plan. By
March 1998, management implemented a formal program to address the Company's
Year 2000 compliance by forming a Year 2000 staff consisting of personnel from
cross- functional areas of the Company, including information systems,
marketing, research and development, technical support, quality assurance and
regulatory affairs and administration (the "Y2K Project Team"). A Project
Manager, who reports to the Audit Committee of the Board, leads the Y2K Project
Team to ensure that it meets time deadlines, objectives and documents remedial
action.
As part of its compliance plan, the Company's Y2K Project Team is taking
inventory of the Company's operations and dividing areas for assessment into
three categories:
= VITAL - computer-controlled systems, programs, equipment and
products that the Company needs to function day-to-day;
= CRITICAL - those systems which must be repaired or replaced prior to
the millennium but are not necessary for the Company's day-to-day
operations; and
= MARGINAL - those systems for which repair and replacement are not
material to the Company's operations.
The Y2K Project Team has also identified five areas covering the entire scope of
the Company's business and has committed to completing an 8-step program for
each area. The diagram below identifies the five areas as well as the current
and projected schedule of the 8-step program for each area.
9
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<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------
Company OEM Internal Business Vendors &
Products Products Programming Information Supplier
Systems
- -------------------------------------------------------------------------------------------------------------------
Team Completed Completed Completed Completed Completed
Formation &
Assignment
- -------------------------------------------------------------------------------------------------------------------
Inventory Completed 80% Completed 90% 35%
Assessment
- -------------------------------------------------------------------------------------------------------------------
Compliance Completed 80% Completed 90% 35%
Assessment
- -------------------------------------------------------------------------------------------------------------------
Risk Completed Completed Completed 90% 0%
Assessment
- -------------------------------------------------------------------------------------------------------------------
Resolution & Completed 80% Completed 30% 0%
Remediation
- -------------------------------------------------------------------------------------------------------------------
Validation Completed 80% Completed 30% 0%
- -------------------------------------------------------------------------------------------------------------------
Contingency Completed Completed Completed 30% 0%
Plans
- -------------------------------------------------------------------------------------------------------------------
Certification & Completed 10% 10% 20% 5%
Sign-off
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
With respect to the Company's relationships with third parties, the Company
relies both domestically and internationally upon various vendors, governmental
agencies, utility companies, telecommunications service companies, delivery
service companies and other service providers. Although these service providers
are outside of the Company's control, the Company has mailed letters to those
with whom it believes its relationships are material and has verbally
communicated with some of its strategic business partners to determine the
extent to which electronic interfaces with such entities are vulnerable to Year
2000 issues and whether products and services purchased from or by such entities
are Year 2000 ready. As of November 1, 1998, the Company had received responses
from 5% of such third parties, and all of the companies that have responded have
provided written assurances indicating thattheir Year 2000 issues will be
addressed on a timely basis. The Company intends to complete follow-up
activities, including but not limited to phone surveys and mailings, with
significant vendors and service providers as part of completing validation of
these parties' compliance.
COSTS TO ADDRESS YEAR 2000 ISSUES
To date, the Company has not incurred any material expenditures in connection
with identifying or evaluating Year 2000 compliance issues. The Company has
incurred the majority of its costs from the recent installation of updated
internal computer systems as well as the labor cost and opportunity cost of time
spent by employees of the Company evaluating Year 2000 compliance matters
generally. Because the Company upgraded its internal computer systems as part of
its regularly planned software and hardware upgrade efforts, it does not
consider the costs related thereto to be charges for Year 2000 compliance. The
Company presently estimates the labor
10
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costs of its Year 2000 compliance efforts to date to be approximately
$50,000. With respect to future costs, the Company estimates it will spend
approximately $25,000 for remediation and validation of products and programs
which the Company presently knows are not compliant and another $50,000 for
future staff time for such remediation. In addition, the Company estimates
that it may spend no more than another $100,000 on remediation and validation
of products and programs which have not yet been assessed. The Company
believes that these estimates are reasonable and presently expects such to be
within the Company's fiscal 1999 budget. At this time, the Company does not
possess information necessary to estimate the overall potential financial
impact of Year 2000 compliance issues relating to its Year 2000 compliance
program. Such impact, including the effect of a Year 2000 business
disruption, could have a material adverse impact on the Company's financial
condition and results of operations.
RISKS OF YEAR 2000 ISSUES
Because the Company is still in the discovery and evaluation phase of assessing
its overall Year 2000 exposure, it cannot at this time state with certainty that
the Year 2000 issues will not have a material adverse impact on its financial
condition, results of operations and liquidity. Although the Company considers
them unlikely, the Company believes that the following several situations, not
in any particular order, make up the Company's "most reasonably likely worst
case Year 2000 scenarios:"
1. CUSTOMER LITIGATION.
The Company has developed a program to advise all customers of Year 2000
compliance of its products and has identified upgrade and replacement products
for its customers affected by Year 2000 compliance issues. These efforts pertain
not only to the Company's internally developed products but also to externally
acquired products. Although the Company believes that its efforts will ensure no
disruption in the business or operations of its customers, the possibility
exists that some customers may experience problems that may motivate such
customers to commence litigation against the Company for restitution and damages
that may be related to such problems.
2. DISRUPTION OF SUPPLY MATERIALS.
Several months ago, the Company began an ongoing process of surveying its
vendors with regard to their Year 2000 readiness and is now in the process of
assessing and cataloging the first responses to the survey. The Company is
hopeful of receiving adequate responses from critical vendors and many
non-critical vendors by January 31, 1999. The Company presently expects to work
with vendors that show a need for assistance or that provide inadequate
responses, and in many cases expects that survey results will be refined
significantly by such work. Where ultimate survey results show that the need
arises, the Company will arrange for back-up vendors before the changeover date.
3. DISRUPTION OF THE COMPANY'S INTERNAL COMPUTER SYSTEMS.
The Company has completed a scheduled upgrade of its current hardware and
software systems and such process has required Year 2000 compliance in all
areas. Year 2000 testing occurred as the upgrade process proceeded and, in
addition, will continue to occur prior to the changeover date. For this reason,
the Company considers that disruption of its internal computer systems is
unlikely.
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4. DISRUPTION OF THE COMPANY'S NON-COMPUTER SYSTEMS.
The Company is currently conducting a comprehensive assessment of all
non-computer systems, including utility, telecommunications, delivery and other
services. Although the Company intends to work with any third party providers of
such services to ensure that there will be no disruption in the Company's
operations, the Company believes that if any disruptions do occur, such will be
dealt with promptly and will be no more severe with respect to correction or
impact than would be an unexpected breakdown of such services and related
equipment.
CONTINGENCY PLANS
While the Company recognizes the need for contingency planning, it has not yet
developed any specific contingency plans for potential Year 2000 disruptions.
The aforementioned 8-step program, however, does include contingency planning by
the Y2K Project Team and such plans, as developed, will be carefully reviewed by
the Company. The Company believes that details of such plans will depend on the
Company's final assessment of the problem as well as the evaluation and success
of its remediation efforts. Future disclosures will include contingency plans as
they become available.
12
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a defendant in various claims and litigation which are incidental
to its business. Management is of the opinion that ultimate settlement of these
matters will not have a material impact on its financial statements.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In September 1998, the Company closed on a private offering with FAMCO II LLC,
(FAMCO) a private institutional investor, and Compumedics Sleep Pty Ltd,
(Compumedics) an Australian manufacturer of sleep diagnostic products and a
supplier to the Company. In the offering, the Company sold 550,000 shares of
Common Stock at a price of $1.00 per share. FAMCO purchased 300,000 shares for
$300,000 in cash and Compumedics purchased 250,000 shares through conversion of
$250,000 of accounts payable by the Company to Compumedics. The Company believes
that the sales were exempt pursuant to Section 4(2) of the Securities Act of
1933, as amended, and Regulation D, promulgated thereunder.
The Company's Class A Stock issued to FAMCO in March and April 1997 contained
anti-dilution provisions. As a result of the September 1998 offering, FAMCO's
444,445 shares of Class A Stock are now convertible into 1,500,000 shares of
Common Stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits List
Exhibit 10.1 Fourth Amendment to Credit and Security Agreement
dated August 14, 1998 between the Company and Norwest
Business Credit, Inc.
Exhibit 10.2 Fifth Amendment to Credit and Security Agreement
dated September 10, 1998 between the Company and
Norwest Business Credit, Inc.
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
There were no Reports on Form 8-K filed during the quarter ended
September 30, 1998.
13
<PAGE>
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 13, 1998 /s/ Richard E. Jahnke
----------------- ---------------------------------------
Richard E. Jahnke, President and
Chief Executive Officer (Principal
Executive Officer)
Date NOVEMBER 13, 1998 /s/ Dale H. Johnson
----------------- ---------------------------------------
Dale H. Johnson, Chief
Financial Officer (Chief
Accounting Officer)
14
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.1 Fourth Amendment to Credit and Security Agreement dated August 14, 1998
between the Company and Norwest Business Credit, Inc.
10.2 Fifth Amendment to Credit and Security Agreement dated September 10,
1998 between the Company and Norwest Business Credit, Inc.
27 Financial Data Schedule.
</TABLE>
15
<PAGE>
EXHIBIT 10.1
FOURTH AMENDMENT TO CREDIT AND SECURITY AGREEMENT
This Amendment, dated as of August 14, 1998, is made by and
between MEDICAL GRAPHICS CORPORATION, a Minnesota corporation (the "Borrower")
and NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender").
Recitals
The Borrower and the Lender have entered into a Credit and
Security Agreement dated as of March 31, 1997 as amended by First Amendment to
Credit and Security Agreement dated as of July 10, 1997, Second Amendment to
Credit and Security Agreement dated as of November 12, 1997 and Third Amendment
to Credit and Security Agreement dated as of March 26, 1998 (as so amended, the
"Credit Agreement"). Capitalized terms used in these recitals have the meanings
given to them in the Credit Agreement unless otherwise specified.
The Borrower has requested that the Lender waive certain
Defaults and reset the financial covenants to the Credit Agreement, which the
Lender is willing to do pursuant to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements herein contained, it is agreed as follows:
1. FINANCIAL COVENANTS. Sections 6.12, 6.14 and 6.15 of
the Credit Agreement are hereby amended in their entirety and replaced with the
following new sections:
"Section 6.12 MINIMUM BOOK NET WORTH. The Borrower will
maintain its Book Net Worth, determined as of each date below, at an
amount not less than the amount set forth opposite the applicable date:
<TABLE>
<CAPTION>
DATE MINIMUM BOOK NET WORTH
----------------------------------------------------
<S> <C>
September 30, 1998 $1,328,000
----------------------------------------------------
December 31, 1998 $1,728,000
----------------------------------------------------
</TABLE>
"Section 6.14 MINIMUM NET INCOME. The Borrower will achieve as
of each date listed below, Net Income, of not less than the amount set
forth opposite such date:
<TABLE>
<CAPTION>
----------------------------------------------------
DATE MINIMUM NET INCOME
----------------------------------------------------
<S> <C>
July 31, 1998 ($1,346,000)
----------------------------------------------------
<PAGE>
----------------------------------------------------
DATE MINIMUM NET INCOME
----------------------------------------------------
August 31, 1998 ($1,346,000)
----------------------------------------------------
September 30, 1998 ($1,300,000)
----------------------------------------------------
October 31, 1998 ($1,600,000)
----------------------------------------------------
November 30, 1998 ($1,600,000)
----------------------------------------------------
December 31, 1998 ($900,000)
----------------------------------------------------
</TABLE>
"Section 6.15 MINIMUM DEBT SERVICE COVERAGE RATIO. The
Borrower will achieve a Debt Service Coverage Ratio at or above (i) .25
to 1.00 as of the fiscal year ending December 31, 1998, and (ii) 1.00
to 1.00 as of each fiscal year end thereafter."
2. NO OTHER CHANGES. Except as explicitly amended by this
Amendment, all of the terms and conditions of the Credit Agreement shall remain
in full force and effect and shall apply to any advance or letter of credit
thereunder.
3. WAIVER OF DEFAULTS. The Borrower is in default of the
following provisions of the Credit Agreement (collectively, the "Defaults"):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
SECTION/COVENANT PERIOD REQUIRED ACTUAL
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
6.12 Minimum Book Net Worth 6/30/98 not less than $2,078,000 $2,022,000
- ------------------------------------------------------------------------------------------------
6.14 Minimum Net Income 6/30/98 not less than ($550,000) ($746,000)
- ------------------------------------------------------------------------------------------------
</TABLE>
Upon the terms and subject to the conditions set forth in this
Fourth Amendment, the Lender hereby waives the Defaults. This waiver shall be
effective only in this specific instance and for the specific purpose for which
it is given, and this waiver shall not entitle the Borrower to any other or
further waiver in any similar or other circumstances.
4. AMENDMENT FEE. The Borrower shall pay the Lender, in four
equal monthly installments, the first installment due on September 15, 1998 and
each subsequent installment due on the 15th of each month thereafter, a fully
earned, non-refundable fee in the amount of $40,000 in consideration of the
Lender's execution of this Amendment.
5. CONDITIONS PRECEDENT. This Amendment, and the waiver set
forth in Paragraph 3 hereof, shall be effective when the Lender shall have
received an executed original hereof, together with such other matters as the
Lender may require. If the Amendment fee set forth in Paragraph 4 hereof is not
paid in full when due, the waiver set forth in Paragraph 3 shall be null and
void.
-2-
<PAGE>
6. REPRESENTATIONS AND WARRANTIES. The Borrower hereby
represents and warrants to the Lender as follows:
(a) The Borrower has all requisite power and authority to
execute this Amendment and to perform all of its obligations hereunder,
and this Amendment has been duly executed and delivered by the Borrower
and constitutes the legal, valid and binding obligation of the
Borrower, enforceable in accordance with its terms.
(b) The execution, delivery and performance by the Borrower
of this Amendment have been duly authorized by all necessary corporate
action and do not (i) require any authorization, consent or approval
by any governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) violate any provision of
any law, rule or regulation or of any order, writ, injunction or decree
presently in effect, having applicability to the Borrower, or the
articles of incorporation or by-laws of the Borrower, or (iii) result
in a breach of or constitute a default under any indenture or loan or
credit agreement or any other agreement, lease or instrument to which
the Borrower is a party or by which it or its properties may be bound
or affected.
(c) All of the representations and warranties contained in
Article V of the Credit Agreement are correct on and as of the date
hereof as though made on and as of such date, except to the extent that
such representations and warranties relate solely to an earlier date.
7. REFERENCES. All references in the Credit Agreement to
"this Agreement" shall be deemed to refer to the Credit Agreement as amended
hereby; and any and all references in the Security Documents to the Credit
Agreement shall be deemed to refer to the Credit Agreement as amended hereby.
8. NO OTHER WAIVER. Except as set forth in Paragraph 3
hereof, the execution of this Amendment and acceptance of any documents related
hereto shall not be deemed to be a waiver of any Default or Event of Default
under the Credit Agreement or breach, default or event of default under any
Security Document or other document held by the Lender, whether or not known to
the Lender and whether or not existing on the date of this Amendment.
9. RELEASE. The Borrower hereby absolutely and
unconditionally releases and forever discharges the Lender, and any and all
participants, parent corporations, subsidiary corporations, affiliated
corporations, insurers, indemnitors, successors and assigns thereof, together
with all of the present and former directors, officers, agents and employees of
any of the foregoing, from any and all claims, demands or causes of action of
any kind, nature or description, whether arising in law or equity or upon
contract or tort or under any
-3-
<PAGE>
state or federal law or otherwise, which the Borrower has had, now has or has
made claim to have against any such person for or by reason of any act,
omission, matter, cause or thing whatsoever arising from the beginning of time
to and including the date of this Amendment, whether such claims, demands and
causes of action are matured or unmatured or known or unknown.
10. COSTS AND EXPENSES. The Borrower hereby reaffirms its
agreement under the Credit Agreement to pay or reimburse the Lender on demand
for all costs and expenses incurred by the Lender in connection with the Credit
Agreement, the Security Documents and all other documents contemplated thereby,
including without limitation all reasonable fees and disbursements of legal
counsel. Without limiting the generality of the foregoing, the Borrower
specifically agrees to pay all fees and disbursements of counsel to the Lender
for the services performed by such counsel in connection with the preparation of
this Amendment and the documents and instruments incidental hereto. The Borrower
hereby agrees that the Lender may, at any time or from time to time in its sole
discretion and without further authorization by the Borrower, make a loan to the
Borrower under the Credit Agreement, or apply the proceeds of any loan, for the
purpose of paying any such fees, disbursements, costs and expenses.
11. MISCELLANEOUS. This Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original and all of which counterparts, taken together, shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed as of the date first written above.
NORWEST BUSINESS CREDIT INC. MEDICAL GRAPHICS CORPORATION
/s/ Diane G. Conley s/s Dale H. Johnson
------------------------------- -------------------------------
Diane G. Conley Dale H. Johnson
Its Officer Its Chief Financial Officer
-4-
<PAGE>
Exhibit B to Credit and Security
Agreement
COMPLIANCE CERTIFICATE
To: Diane G. Conley
Norwest Business Credit, Inc.
Date: _____________________, 199___
Subject: Medical Graphics Corporation
Financial Statements
In accordance with our Credit and Security Agreement dated as
of March 31, 1997 (the "Credit Agreement"), attached are the financial
statements of Medical Graphics Corporation (the "Borrower") as of and for
________________, _____ (the "Reporting Date") and the year-to-date period then
ended (the "Current Financials"). All terms used in this certificate have the
meanings given in the Credit Agreement.
I certify that the Current Financials have been prepared in
accordance with GAAP, subject to year-end audit adjustments, and fairly present
the Borrower's financial condition and the results of its operations as of the
date thereof.
EVENTS OF DEFAULT. (Check one):
/ / The undersigned does not have knowledge of the occurrence
of a Default or Event of Default under the Credit Agreement,
as amended.
/ / The undersigned has knowledge of the occurrence of a
Default or Event of Default under the Credit Agreement and
attached hereto is a statement of the facts with respect to
thereto.
FINANCIAL COVENANTS. I further hereby certify as follows:
1. MINIMUM BOOK NET WORTH. Pursuant to Section 6.12 of the
Credit Agreement, as of the Reporting Date, the Borrower's Book Net
Worth was $____________ which / / satisfies / / does not satisfy the
requirement that such amount be not less than $_____________ on the
Reporting Date as set forth in the table below:
<TABLE>
<CAPTION>
---------------------------------------------------
DATE MINIMUM BOOK NET WORTH
---------------------------------------------------
<S> <C>
September 30, 1998 $1,328,000
---------------------------------------------------
December 31, 1998 $1,728,000
---------------------------------------------------
</TABLE>
<PAGE>
2. MINIMUM NET INCOME. Pursuant to Section 6.14 of the Credit
Agreement, the Borrower's Net Income for the period ending on the
Reporting Date, was $____________, which / / satisfies / / does not
satisfy the requirement that such amount be not less than
$_____________ for such period as set forth in the table below:
<TABLE>
<CAPTION>
-----------------------------------------------------------
DATE MINIMUM NET INCOME
-----------------------------------------------------------
<S> <C>
July 31, 1998 ($1,346,000)
-----------------------------------------------------------
August 31, 1998 ($1,346,000)
-----------------------------------------------------------
September 30, 1998 ($1,300,000)
-----------------------------------------------------------
October 31, 1998 ($1,600,000)
-----------------------------------------------------------
November 30, 1998 ($1,600,000)
-----------------------------------------------------------
December 31, 1998 ($900,000)
-----------------------------------------------------------
</TABLE>
3. MINIMUM DEBT SERVICE COVERAGE RATIO. Pursuant to
Section 6.15 of the Credit Agreement, the Reporting Date marks the Borrower's
fiscal year end and the Borrower's Debt Service Coverage Ratio on the Reporting
Date was ____ to 1.00 which / / satisfies / / does not satisfy the requirement
that such ratio be not less than ___ to 1.00 as set forth below:
<TABLE>
<CAPTION>
-----------------------------------------------------------
FISCAL YEAR ENDING MINIMUM DEBT SERVICE
COVERAGE RATIO
-----------------------------------------------------------
<S> <C>
December 31, 1998 .25 to 1.00
-----------------------------------------------------------
December 31, 1999 and
thereafter 1.00 to 1.00
-----------------------------------------------------------
</TABLE>
4. CAPITAL EXPENDITURES . Pursuant to Section 7.10 of the
Credit Agreement, for the year-to-date period ending on the Reporting Date, the
Borrower has expended or contracted to expend during the fiscal year ended
______________, ___, for Capital Expenditures, $__________________ in the
aggregate and at most $______________ in any one transaction, which / /
satisfies / / does not satisfy the requirement that such expenditures not exceed
$250,000 in the aggregate and $60,000 for any one transaction during such year.
5. Salaries. As of the Reporting Date, the Borrower / / is / /
is not in compliance with Section 7.17 of the Credit Agreement concerning
salaries.
-2-
<PAGE>
Attached hereto are all relevant facts in reasonable detail to
evidence, and the computations of the financial covenants referred to above.
These computations were made in accordance with GAAP.
MEDICAL GRAPHICS CORPORATION
By ______________________________
Dale H. Johnson
Its Chief Financial Officer
-3-
<PAGE>
EXHIBIT 10.2
FIFTH AMENDMENT TO CREDIT AND SECURITY AGREEMENT
This Amendment, dated as of September 10, 1998, is made by and
between MEDICAL GRAPHICS CORPORATION, a Minnesota corporation (the "Borrower")
and NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender").
Recitals
The Borrower and the Lender have entered into a Credit and
Security Agreement dated as of March 31, 1997 as amended by First Amendment to
Credit and Security Agreement dated as of July 10, 1997, Second Amendment to
Credit and Security Agreement dated as of November 12, 1997, Third Amendment to
Credit and Security Agreement dated as of March 26, 1998 and Fourth Amendment to
Credit and Security Agreement dated as of August 14, 1998 (as so amended, the
"Credit Agreement"). Capitalized terms used in these recitals have the meanings
given to them in the Credit Agreement unless otherwise specified.
The Borrower has requested that certain amendments be made to
the Credit Agreement, which the Lender is willing to make pursuant to the terms
and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements herein contained, it is agreed as follows:
1. DEFINED TERMS. Capitalized terms used in this Amendment
which are defined in the Credit Agreement shall have the same meanings as
defined therein, unless otherwise defined herein. In addition, Section 1.1 of
the Credit Agreement is amended by adding or amending, as the case may be, the
following definitions:
"`Borrowing Base' means, at any time, the lesser of:
(a) the Maximum Line less the Norwest Bank
Revolving Advances; or
(b) the Borrowing Power."
"`Borrowing Power' means the sum of:
(i) 80% of Eligible Accounts; plus
(ii) the lesser of (A) 40% of Eligible Inventory
or (B) $1,500,000; plus
(iii) the Overadvance Component."
<PAGE>
"`Overadvance Component' means (a) from August 24, 1998 through
September 30, 1998, the lesser of 20% of Eligible Inventory or
$500,000; (b) from October 1, 1998 through October 31, 1998, the lesser
of 15% of Eligible Inventory or $375,000 (c) from November 1, 1998
through November 30, 1998, the lesser of 10% of Eligible Inventory or
$250,000; (d) from December 1, 1998 through December 31, 1998, the
lesser of 5% of Eligible Inventory or $125,000 and (e) thereafter, $0."
"`Overadvance Floating Rate' means an annual rate equal to the
sum of the Base Rate plus six percent (6%), which annual rate shall
change when and as the Base Rate changes."
2. OVERADVANCE INTEREST RATE. Section 2.2 of the Credit
Agreement is hereby amended by adding the following new subsection (f):
"(f) OVERADVANCE INTEREST RATE. Except as set forth in
subsections 2.2(c) and 2.2(e), the Overadvance Component shall bear
interest at the Overadvance Floating Rate."
3. NO OTHER CHANGES. Except as explicitly amended by this
Amendment, all of the terms and conditions of the Credit Agreement shall remain
in full force and effect and shall apply to any advance or letter of credit
thereunder.
4. OVERADVANCE FEE. The Borrower shall pay the Lender in four
equal monthly installments, the first installment due on September 15, 1998 and
each subsequent installment due on the 15th of each month thereafter, a fully
earned, non-refundable fee in the amount of $10,000 for the privilege of
including the Overadvance Component in the Borrowing Power.
5. CONDITIONS PRECEDENT. This Amendment shall be effective
when the Lender shall have received an executed original hereof, together with
such other matters as the Lender may require. If the Overadvance fee set forth
in Paragraph 4 hereof is not paid in full when due, the Borrower will not have
the privilege of including the Overadvance Component in the Borrowing Power and
the Borrower will be considered to be in default if at any time the outstanding
principal balance of the Revolving Advances exceeded the difference of the
Borrowing Power and the Overadvance Component.
6. REPRESENTATIONS AND WARRANTIES. The Borrower hereby
represents and warrants to the Lender as follows:
(a) The Borrower has all requisite power and authority to
execute this Amendment and to perform all of its obligations hereunder,
and this Amendment has been duly executed and delivered by the Borrower
and constitutes the legal, valid and binding obligation of the
Borrower, enforceable in accordance with its terms.
-2-
<PAGE>
(b) The execution, delivery and performance by the Borrower
of this Amendment have been duly authorized by all necessary corporate
action and do not (i) require any authorization, consent or approval
by any governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) violate any provision of
any law, rule or regulation or of any order, writ, injunction or decree
presently in effect, having applicability to the Borrower, or the
articles of incorporation or by-laws of the Borrower, or (iii) result
in a breach of or constitute a default under any indenture or loan or
credit agreement or any other agreement, lease or instrument to which
the Borrower is a party or by which it or its properties may be bound
or affected.
(c) All of the representations and warranties contained in
Article V of the Credit Agreement are correct on and as of the date
hereof as though made on and as of such date, except to the extent that
such representations and warranties relate solely to an earlier date.
7. REFERENCES. All references in the Credit Agreement to
"this Agreement" shall be deemed to refer to the Credit Agreement as amended
hereby; and any and all references in the Security Documents to the Credit
Agreement shall be deemed to refer to the Credit Agreement as amended hereby.
8. NO OTHER WAIVER. The execution of this Amendment and
acceptance of any documents related hereto shall not be deemed to be a waiver of
any Default or Event of Default under the Credit Agreement or breach, default or
event of default under any Security Document or other document held by the
Lender, whether or not known to the Lender and whether or not existing on the
date of this Amendment.
9. RELEASE. The Borrower hereby absolutely and
unconditionally releases and forever discharges the Lender, and any and all
participants, parent corporations, subsidiary corporations, affiliated
corporations, insurers, indemnitors, successors and assigns thereof, together
with all of the present and former directors, officers, agents and employees of
any of the foregoing, from any and all claims, demands or causes of action of
any kind, nature or description, whether arising in law or equity or upon
contract or tort or under any state or federal law or otherwise, which the
Borrower has had, now has or has made claim to have against any such person for
or by reason of any act, omission, matter, cause or thing whatsoever arising
from the beginning of time to and including the date of this Amendment, whether
such claims, demands and causes of action are matured or unmatured or known or
unknown.
10. COSTS AND EXPENSES. The Borrower hereby reaffirms its
agreement under the Credit Agreement to pay or reimburse the Lender on demand
for all costs and expenses incurred by the Lender in connection with the Credit
Agreement, the Security
-3-
<PAGE>
Documents and all other documents contemplated thereby, including without
limitation all reasonable fees and disbursements of legal counsel. Without
limiting the generality of the foregoing, the Borrower specifically agrees
to pay all fees and disbursements of counsel to the Lender for the services
performed by such counsel in connection with the preparation of this Amendment
and the documents and instruments incidental hereto. The Borrower hereby agrees
that the Lender may, at any time or from time to time in its sole discretion
and without further authorization by the Borrower, make a loan to the Borrower
under the Credit Agreement, or apply the proceeds of any loan, for the purpose
of paying any such fees, disbursements, costs and expenses.
11. MISCELLANEOUS. This Amendment may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original and all of which counterparts, taken together, shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed as of the date first written above.
NORWEST BUINESS CREDIT INC. MEDICAL GRAPHICS CORPORATION
/s/ Diane G. Conley /s/ Dale H. Johnson
-------------------------------- --------------------------------
Diane G. Conley Dale H. Johnson
Its Officer Its Chief Financial Officer
-4-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE THREE MONTHS ENDED JUNE 30,
1998, 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-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 4,300
<ALLOWANCES> (143)
<INVENTORY> 5,028
<CURRENT-ASSETS> 9,379
<PP&E> 4,095
<DEPRECIATION> (3,560)
<TOTAL-ASSETS> 10,516
<CURRENT-LIABILITIES> 8,283
<BONDS> 0
0
0
<COMMON> 218
<OTHER-SE> 1,805
<TOTAL-LIABILITY-AND-EQUITY> 10,516
<SALES> 3,193
<TOTAL-REVENUES> 4,488
<CGS> 2,762
<TOTAL-COSTS> 4,902
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 115
<INCOME-PRETAX> (529)
<INCOME-TAX> 0
<INCOME-CONTINUING> (529)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (529)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
