-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RkwqwK1DDVHJ/Xf7oG9Y8PWQQl9a8mJmRjEdUacXHV05i4FkSjvbt2q4MqElQBf/ is/Pxc1FbGyWTeTJJ1vQ+w== 0000912057-96-009576.txt : 19960625 0000912057-96-009576.hdr.sgml : 19960625 ACCESSION NUMBER: 0000912057-96-009576 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDICAL GRAPHICS CORP /MN/ CENTRAL INDEX KEY: 0000352862 STANDARD INDUSTRIAL CLASSIFICATION: 3845 IRS NUMBER: 411316712 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-09899 FILM NUMBER: 96564203 BUSINESS ADDRESS: STREET 1: 350 OAK GROVE PKWY CITY: ST PAUL STATE: MN ZIP: 55127-8599 BUSINESS PHONE: 6124844874 MAIL ADDRESS: STREET 1: 350 OAK GROVE PARKWAY CITY: ST PAUL STATE: MN ZIP: 55127-8599 10QSB 1 10QSB 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 For the quarterly period ended March 31, 1996 -------------- ( ) 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 of other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 350 Oak Grove Parkway St. Paul, Minnesota 55127-8599 -------------------------------------------------- (Address of principal executive offices) (Zip Code) (612) 484-4874 -------------------------------------------------- (Issuer's telephone number) - - ------------------------------------------------------------------------- (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 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 latest practicable date: 2,538,393 as of May 10, 1996 ---------------------------- Transitional Small Business Disclosure Format (check one): Yes ; No X ---- ---- ITEM 1. FINANCIAL STATEMENTS MEDICAL GRAPHICS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS FIRST QUARTER 1996 (UNAUDITED)
Three Months Ended March 31 1996 1995 ---------- ---------- Equipment sales $3,844,552 $3,767,577 Service and supply revenue 1,250,122 1,071,280 ---------- ---------- Total revenue 5,094,674 4,838,857 Cost of equipment sales 2,399,219 2,339,398 Cost of service and supply 659,735 558,380 ---------- ---------- Cost of products and services 3,058,954 2,897,778 ---------- ---------- Gross margin on sales 2,035,720 1,941,079 Gross margin as a percent of sales 40.0% 40.1% Expenses: Selling 1,613,860 1,781,570 Administrative and general 608,602 923,673 Research and development 456,785 567,962 ---------- ---------- 2,679,247 3,273,205 ---------- ---------- Operating loss (643,527) (1,332,126) Interest expense (31,358) (314) ---------- ---------- Loss before income taxes (674,885) (1,332,440) Income tax benefit (60,000) (335,000) ---------- ---------- Net loss $ (614,885) $ (997,440) ---------- ---------- ---------- ---------- Net loss per share $ (0.24) $ (0.40) ---------- ---------- ---------- ---------- Weighted average common shares outstanding 2,538,393 2,481,601
See accompanying notes (2) MEDICAL GRAPHICS CORPORATION CONSOLIDATED BALANCE SHEETS
March 31, 1996 December 31, 1995 -------------- ----------------- (Unaudited) Note ASSETS Current Assets Cash and cash equivalents $ 207,173 $ 30,899 Accounts receivable, net 7,116,582 9,181,691 Inventories: Purchased components and work in process 4,118,351 3,746,407 Finished goods 2,566,477 2,413,933 ----------- ----------- 6,684,828 6,160,340 Prepaid expenses and other current assets 167,609 168,661 Refundable income taxes 443,000 443,000 ----------- ----------- Total Current Assets 14,619,192 15,984,591 Equipment and Fixtures 4,095,621 3,932,396 Less accumulated depreciation (2,833,884) (2,724,893) ----------- ----------- 1,261,737 1,207,503 Software Production Costs, net 390,278 397,048 Other Assets 37,189 37,630 ----------- ----------- $16,308,396 $17,626,772 ----------- ----------- ----------- ----------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable $2,231,695 $1,825,595 Bank line of credit 675,000 1,675,000 Employee compensation 751,508 957,447 Deferred service contract revenue 1,255,978 1,156,420 Warranty reserve 240,000 240,000 Other liabilities and accrued expenses 335,786 462,372 ----------- ----------- Total Current Liabilities 5,489,967 6,316,834 Shareholders' Equity Common stock 126,420 124,813 Additional paid-in capital 10,042,379 9,920,610 Retained earnings 649,630 1,264,515 ----------- ----------- 10,818,429 11,309,938 ----------- ----------- $16,308,396 $17,626,772 ----------- ----------- ----------- -----------
Note - The Balance Sheet at December 31, 1995 was derived from the audited financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See accompanying notes (3) MEDICAL GRAPHICS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS FIRST QUARTER 1996 (UNAUDITED)
Three Months Ended March 31 March 31 1996 1995 ----------- ---------- OPERATING ACTIVITIES Net loss $ (614,885) $(997,440) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation 108,991 87,500 Amortization 61,208 35,028 Changes in operating assets and liabilities: Accounts receivable 2,065,109 474,170 Inventory and prepaid expenses (523,436) (727,972) Other assets 441 7,831 Accounts payable and accrued expense 73,575 329,530 Income taxes payable (344,294) Deferred service contract revenue 99,558 95,651 ---------- --------- NET CASH PROVIDED BY (USED) IN OPERATING ACTIVITIES 1,270,561 (1,039,996) INVESTING ACTIVITIES Software production costs (54,438) ( 33,221) Capital expenditures (163,225) ( 137,080) ---------- --------- NET CASH USED IN INVESTING ACTIVITIES (217,663) ( 170,301) FINANCING ACTIVITIES Net payment on bank line of credit (1,000,000) Proceeds from sale of Common Stock under Employee Stock Purchase Plan 41,126 57,352 Proceeds from stock options exercised 82,250 26,715 ---------- --------- NET CASH PROVIDED BY / (USED IN) FINANCING ACTIVITIES (876,624) 84,067 ---------- --------- INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS 176,274 (1,126,230) Cash and cash equivalents beginning of period 30,899 1,726,241 ---------- --------- CASH AND CASH EQUIVALENTS END OF PERIOD $207,173 $ 600,011 ---------- --------- ---------- ---------
See accompanying notes (4) 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. Operating results for the three- month period ended March 31, 1996 are not necessarily indicative of the results that may be expected for the year ended December 31, 1996. 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 The Company incurred a net loss of $614,885 for the first quarter of 1996, as compared with a net loss of $997,440 for the same period last year. The loss for the first quarter last year included charges totalling $550,000 pre-tax or $412,000 on an after tax basis, which were comprised of a $250,000 reserve for employee severance and organizational changes, a $200,000 write-down of research and development related inventory and a $100,000 increase in the bad debt reserve. Equipment sales were $3,844,552 for the first quarter of 1996, an increase of 2.0 percent from the $3,767,577 reported for the comparable quarter in 1995. Service and supply revenues increased $178,842 or 16.7 percent over the first quarter of 1995 due primarily to increased supply sales. Gross margin as a percentage of sales was 40.0 percent in the first quarter of 1996 compared to 40.1 percent for the first quarter of 1995. The 1996 gross margin was negatively impacted by price erosion in the domestic marketplace whereas the first quarter of 1995 gross margin included a $200,000 writedown of the value of research and development inventory. Selling expenses of $1,613,860 in the first quarter of 1996 were $167,710 or 9.4 percent less than the comparable period in 1995. This decrease was due primarily to unfilled vacancies in the domestic sales force and reductions in sales management partially offset by increases in marketing expenses. Administrative and general expenses decreased $315,071 or 34.1 percent in the first quarter of 1996 to $608,602. The decrease relative to the comparable quarter in 1995 was due primarily to the recording of a $250,000 reserve for severance and related costs and an increase in the allowance for doubtful accounts of $100,000 in the first quarter of 1995. (5) Research and development expenses of $456,785 were $111,177 less than the comparable period in 1995 primarily due to a temporary decrease in staff, consultants and reduced project expenses. Net interest expense increased from $314 in the first quarter of 1995 to $31,358 in 1996. This was due to increased borrowing of short-term funds under the available bank line of credit. The Company recorded a $60,000 tax benefit in the first quarter due to the ability to carryback a portion of the current quarter loss as an offset to prior year taxable income. The Company has used up its prior year tax carrybacks during the first quarter of 1996. LIQUIDITY AND FINANCIAL CONDITION As of March 31, 1996, the Company had cash and cash equivalents of $207,173 working capital of $9,129,225 and borrowing under the bank line of credit of $675,000. The Company has $1,825,000 available to borrow under it's $2,500,000 bank line of credit. The Company believes that current working capital combined with projected revenues and the bank line of credit will provide sufficient working capital through 1996. PART II - OTHER INFORMATION Item 1. Legal Proceedings Medical Graphics Corporation vs. SensorMedics Corporation, Case No. 3-94-525 (Minn.D.Ct.). On April 15, 1994, the Company commenced an action (the "action") against SensorMedics Corporation ("SensorMedics"), alleging that SensorMedics had infringed the Company's patent on a Cardiopulmonary diagnostic exercise testing system and for various acts of unfair competition. SensorMedics denied the allegations and asserted counterclaims against the Company for patent infringement and unfair competition. The Company denied those allegations. In various pretrial rulings, the court dismissed SensorMedics' claim of patent infringement and certain of its unfair competition claims against the Company. Prior to the commencement of trial, the Company and SensorMedics reached a settlement. While the precise terms of the settlement are confidential, the settlement agreement states that the Company will receive aggregate payments of $4.35 million from which the Company will retain approximately $2.83 million after deducting legal expenses associated with the litigation. An initial payment of $1.5 million was received in December, 1995 of which the Company retained approximately $975,000 after deducting legal expenses. Subsequent semiannual payments will be received over an eight-year period, subject to mandatory prepayment upon the occurrence of certain financing and other events by SensorMedics. A judgement was entered dismissing with prejudice all remaining claims against the Company, granting the right to proceed against one of SensorMedics' insurers for an additional $250,000, and upholding the validity, enforceability and infringement of the Company's patent. Item 4. Submission of Matters to a Vote of Security Holders None Item 6. Reports on Form 8-K No reports on Form 8-K were filed during the first quarter of 1996. (6) 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 May 10, 1996 /s/ Eric W. Sivertson -------------- ------------------------------------------ Eric W. Sivertson, Chief Executive Officer (Principal Executive Officer) (7) EX-27 2 EXHIBIT 27 - FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the first quarter 10QSB as filed by Medical Graphics Corporation and is qualified in its entirety by reference to such financial statements. 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 207,173 0 7,428,020 (311,439) 6,684,828 14,619,192 4,095,621 (2,833,884) 16,308,396 5,489,967 0 0 0 126,420 10,692,009 16,308,396 3,844,552 5,094,674 2,399,219 3,058,954 2,679,247 0 31,358 (674,885) (60,000) (614,885) 0 0 0 (614,885) (.24) (.24)
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