-----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, Pbf+JIZdnc5QNFyZqNzwAFP/V6Q6d4n5JlDEjuHHjOhC8JdVeBKfJZa7n+zNw0GZ cDPRF00INGXyhlTvbbRlrQ== 0000912057-96-017183.txt : 19960813 0000912057-96-017183.hdr.sgml : 19960813 ACCESSION NUMBER: 0000912057-96-017183 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960812 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDICAL GRAPHICS CORP /MN/ CENTRAL INDEX KEY: 0000352862 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [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: 96608765 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 JUNE 30, 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: 2,541,093 AS OF AUGUST 7, 1996 Transitional Small Business Disclosure Format (check one): Yes _____; No /X/ ITEM 1. FINANCIAL STATEMENTS MEDICAL GRAPHICS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS SECOND QUARTER AND SIX MONTHS 1996 (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
Three-Months Ended Six-Months Ended June 30 June 30 1996 1995 1996 1995 ------ ------ ------ ------ Equipment sales $ 4,185 $4,360 $ 8,030 $ 8,127 Service and supply revenue 1,123 1,173 2,373 2,245 ------- ------ ------- ------- Total revenue 5,308 5,533 10,403 10,372 Cost of equipment sales 2,379 2,445 4,778 4,820 Cost of service and supply 715 545 1,375 1,068 ------- ------ ------- ------- Cost of products and services 3,094 2,990 6,153 5,888 ------- ------ ------- ------- Gross margin on sales 2,214 2,543 4,250 4,484 Gross margin as a percent of sales 41.7% 46.0% 40.9% 43.2% Expenses: Selling 1,892 1,801 3,505 3,582 Administrative and general 905 670 1,514 1,594 Research and development 564 534 1,021 1,102 ------- ------ ------- ------- 3,361 3,005 6,040 6,278 ------- ------ ------- ------- Operating loss (1,147) (462) (1,790) (1,794) Interest expense (32) (13) (64) (13) ------- ------ ------- ------- Loss before income taxes (1,179) (475) (1,854) (1,807) Income tax benefit -- (120) (60) (455) ------- ------ ------- ------- Net loss $(1,179) $ (355) $(1,794) $(1,352) ------- ------ ------- ------- ------- ------ ------- ------- Net loss per share $ (0.47) $(0.15) $ (0.71) $ (0.55) ------- ------ ------- ------- ------- ------ ------- ------- Weighted average common shares outstanding 2,533,334 2,438,176 2,530,298 2,437,045
See accompanying notes (2) MEDICAL GRAPHICS CORPORATION CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (IN THOUSANDS) June 30, 1996 Dec. 31, 1995 ------------- ------------- (Unaudited) (Note) ASSETS Current Assets Cash and cash equivalents $ 34 $ 31 Accounts receivable, net 7,353 9,182 Inventories: Purchased components and work in process 4,363 3,746 Finished goods 2,960 2,414 ------- ------- Total Inventories 7,323 6,160 Refundable income taxes - 443 Prepaid expenses and other current assets 510 169 ------- ------- Total Current Assets 15,220 15,985 Equipment and Fixtures 4,438 3,932 Less accumulated depreciation (2,949) (2,725) ------- ------- 1,489 1,207 Software Production Costs, net 385 397 Other Assets 33 38 ------- ------- $17,127 $17,627 ------- ------- ------- ------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable $ 2,454 $1,826 Bank line of credit 2,200 1,675 Employee compensation 811 957 Deferred service contract revenue 1,188 1,157 Warranty reserve 240 240 Other liabilities and accrued expenses 493 462 ------- ------- Total Current Liabilities 7,386 6,317 Shareholders' Equity Common stock 127 125 Additional paid-in capital 10,144 9,921 Retained earnings (deficit) (530) 1,264 ------- ------- 9,741 11,310 ------- ------- $17,127 $17,627 ------- ------- ------- ------- 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 FLOW SECOND QUARTER 1996 (UNAUDITED) (IN THOUSANDS)
Six Months Ended June 30 June 30 1996 1995 -------- -------- CASH FLOWS FROM: OPERATING ACTIVITIES Net loss $(1,794) $(1,352) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 224 173 Amortization 125 65 Changes in operating assets and liabilities: Accounts receivable 1,829 174 Inventory and prepaid expenses (1,504) (1,061) Other assets 5 16 Accounts payable and accrued expense 513 337 Income taxes 443 (799) Deferred service contract revenue 31 88 ------- ------- NET CASH USED IN OPERATING ACTIVITIES (128) (2,359) CASH FLOWS FROM: INVESTING ACTIVITIES Software production costs (113) (58) Capital expenditures (506) (191) ------- ------- NET CASH USED IN INVESTING ACTIVITIES (619) (249) FINANCING ACTIVITIES Borrowing on bank line of credit 525 1,075 Proceeds from stock transactions 225 88 ------- ------- NET CASH PROVIDED BY FINANCING ACTIVITIES 750 1,163 ------- ------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3 (1,445) CASH AND CASH EQUIVALENTS: BEGINNING OF PERIOD 31 1,726 ------- ------- END OF PERIOD $ 34 $ 281 ------- ------- ------- -------
(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 and six month periods ended June 30, 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 Equipment sales, service and supply revenue were virtually flat for the first six months of 1996 at $10,403,000 versus $10,372,000 in 1995. Second quarter revenues of $5,308,000, were down $225,000 from 1995's second quarter. Gross margins as a percentage of sales decreased to 41.7 percent in the second quarter of 1996 from 46 percent for the second quarter of 1995. This decrease in the second quarter gross margin percentage is primarily due to lower unit selling prices as a result of marketplace competition and the impact of lower-than-expected sales volume relative to fixed manufacturing expenses. Gross margins for the six-month period decreased to 40.9 percent from 43.2 percent due to the factors described above. Selling expenses of $1,892,000 in the second quarter of 1996 were $91,000 or 5 percent more than the comparable period in 1995. This increase was due to the timing of annual sales and marketing meetings. Selling expenses of $3,505,000 for the six-month period were $77,000 less than the comparable period due to delays in filling open sales and marketing vacancies. Administrative and general expenses of $905,000 increased $235,000 in the second quarter of 1996 over the comparable period in 1995, primarily due to a $189,000 increase in the allowance for doubtful accounts. Research and development expenses remained relatively stable in both the three-month and six-month periods ended June 30, 1996. Expenses increased $30,000 for the second quarter and decreased $81,000 for six months when compared to the same periods a year ago. (5) Net interest expense increases are solely due to borrowing short-term funds under the available bank line of credit. Interest expense for the second quarter 1996 vs. 1995 was $32,000 and $13,000, respectively. Interest expense for the six-month period ended June 30, 1996 vs. 1995 was $64,000 and $13,000, respectively. The Company did not record a tax benefit for any of the second quarter net operating loss (NOL) and only recorded a $60,000 tax benefit for the first quarter 1996 (NOL). These unused (NOL's) will be available when the Company again becomes profitable. Tax benefits recorded in the first and second quarters of 1995 were $120,000 and $455,000, respectively. The Company recorded a loss of $1,179,000 for the second quarter of 1996 compared to a loss of $355,000 for the second quarter of 1995. The decreased quarterly earnings of $704,000 resulted primarily from: (a) the gross margin decline from 46 to 42 percent or $329,000; (b) an increase in operating expenses of $356,000 caused by a $189,000 increase in the allowance for doubtful accounts; (c) inclusion of a $120,000 tax benefit credit in 1995. FINANCIAL CONDITION As of June 30, 1996, the Company had cash and cash equivalents of $34,000, working capital of $7,834,000 and borrowing under the bank line of credit of $2,200,000. The Company has $1,300,000 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 The Company during the second quarter of 1996 received the first semiannual payment net of legal expenses of $122,000 under the terms of a settlement reached with SensorMedics Corporation. SensorMedics was acquired by a third party in July 1996 and accordingly pursuant to the terms of the Settlement Agreement a check was received, which will result in a third quarter gain of approximately $1,300,000 after legal expenses. Item 4. Submission of Matters to a Vote of Security Holders On May 23, 1996, the Company held its annual meeting of shareholders. The Company's shareholders elected three members to the Company's Board of Directors for terms expiring at the annual meeting in 1999 and ratified the selection of Ernst & Young LLP as the Company's independent auditors for the fiscal year ended December 31, 1996. The three directors elected were Anthony J. Adducci, Gerald T. Knight and W. Edward McConaghay (1,875,223 votes in favor and 76,360 votes withheld). The terms of the other directors of the Company, (Catherine A. Anderson, Earl E. Bakken, Eric W. Sivertson, Donald C. Wegmiller, and Wayne G. Faris) continue after the annual meeting. The ratification of the selection of Ernst & Young LLP as independent auditors was by a vote of 1,935,811 in favor and 15,102 against, with 670 abstentions. (6) Also ratified by the shareholders were: (A) Increase in the number of shares reserved under the Company's 1987 Stock Option Plan from 650,000 to 750,000. (Votes were: 1,753,918 for, 167,703 against, and 4,706 abstained) (B) Extend the duration of the 1987 Stock Option Plan to five years from the date of approval by the Shareholders. (Votes were: 1,782,409 for, 162,298 against, and 6,876 abstained) (C) Amend the 1987 Stock Option Plan to provide option limitations pursuant to Section 162(m) of the Internal Revenue Code of 1986 (the "Code"). (Votes were: 1,814,295 for, 99,700 against, and 12,332 abstained) Item 6. Reports on Form 8-K No reports on Form 8-K were filed during the first or second 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 AUGUST 9, 1996 /s/ Eric W. Sivertson ------------------ ------------------------------------------ Eric W. Sivertson, Chief Executive Officer (Principal Executive Officer) (7) INDEX TO EXHIBITS Exhibit Number Description Page - ------- ----------- ---- 27 Financial Data Schedule (8) EX-27 2 FDS EX-27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MEDICAL GRAPHICS CORPORATION FOR SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 34 0 7,853 (500) 7,323 15,220 4,438 (2,949) 17,127 7,386 0 0 0 127 9,614 17,127 8,030 10,403 4,778 6,153 6,040 0 64 (1,854) (60) (1,794) 0 0 0 (1,794) (.71) (.71)
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