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U. S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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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, 1999

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

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MEDICAL GRAPHICS CORPORATION(Exact name of small business issuer as specified in its charter)

|Minnesota                                                      |  | 41-1316712                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

350 Oak Grove Parkway, Saint Paul, Minnesota 55127-8599(Address of principal executive offices)

Registrant's
telephone number, including area code:(651) 484-4874

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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, 1999, the Company had outstanding 5,650,947 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/

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## 

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

MEDICAL GRAPHICS CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands)

|                                                                                |  | September 30,
1999 |         | December 31,
1998 |  
|------------------------------------------------------------------------------- |  | ------------------ | ------- | ----------------- | -
|ASSETS                                                                          | 
|Current Assets:                                                                 |  |                    |         |                   |  
|Cash                                                                            |  | $                  | 117     |                   | $
|Accounts receivable, net of allowance for doubtful accounts of $136 and $118    |  |                    | 4,569   |                   |  
|Inventories:                                                                    |  |                    |         |                   |  
|Purchased components and work in process                                        |  |                    | 3,303   |                   |  
|Finished goods                                                                  |  |                    | 2,246   |                   |  
|                                                                                |  |                    |         |                   |  
|                                                                                |  |                    | 5,549   |                   |  
|Prepaid expenses                                                                |  |                    | 120     |                   |  
|                                                                                |  |                    |         |                   |  
|Total current assets                                                            |  |                    | 10,355  |                   |  
|                                                                                |  |                    |         |                   |  
|Equipment and Fixtures                                                          |  |                    | 4,111   |                   |  
|Less accumulated depreciation                                                   |  |                    | 3,844   |                   |  
|                                                                                |  |                    |         |                   |  
|                                                                                |  |                    | 267     |                   |  
|Software Production Costs, net of accumulated amortization of $1,473 and $1,212 |  |                    | 586     |                   |  
|Other Assets                                                                    |  |                    | 1       |                   |  
|                                                                                |  |                    |         |                   |  
|                                                                                |  | $                  | 11,209  |                   | $
|                                                                                |  |                    |         |                   |  
|LIABILITIES AND SHAREHOLDERS' EQUITY                                            | 
|Current Liabilities:                                                            |  |                    |         |                   |  
|Accounts payable                                                                |  | $                  | 2,058   |                   | $
|Accounts payable financed with vendorscurrent                                  |  |                    | 408     |                   |  
|Line of credit                                                                  |  |                    | 3,595   |                   |  
|Employee compensation                                                           |  |                    | 739     |                   |  
|Deferred service contract revenue                                               |  |                    | 900     |                   |  
|Warranty reserve                                                                |  |                    | 339     |                   |  
|Other liabilities and accrued expenses                                          |  |                    | 407     |                   |  
|                                                                                |  |                    |         |                   |  
|Total current liabilities                                                       |  |                    | 8,446   |                   |  
|Commitments and Contingencies                                                   |  |                    |         |                   |  
|Long-Term Accounts Payable Financed with Vendors                                |  |                    | 0       |                   |  
|Shareholders' Equity:                                                           |  |                    |         |                   |  
|Class A stock; liquidation preference of $3.375 per share                       |  |                    | 22      |                   |  
|Common stock                                                                    |  |                    | 283     |                   |  
|Additional paid-in capital                                                      |  |                    | 15,775  |                   |  
|Retained deficit                                                                |  |                    | (13,317 | )                 |  
|                                                                                |  |                    |         |                   |  
|Total shareholders' equity                                                      |  |                    | 2,763   |                   |  
|                                                                                |  |                    |         |                   |  
|                                                                                |  | $                  | 11,209  |                   | $
|                                                                                |  |                    |         |                   |  

See
accompanying notes to financial statements



MEDICAL GRAPHICS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share data)

|                                             |  | Three Months Ended
September 30, |       | Nine Months Ended
September 30, |  
|-------------------------------------------- |  | -------------------------------- | ----- | ------------------------------- | -
|
|Revenues:                                    |  |                                  |       |                                 |  
|Equipment and supply sales                   |  | $                                | 5,206 |                                 | $
|Service revenues                             |  |                                  | 491   |                                 |  
|                                             |  |                                  |       |                                 |  
|Total revenues                               |  |                                  | 5,697 |                                 |  
|Cost of Goods Sold                           |  |                                  | 2,945 |                                 |  
|                                             |  |                                  |       |                                 |  
|Gross margin                                 |  |                                  | 2,752 |                                 |  
|Operating Expenses:                          |  |                                  |       |                                 |  
|Selling and marketing                        |  |                                  | 1,347 |                                 |  
|General and administrative                   |  |                                  | 637   |                                 |  
|Research and development                     |  |                                  | 379   |                                 |  
|                                             |  |                                  |       |                                 |  
|                                             |  |                                  | 2,363 |                                 |  
|                                             |  |                                  |       |                                 |  
|Operating Income (Loss)                      |  |                                  | 389   |                                 |  
|Interest expense                             |  |                                  | (145  | )                               |  
|                                             |  |                                  |       |                                 |  
|Income (Loss) Before Taxes                   |  |                                  | 244   |                                 |  
|Income tax benefit                           |  |                                  | 0     |                                 |  
|                                             |  |                                  |       |                                 |  
|Net Income (Loss)                            |  | $                                | 244   |                                 | $
|                                             |  |                                  |       |                                 |  
|Net Income (Loss) Per Weighted Average Share |  |                                  |       |                                 |  
|Basic                                        |  | $                                | 0.03  |                                 | $
|Diluted                                      |  |                                  | 0.03  |                                 |  
|                                             |  |                                  |       |                                 |  
|Weighted Average Common Shares Outstanding   |  |                                  |       |                                 |  
|Basic                                        |  |                                  | 7,151 |                                 |  
|Diluted                                      |  |                                  | 7,395 |                                 |  
|                                             |  |                                  |       |                                 |  

See
accompanying notes to financial statements



MEDICAL GRAPHICS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

|                                                                                                |  | Nine Months Ended
September 30, |        
|----------------------------------------------------------------------------------------------- |  | ------------------------------- | -------
|
|Cash Flows From Operating Activities:                                                           |  |                                 |        
|Net Income (Loss)                                                                               |  | $                               | 468    
|Adjustments to reconcile net income (loss) to net cash provided (used) in operating activities: |  |                                 |        
|Depreciation                                                                                    |  |                                 | 270    
|Amortization                                                                                    |  |                                 | 261    
|Changes in operating assets and liabilities:                                                    |  |                                 |        
|Accounts receivable                                                                             |  |                                 | 694    
|Inventory                                                                                       |  |                                 | (632   
|Prepaid expenses and other assets                                                               |  |                                 | 41     
|Accounts payable and accrued expenses                                                           |  |                                 | (976   
|Warranty reserve                                                                                |  |                                 | (35    
|Deferred service contract revenue                                                               |  |                                 | 30     
|                                                                                                |  |                                 |        
|Net cash provided (used) in operating activities                                                |  |                                 | 121    
|                                                                                                |  |                                 |        
|Cash Flows From Investing Activities:                                                           |  |                                 |        
|Software production costs                                                                       |  |                                 | (281   
|Capital expenditures                                                                            |  |                                 | (19    
|                                                                                                |  |                                 |        
|Net cash used in investing activities                                                           |  |                                 | (300   
|                                                                                                |  |                                 |        
|Cash Flows From Financing Activities:                                                           |  |                                 |        
|Borrowings under bank line of credit                                                            |  |                                 | 17,343 
|Repayments under bank line of credit                                                            |  |                                 | (17,039
|Payments on long-term accounts payable financed with vendors                                    |  |                                 | (48    
|Net proceeds from issuance of common stock                                                      |  |                                 | 40     
|                                                                                                |  |                                 |        
|Net cash provided by financing activities                                                       |  |                                 | 296    
|                                                                                                |  |                                 |        
|Net Increase (Decrease) In Cash                                                                 |  |                                 | 117    
|Cash at Beginning Of Period                                                                     |  |                                 | 0      
|                                                                                                |  |                                 |        
|Cash at End Of Period                                                                           |  | $                               | 117    
|                                                                                                |  |                                 |        
|Cash Paid For Interest Expense                                                                  |  | $                               | 399    
|                                                                                                |  |                                 |        

See
accompanying notes to financial statements



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 1999

(Unaudited)

1. Basis of Presentation

The consolidated balance sheet as of September 30, 1999, the consolidated statements of operations for the three and nine months ended
September 30, 1999 and 1998, the consolidated statements of cash flows for the nine months ended September 30, 1999 and 1998, and the related information presented in these notes have
been prepared by management 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, without audit. 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 (consisting only of normal recurring adjustments) considered necessary for a fair presentation of results
have been included. The consolidated balance sheet at December 31, 1998 was derived from the audited financial statements as of that date. Operating results for the three and nine month periods
ended September 30, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. For further information, refer to the financial
statements and notes thereto included in Medical Graphic's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1998.

Comprehensive
income is a measure of all non-owner changes in shareholders' equity and includes such items as net income, certain foreign currency translation items,
minimum pension liability adjustments and changes in the value of available-for-sale securities. For the three and nine months ended September 30, 1999 and 1998,
comprehensive income for Medical Graphics was equivalent to net income as reported.

2. Reclassifications

Certain amounts in Medical Graphic's Form 10-QSB for the three and nine month periods ended September 30, 1998 have been reclassified
to conform to the 1999 presentation. These reclassifications had no effect on net loss or shareholders' equity as previously reported.

3. Amendment to Bank Line of Credit

On October 13, 1999, Medical Graphics amended its line of credit agreement to increase the maximum amount to $4,500,000 and provide for additional
working capital. As of September 30, 1999 and October 13, 1999, the Company was in compliance with all covenants under the amended line of credit agreement.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statement

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.
Various forward-looking statements have been made in this Quarterly Report on Form 10-QSB and may also be made in other Medical Graphic's reports filed under the Securities Exchange
Act of 1934, in its press releases and in other documents. In addition, from time to time, the Company through its management may make oral forward-looking statements.

Results Of Operations

Medical Graphics recorded net income of $244,000 for the three months ended September 30, 1999 compared to a net loss of $529,000 for the same period in
1998. Medical Graphics recorded net income of $468,000 for the nine months ended September 30, 1999 compared to a net loss of $1,599,000 for the same period in 1998.

Revenue

Revenue consists of equipment and supply sales as well as service revenue. Equipment and supply sales reflect revenue from Medical Graphic's pulmonary function
testing systems, gas exchange testing systems, sleep diagnostic systems and aftermarket sales of peripherals and supplies. Service revenue reflects contract revenue from extended warranties,
non-warranty service visits and training.

Third
quarter revenue increased 26.9% to $5,697,000 in 1999 compared to $4,488,000 in 1998. Domestic revenue increased by 35.1% to $4,714,000 in 1999 compared to $3,489,000 in 1998.
The domestic growth is due to a 51.8% increase in sales of cardiopulmonary products, including our new pulmonary function testing systems and software upgrade products, offset by a 40.0% decline in
sales of sleep diagnostic systems. International revenue decreased slightly to $492,000 in 1999 from $534,000 in 1998. Service revenue of $491,000 for 1999 increased by 5.6% from the $465,000 recorded
in the same period of 1998.

For
the nine months ended September 30, revenue increased 9.9% to $16,128,000 in 1999 from $14,680,000 in 1998. Domestic revenue increased 14.5% to $12,934,000 in 1999 from
$11,299,000 in 1998. This growth is due to a 46.4% increase in sales of cardiopulmonary products, including our new pulmonary function testing systems and software upgrade products, offset by a 66.0%
decline in sales of sleep diagnostic systems. Internationally, year to date revenue is down 10.6% on 1999 revenue of $1,750,000 compared to $1,958,000 in 1998 because of previous changes in our
European distribution channels and a stronger dollar versus other international currencies, offset by renewed interest in our new pulmonary function testing systems. Service revenue increased slightly
to $1,444,000 in 1999 from $1,423,000 in 1998.

Gross Margin

Gross margin percentage increased to 48.3% of revenue for the three months ended September 30, 1999 from 38.5% in 1998. For the nine months ended
September 30, gross margin percentage increased to 46.2% in 1999 from 38.6% in 1998. Margin increases for both the three and nine month periods reflect Medical Graphic's continuing efforts to
decrease its costs of manufacturing through increased efficiencies and value engineering. In addition, product mix changes from reduced sales of lower margin sleep diagnostic systems and increased
sales of higher margin cardiopulmonary systems and software
upgrade products have favorably influenced gross margin percentages for both periods.

Selling and Marketing

Selling and marketing expenses for the three months ended September 30 were virtually unchanged at $1,347,000 for 1999 compared to $1,346,000 in 1998.
Although overall expenses were virtually unchanged, lower personnel costs combined with reduced consulting expenses generated a reduction of $154,000 which was offset by an $82,000 increase in
commission expenses due to a 35.1% increase in domestic revenue.

For
the nine months ended September 30, selling and marketing expenses decreased 12.0% to $3,761,000 in 1999 from $4,275,000 in 1998. Reduced headcount has led to lower
personnel costs and reductions in travel expenses. Those savings combined with reduced consulting costs and lower expenses associated with trade shows have resulted in reductions aggregating $611,000,
which is offset by a $42,000 increase in commissions. These overall decreases are the result of cost containment measures implemented during the last half of 1998.

General and Administrative

General and administrative expenses increased to $637,000 in the third quarter of 1999 from $443,000 in 1998. Increases aggregating $164,000 included higher
personnel costs, depreciation expense, professional fees and a higher provision for doubtful accounts.

Year
to date general and administrative expenses increased by 13.6% to $1,670,000 in 1999 from $1,470,000 in 1998. Increases of $388,000 included higher personnel costs, depreciation
expense, professional fees and a higher provision for doubtful accounts. These increases were offset by decreases in consulting expenses and travel expenses aggregating $176,000.

Research and Development

Research and development expenses increased by 8.0% to $379,000 in the third quarter of 1999 from $351,000 in 1998. For the nine months ended
September 30, research and development expenses decreased 5.9% to $1,136,000 in 1999 from $1,207,000 in 1998. Medical Graphics continues to use in-house software engineers rather
than independent software contractors as part of the Company's transition of its product software to a Windows98® platform. Additionally, the 1998 costs associated with
re-engineering our pulmonary function testing hardware are not being incurred in 1999.

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. 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 Medical Graphic'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 Y2K Project Team is taking inventory of Medical Graphic's operations and dividing areas for assessment into three categories:



The
Y2K Project Team has also identified five areas covering the entire scope of our 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.

|                            |  | Company Products |  | OEM Products |  | Internal Programming |  | Business Information Systems |  | Vendors & Suppliers
|--------------------------- |  | ---------------- |  | ------------ |  | -------------------- |  | ---------------------------- |  | -------------------
|Team Formation & Assignment |  | Completed        |  | Completed    |  | Completed            |  | Completed                    |  | Completed          
|Inventory Assessment        |  | Completed        |  | Completed    |  | Completed            |  | Completed                    |  | Completed          
|Compliance Assessment       |  | Completed        |  | Completed    |  | Completed            |  | Completed                    |  | Completed          
|Risk Assessment             |  | Completed        |  | Completed    |  | Completed            |  | 99%                          |  | 90%                
|Resolution & Remediation    |  | Completed        |  | Completed    |  | Completed            |  | Completed                    |  | 85%                
|Validation                  |  | Completed        |  | Completed    |  | Completed            |  | 99%                          |  | Completed          
|Contingency Plans           |  | Completed        |  | Completed    |  | Completed            |  | 99%                          |  | 90%                
|Certification & Sign-off    |  | Completed        |  | Completed    |  | Completed            |  | 99%                          |  | 90%                

With
respect to Medical Graphic's relationships with third parties, we rely 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 our control, Medical Graphics 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 September 1, 1999, we had received responses from 90%
of such third parties, and all of the responding companies have provided written assurances indicating that their 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, with significant vendors and service providers by the fourth quarter of 1999.

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 those
costs to be charges for Year 2000 compliance. The Company presently estimates the labor and other costs of its Year 2000 compliance efforts to date to be approximately $130,000. With respect to future
costs, the Company estimates it may spend approximately $56,000 for remediation and validation of products and programs that the Company presently knows are not compliant. The Company believes that
these estimates are reasonable and presently expects such to be within the Company's fiscal 1999 budget.

Risks of Year 2000 Issues

Although the Company is near completion of its discovery and evaluation of overall Year 2000 exposure, it still cannot 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 them to commence litigation against the
Company for restitution and damages that may be related to such problems.

2.Disruption of Supply Materials.

Medical
Graphics began the process of surveying its vendors with regard to their Year 2000 readiness during the first quarter of 1998. We are now in the process of finalizing our
assessment of the survey responses. In addition, we are actively pursuing responses from critical and non-critical vendors who have not yet responded. The Company 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 this process has required Year 2000 compliance in all areas. Year 2000 testing occurred
as the upgrade process proceeded and will continue to occur prior to the changeover date. For this reason, the Company considers that disruption of its internal computer systems is unlikely.

4.Disruption of the Company's Non-Computer Systems.

Medical
Graphics is currently conducting a comprehensive assessment of all non-computer systems, including utility, telecommunications, delivery and other services.
Although we intend to work with third party providers of these services to ensure that there will be no disruption of operations, the Company believes that if any disruptions do occur, they 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

Medical Graphics recognizes the need for contingency planning and is addressing this through the aforementioned 8-step program. The details of any
contingency plan will depend on our final assessment of the problem as well as the evaluation and success of our remediation efforts. Future disclosures will include contingency plans as they become
necessary and available.

Liquidity and Capital Resources

Medical Graphics had cash of $117,000 and working capital of $1,909,000 as of September 30, 1999. In addition, the Company had a balance outstanding
under its bank line of credit of $3,595,000 and additional availability of $453,000.

During
the nine months ended September 30, 1999, Medical Graphics generated $121,000 of cash from operating activities. Principal sources of cash included net income before
depreciation and amortization of $999,000 and a $694,000 decrease in accounts receivable. Uses of cash included an increase of $632,000 in inventory and a $976,000 decrease in accounts payable and
accrued expenses. We used $300,000 for investing activities, consisting of software production costs of $281,000 and capital expenditures of $19,000. Medical Graphics generated $296,000 from financing
activities, primarily from $304,000 in net borrowings under its line of credit, partially offset by a decrease of $48,000 in long-term accounts payable with vendors.

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 $1,599,000, increases of
$267,000 in accounts receivable and $463,000 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.

At
September 30, 1999 the Company had no material commitments for capital expenditures.

Medical
Graphics 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 through 1999.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

None



## 

PART IIOTHER INFORMATION

Item 1. Legal Proceedings

There have been material developments regarding two of the legal proceedings described in our Form 10-KSB for the year ended
December 31, 1998. The lawsuit known asJohn Gefroh v. Trinity Hospital, Medical Graphics Corporation and IPC Automation, Inc., has been
settled. In addition, the lawsuit known asCopelco Capital, Inc. v. Memorial Hospital, a division of Sisters of Charity of Nazareth Health
Systems, Inc., has been settled. Both matters were resolved on terms and conditions that do not have a material impact on Medical Graphic's financial statements.
Management is of the opinion that ultimate settlement of the remaining lawsuit will not have a material impact on its financial statements.

Item 2. Changes in Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

None

Item 5. Other Information

On September 22, 1999, Medical Graphics entered into an Agreement and Plan of Merger with Angeion Corporation, a publicly held company headquartered in
Minnesota, under which Angeion will acquire all of the outstanding shares of Medical Graphics for $2.15 per share.

The
acquisition, which will be accounted for as a purchase, will result in Medical Graphics becoming a wholly owned subsidiary of Angeion. In connection with the merger, each issued
outstanding share of Medical Graphics common stock will be converted into the right to receive $2.15 in cash per share. The closing of this acquisition is subject to approval by the Medical Graphics
shareholders and the satisfaction of other closing conditions.

Item 6. Exhibits and Reports on Form 8-K



|Exhibit 10.1 |  | Eighth Amendment to Credit and Security Agreement dated October 13, 1999 between the Company and Wells Fargo Business Credit, Inc. f/k/a Norwest Business Credit, Inc.
|------------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit 27   |  | Financial Data Schedule                                                                                                                                               



On
September 22, 1999, Medical Graphics filed a Report on Form 8-K. See Part II, Item 5 of this Form 10-QSB.



## 

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                        
|                            
|Date                        
|                            



## 

INDEX TO EXHIBITS

|Exhibit
Number |  | Description                                                                                                                                                           
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit 10.1   |  | Eighth Amendment to Credit and Security Agreement dated October 13, 1999 between the Company and Wells Fargo Business Credit, Inc. f/k/a Norwest Business Credit, Inc.
|27             |  | Financial Data Schedule.                                                                                                                                              



## QuickLinks

PART I: FINANCIAL INFORMATION

PART IIOTHER INFORMATION

SIGNATURES

INDEX TO EXHIBITS