Date of report (Date of earliest event reported) : May 28, 2015
MGC Diagnostics Corporation
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(Exact name of registrant as specified in its charter)
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Minnesota
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(State or other jurisdiction of incorporation)
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001-13543
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41-1579150
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(Commission File Number)
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(IRS Employer Identification No.)
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350 Oak Grove Parkway
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Saint Paul, Minnesota
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55127-8599
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(Address of principal executive offices)
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(Zip Code)
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(651) 484-4874
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(Registrant’s telephone number, including area code)
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o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02
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Results of Operations and Financial Condition
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2 |
Item 9.01
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Financial Statements and Exhibits
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(d)
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Exhibits
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Exhibit No.
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Description of Exhibit
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99.1
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Press release dated June 2, 2015, reporting results for the fiscal 2015 second quarter ended April 30, 2015.
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MGC DIAGNOSTICS CORPORATION
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Dated: June 2, 2015
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By
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/s/ Wesley W. Winnekins |
Wesley W. Winnekins
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Chief Financial Officer
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3 |
MGC Diagnostics Corporation
350 Oak Grove Parkway
Saint Paul, MN 55127
Telephone: (651) 484-4874
Facsimile: (651) 484-4826
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Second quarter 2015 revenue increased by 17.5% to $8.7 million, compared to $7.4 million in the prior year period. Second quarter revenue includes $1.4 million from MediSoft.
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Service revenue increased by 3.6% to $1.7 million in the fiscal second quarter compared to $1.6 million in the prior year period.
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Sales backlog of $2.1 million ($1.5 million for Medical Graphics and $600,000 for MediSoft) at the end of the quarter, compared to $1.9 million at the end of the first quarter of fiscal year 2015.
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Gross margin of 50.7% in the second quarter includes gross margin for Medical Graphics of 54.3%, and MediSoft had a gross margin of 32.2%.
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Operating expenses were $4.2 million in the second quarter ($3.5 million for Medical Graphics and $747,000 for MediSoft), compared to Medical Graphics-only expenses of $3.8 million in the prior year quarter.
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Operating income was $197,000 for the second quarter, compared to operating income of $327,000 in the fiscal 2014 second quarter. For the quarter, Medical Graphics had operating income of $481,000 and MediSoft had an operating loss of ($284,000).
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The Company realized net income of $82,000 for the 2015 second quarter, or $0.02 per share, compared to net income of $308,000, or $0.07 per share in the prior year period. For the quarter, Medical Graphics had net income of $344,000 and MediSoft had a net loss of ($262,000), a 49% decrease from MediSoft’s 2015 first quarter net loss of ($512,000).
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2015 second quarter domestic equipment, supplies and accessories revenues, compared to the 2014 second quarter, were flat at $4.2 million. During the quarter, competitive account conversions totaled 12 accounts, or $442,000 in revenue, compared to 12 accounts, or $850,000 in revenue for the same quarter last year, and MediSoft contributed domestic revenues of $96,000 from its U.S. distributor. Excluding the effect of revenues from competitive conversions and domestic MediSoft revenue, in each period, Medical Graphics domestic equipment and accessories revenue grew 11.4% in the fiscal 2015 second quarter, compared to the same quarter last year.
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Domestic service revenues, which are entirely attributed to Medical Graphics, increased 3.6% to $1.7 million, compared to $1.6 million for the same quarter last year. The Attachment Rate, which reflects the percentage of Extended Service Contracts that were sold during customer equipment purchases, was 24% for the fiscal 2015 second quarter, compared to 28% for the first quarter of fiscal year 2015.
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International equipment, supplies and accessories revenues grew 79.8% to $2.8 million, compared to $1.6 million for the fiscal 2014 second quarter, due primarily to the $1.3 million of revenues contributed by MediSoft from international markets. Excluding MediSoft revenues, Medical Graphics international equipment, supplies and accessories revenues decreased 6.0% due to lower sales in Europe and South America.
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Gross margin for the quarter was 50.7% (54.3% for Medical Graphics and 32.2% for MediSoft), compared to 55.8% in the fiscal 2014 second quarter for Medical Graphics. Gross margin for equipment, supplies and accessories was 45.8% for the quarter (49.3% for Medical Graphics and 32.2% for MediSoft), compared to 52.8% for Medical Graphics in the prior year’s quarter. Gross margin for services was 70.8% for the quarter, compared to 66.4% for the same period last year.
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Second quarter 2015 general
and administrative expenses totaled $1.4 million, or 16.2% of revenue, compared to $1.3 million, or 17.3% of revenue in
the comparable quarter last year. This increase is primarily due to MediSoft general and administrative expenses
of $332,000, partially offset by $202,000 of lower Medical Graphics general and administrative expenses.
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Sales and marketing expenses were $2.0
million, or 23.0% of revenue, compared to $1.9 million, or 25.4% of revenue in the 2014 second quarter. This increase is
primarily due to MediSoft sales and marketing expenses of $247,000, partially offset by $120,000 of lower Medical Graphics
sales and marketing expenses.
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Research and development expenses were
$734,000, or 8.4% of revenue in the fiscal 2015 second quarter, up from $640,000, or 8.6% of revenue in last year’s
second quarter. This increase is primarily due to MediSoft research and development expenses of $112,000,
partially offset by $18,000 of lower Medical Graphics research and development expenses.
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The acquisition of MediSoft increased the Company’s exposure to currency translation risks due to its investment in Euro-denominated assets and the earnings derived from MediSoft’s operations. The Company structured the capitalization of its Belgium holding company with a combination of debt and equity to obtain potential tax savings on the future profitability of MediSoft. In the fiscal 2015 second quarter, due to the United States dollar gaining strength against the Euro, we reported a non-cash, foreign currency translation loss of $184,000 in the consolidated statements of comprehensive (loss) income as foreign currency loss. Additionally, pertaining to the net asset position for assets and liabilities of MediSoft, we also incurred a non-cash, foreign currency translation loss of $21,000, which is included in the consolidated balance sheets as accumulated other comprehensive loss, and in the consolidated statements of comprehensive (loss) income as other comprehensive loss.
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Austin continued, “The second quarter MediSoft results were generally consistent with our expectations and showed an improvement over its first quarter. Revenue increased 17.0% compared to the first quarter and its operating loss decreased to $284,000, a $248,000 improvement compared to its first quarter operating loss. MediSoft’s gross margin for the quarter was 32.2%, which is consistent with the prior two quarters, but lower than our initial expectation that MediSoft’s equipment gross margin would be similar to Medical Graphics’ equipment gross margin. Our initial expectation of MediSoft’s equipment gross margin was based upon our review of historical, unaudited financial statements during due diligence. Since the August 1, 2014 closing of the acquisition, we have gained a better understanding of MediSoft’s manufacturing process, implemented an inventory costing system and aligned its product cost accounting to U.S. GAAP accounting.”
“With this accounting knowledge, coupled with the fact that MediSoft sells primarily through a distributor network where margins are shared, we have reset our expectation that future MediSoft gross margin will be consistent with its current gross margin. However, we believe that MediSoft’s gross margin can be enhanced, and we will work to find ways to lower MediSoft’s product manufacturing costs, increase equipment sales to better leverage its fixed cost of production and sell more higher-margin service and supplies.”
“Despite this new expectation for gross margin, we continue to believe the acquisition of MediSoft was a critical transaction to solidify our long-term global expansion strategy to increase our global footprint, establish international direct operations, grow market share outside of the U.S., and enhance our product and intellectual property portfolio to drive future revenue growth. Our primary goal for the remainder of this year is to work closely with the MediSoft team to achieve additional revenue growth and profitability, and we continue to believe that MediSoft will become accretive to our business by the end of this fiscal year.”
“Finally, we are particularly pleased with the results of our Medical Graphics subsidiary. Although revenues are slightly below what we generated during the second quarter of last year, we have achieved better quarter-to-quarter sales consistency. For the first six months of fiscal 2015, our revenues remain ahead of the same period last year by $1.3 million. Our equipment gross margin was lower for the fiscal 2015 second quarter due to the release of our Ultima Series TM redesign, as margins are generally lower when new products are initially built in small lots. We expect that gross margin will improve for this product over time as higher unit sales will enable us to obtain better inventory pricing from our vendors. Our past efforts to reduce expenses are showing results, as second quarter operating expenses are down $338,000 compared to the second quarter last year. The combination of these efforts has improved profitability, as operating income for the second quarter was $154,000 higher than last year’s second quarter, and $1.0 million higher for the first six months of fiscal 2015 compared to the same period last year. We remain enthusiastic about our business strategies, the value of our products and services and their market positioning. We look forward to the second half of the year and showing improvement in our financial performance,” concluded Austin.
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Company
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Investors
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Media
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Wesley W. Winnekins
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Joe Dorame, Robert Blum, Joe Diaz
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Al Galgano, David Heinsch
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MGC Diagnostics Corporation
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Lytham Partners, LLC
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PadillaCRT
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Chief Financial Officer
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(602) 889-9700
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(612) 455-1700
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(651) 484-4874
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mgcd@lythampartners.com
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Al.Galgano@padillacrt.com
David.heinsch@padillacrt.com
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April 30,
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October 31,
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|||||||
2015
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2014
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Assets
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Current Assets:
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Cash and cash equivalents
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$ | 5,144 | $ | 5,675 | ||||
Accounts receivable, net of allowance for doubtful accounts
of $195 and $228, respectively
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6,763 | 7,068 | ||||||
Inventories, net of obsolescence reserve of $336 and
$387, respectively
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6,167 | 5,548 | ||||||
Current deferred tax assets
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18 | 20 | ||||||
Prepaid expenses and other current assets
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1,926 | 1,926 | ||||||
Total current assets
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20,018 | 20,237 | ||||||
Property and equipment, net of accumulated depreciation
of $4,407 and $4,180, respectively
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2,971 | 3,469 | ||||||
Intangible assets, net
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4,361 | 4,375 | ||||||
Goodwill
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3,670 | 4,196 | ||||||
Other non-current assets
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65 | 67 | ||||||
Total Assets
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$ | 31,085 | $ | 32,344 | ||||
Liabilities and Shareholders’ Equity
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Current Liabilities:
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Accounts payable
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$ | 3,132 | $ | 3,161 | ||||
Employee compensation
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1,366 | 1,664 | ||||||
Deferred income
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3,684 | 3,804 | ||||||
Current portion of long-term debt
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800 | 800 | ||||||
Other current liabilities and accrued expenses
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1,250 | 1,042 | ||||||
Total current liabilities
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10,232 | 10,471 | ||||||
Long-term liabilities:
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Long-term debt, less current portion
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2,600 | 3,000 | ||||||
Non-current deferred income taxes
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116 | 484 | ||||||
Long-term deferred income and other
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2,923 | 2,884 | ||||||
Total Liabilities
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15,871 | 16,839 | ||||||
Commitments and Contingencies
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Shareholders’ Equity:
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Common stock, $0.10 par value, authorized 25,000,000 shares,
4,298,436 and 4,255,593 shares issued and 4,239,142 and
4,198,558 shares outstanding in 2015 and 2014, respectively
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424 | 420 | ||||||
Undesignated shares, authorized 5,000,000 shares,
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no shares issued and outstanding
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— | — | ||||||
Additional paid-in capital
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23,761 | 23,470 | ||||||
Accumulated deficit
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(8,730 | ) | (8,271 | ) | ||||
Accumulated other comprehensive loss
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(241 | ) | (114 | ) | ||||
Total Shareholders’ Equity
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15,214 | 15,505 | ||||||
Total Liabilities and Shareholders’ Equity
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$ | 31,085 | $ | 32,344 |
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Three Months ended
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Six Months Ended
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April 30,
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April 30,
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2015
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2014
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2015
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2014
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Revenues
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Equipment, supplies and accessories revenues
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$ | 7,042 | $ | 5,798 | $ | 14,335 | $ | 10,757 | ||||||||
Service revenues
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1,688 | 1,629 | 3,338 | 2,974 | ||||||||||||
8,730 | 7,427 | 17,673 | 13,731 | |||||||||||||
Cost of revenues
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Cost of equipment, supplies and accessories revenues
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3,814 | 2,736 | 7,442 | 5,036 | ||||||||||||
Cost of service revenues
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493 | 547 | 937 | 987 | ||||||||||||
4,307 | 3,283 | 8,379 | 6,023 | |||||||||||||
Gross margin
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4,423 | 4,144 | 9,294 | 7,708 | ||||||||||||
Operating expenses:
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Selling and marketing
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2,011 | 1,884 | 4,252 | 3,900 | ||||||||||||
General and administrative
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1,417 | 1,287 | 3,088 | 2,430 | ||||||||||||
Research and development
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734 | 640 | 1,544 | 1,264 | ||||||||||||
Amortization of intangibles
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64 | 6 | 113 | 13 | ||||||||||||
4,226 | 3,817 | 8,997 | 7,607 | |||||||||||||
Operating income
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197 | 327 | 297 | 101 | ||||||||||||
Interest expense, net
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74 | — | 132 | — | ||||||||||||
Foreign currency loss
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184 | — | 908 | — | ||||||||||||
(Loss) income before taxes
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(61 | ) | 327 | (743 | ) | 101 | ||||||||||
(Benefit from) provision for taxes
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(143 | ) | 19 | (284 | ) | 36 | ||||||||||
Net income (loss)
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$ | 82 | $ | 308 | $ | (459 | ) | $ | 65 | |||||||
Other comprehensive loss, net of tax
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Effect of foreign currency translation adjustments
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(21 | ) | — | (127 | ) | — | ||||||||||
Comprehensive income (loss)
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$ | 61 | $ | 308 | $ | (586 | ) | $ | 65 | |||||||
Income (loss) per share:
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Basic
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$ | 0.02 | $ | 0.07 | $ | (0.11 | ) | $ | 0.02 | |||||||
Diluted
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$ | 0.02 | $ | 0.07 | $ | (0.11 | ) | $ | 0.02 | |||||||
Weighted average common shares outstanding:
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Basic
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4,227 | 4,163 | 4,216 | 4,149 | ||||||||||||
Diluted
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4,248 | 4,237 | 4,216 | 4,234 |
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Six Months ended April 30, | ||||||||
2015 | 2014 | |||||||
Cash flows from operating activities: | ||||||||
Net (loss) income | $ | (459 | ) | $ | 65 | |||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | ||||||||
Depreciation | 235 | 155 | ||||||
Amortization | 182 | 69 | ||||||
Stock-based compensation | 222 | 211 | ||||||
Deferred income tax | (319 | ) | — | |||||
Loss on foreign currency | 915 | — | ||||||
(Decrease) increase in allowance for doubtful accounts | (33 | ) | 82 | |||||
(Decrease) increase in inventory obsolescence reserve | (51 | ) | 88 | |||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 220 | 1,762 | ||||||
Inventories | (645 | ) | (723 | ) | ||||
Prepaid expenses and other current assets | (16 | ) | (180 | ) | ||||
Accounts payable | 116 | 436 | ||||||
Employee compensation | (258 | ) | (742 | ) | ||||
Deferred revenue | 2 | 416 | ||||||
Other current liabilities and accrued expenses | 226 | (231 | ) | |||||
Net cash provided by operating activities | 337 | 1,408 | ||||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment and intangible assets | (409 | ) | (611 | ) | ||||
Net cash used in investing activities | (409 | ) | (611 | ) | ||||
Cash flows from financing activities: | ||||||||
Payment of debt issuance costs | (5 | ) | — | |||||
Payment on long-term borrowings | (400 | ) | — | |||||
Proceeds from issuance of common stock under employee stock purchase plan | 65 | 67 | ||||||
Repurchase of common stock upon vesting of restricted stock awards | (25 | ) | (86 | ) | ||||
Net cash used in financing activities | (365 | ) | (19 | ) | ||||
Effect of exchange rates on cash | (94 | ) | — | |||||
Net (decrease) increase in cash and cash equivalents | (531 | ) | 778 | |||||
Cash and cash equivalents at beginning of period | 5,675 | 10,574 | ||||||
Cash and cash equivalents at end of period | $ | 5,144 | $ | 11,351 | ||||
Cash paid for taxes | $ | 18 | $ | 56 | ||||
Cash paid for interest | 91 | — | ||||||
Supplemental non-cash items: | ||||||||
Current and non-current liabilities issued for leasehold improvements | $ | — | $ | 33 | ||||
Common stock issued for long-term liability | 33 | — | ||||||
Accrued dividends (reversal) | — | (4 | ) |
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