UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 8-K

 

 

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of report (Date of earliest event reported):  August 28, 2012

 

 

MGC Diagnostics Corporation

(Exact name of registrant as specified in its charter)

 

Minnesota

(State or other jurisdiction of incorporation)

 

001-13543 41-1579150
(Commission File Number) (IRS Employer Identification No.)
   
350 Oak Grove Parkway
Saint Paul, Minnesota
55127-8599
(Address of principal executive offices) (Zip Code)

 

651-484-4874

(Registrant’s telephone number, including area code)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
   
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
   
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
   
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 
 

 

Section 2 — Financial Information

 

Item 2.01 Completion of Acquisition or Disposition of Assets

 

On August 28, 2012, MGC Diagnostics Corporation (“the Company”) (formerly Angeion Corporation) entered into several agreements with Life Time Fitness, Inc. and affiliated companies (“Life Time Fitness”) under which the Company sold and licensed to Life Time Fitness, the assets of the Company’s New Leaf business, excluding contracts and other assets related to the Company’s non-Life Time customers. A copy of the press release announcing the sale of the New Leaf assets is filed as Exhibit 99.1 to this Form 8−K.

 

In December 2011, the Company announced that its board of directors had determined it would seek strategic alternatives, including the possibility of a sale, with respect to the New Leaf business and that it had hired an investment banker to assist in this process. At its annual meeting of shareholders held May 30, 2012, the Company announced that it had entered into a preliminary non-binding Letter of Intent to sell its New Leaf business. The Company’s Board authorized the sale of the assets of the New Leaf business as part of Company’s renewed focus on its core business and its strategy of bringing innovative cardiorespiratory technology solutions to the market and continuing its best-in-class customer support and service.

 

Specifically, the Company sold to Life Time Fitness New Leaf-related software and support materials, New Leaf product inventory, and New Leaf trademarks, service marks, and websites. The Company also licensed to Life Time Fitness patents and other intellectual property for use in the general wellness and health and fitness field. The Company retained all rights to this intellectual property in the medical field. Finally, the Company and Life Time Fitness entered into a Transition Services and Supply Agreement that runs through June 30, 2014 under which the parties will provide services to transition the New Leaf business to Life Time Fitness.

 

Under the transaction, Life Time Fitness paid the Company $1.0 million at closing, and agreed to pay the Company an additional $235,000 over the next 18 months. In connection with its sale of the New Leaf business, the Company expects to recognize a gain of approximately $850,000, net of transaction costs, in the fourth quarter of the current fiscal year ending October 31, 2012.

 

Life Time Fitness has been the largest New Leaf customer over the past five years, but total Company sales to Life Time Fitness never exceeded five percent of total Company revenues in any fiscal year. The Company will continue to provide its existing New Leaf customers other than Life Time Fitness with products and services under ongoing contractual obligations for a period through June 30, 2014.

 

The Company expects to recognize revenue and expense associated with its on-going obligations to Life Time Fitness under the Transition Services and Supply Agreement, and expects to incur revenue and expenses from the products and services sold to non-Life Time Fitness customers during the period through June 30, 2014. Amounts of the expected cashflows from these activities are not sufficient to preclude the Company from using discontinued operation treatment for the current event.

 

As result of its August 28, 2012 sale of the New Leaf assets, in the press release issued today announcing its results for the quarter ended July 31, 2012, the Company has reclassified its New Leaf assets as “assets of discontinued operations” as of July 31, 2012, has eliminated all revenues and expenses associated with its New Leaf business from its statements of comprehensive loss, and has reported the net income (loss) from its New Leaf activities as “discontinued operations.”

 

In addition, the Company has filed with this Form 8-K pro forma statements of operations showing its operations reclassified for the effects of the discontinued operations and balance sheets reflecting the segregation of the assets of the discontinued operations, as if the sale had occurred at November 1, 2009 and July 31, 2012, respectively.

 

2
 

 

Item 2.02 Results of Operations and Financial Condition

 

On August 30, 2012, the Company issued a press release reporting the results of its operations for its third fiscal 2012 quarter ended July 31, 2012. A copy of the press release is furnished as Exhibit 99.2 to this Form 8−K.

 

The information provided pursuant to Item 2.02 of this Form 8−K is being furnished and is not “filed” for purposes of Section 18 of the Securities Act of 1934, and may not be deemed incorporated by reference in any filing under the Securities Act of 1933, except as expressly set forth by specific reference in that filing.

 

Item 9.01 Financial Statements and Exhibits

 

(b)    Pro forma financial information

 

The following pro forma financial statements are filed this Form 8-K:

 

Pro forma condensed consolidated balance sheet as of July 31, 2012
Pro forma condensed consolidated statement of comprehensive loss for nine months ended July 31, 2012
Pro forma condensed consolidated statement of comprehensive loss for year ended October 31, 2011
Pro forma condensed consolidated statement of comprehensive loss for nine months ended July 31, 2011
Pro forma condensed consolidated statement of comprehensive loss operations for year ended October 31, 2010
Notes to pro forma statements

 

 

 

 

 

3
 

 

(d)     The following exhibits are filed or furnished with this Form 8-K:

 

Exhibit No.   Item
     
99.1   MGC Diagnostics Corporation press release dated August 30, 2012 announcing the sale of New Leaf assets to Life Time Fitness, Inc.
     
99.2   MGC Diagnostics Corporation press release dated August 30, 2012 reporting financial results for the fiscal 2012 third quarter ended July 31, 2012.

 

 

 

 

 

 

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

  MGC Diagnostics Corporation
     
     
     
Dated:  August 30, 2012 By /s/ Robert M. Wolf
    Robert M. Wolf
Chief Financial Officer

 

 

 

 

 

 

 

 

 

 

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MGC Diagnostics Corporation

Pro Forma Condensed Consolidated Balance Sheet

July 31, 2012

(Unaudited, in thousands except per share amounts)

 

   As reported
July 31, 2012
   Pro forma
Adjustments (1)
   Pro forma
July 31, 2012
 
ASSETS               
Current Assets:               
Cash and cash equivalents  $8,709   $1,000   $9,709 
Accounts receivable, net   4,720         4,720 
Inventories, net   4,057       4,057 
Prepaid expenses and other current assets   550    60    610 
Current assets of discontinued operations   55    (55)    
Total Current Assets   18,091    1,005    19,096 
                
Property and equipment, net   400         400 
Intangible assets, net   1,438       1,438 
Other non-current assets       85    85 
Non-current assets of discontinued operations   25    (25)    
Total Assets  $19,954   $1,065   $21,019 
                
LIABILITIES AND SHAREHOLDERS’ EQUITY               
Current Liabilities:               
Accounts payable  $1,587        $1,587 
Employee compensation   1,367         1,367 
Deferred income   1,867         1,867 
Warranty reserve   94         94 
Other current liabilities and accrued expenses   456   $135    591 
Total Current Liabilities   5,371    135    5,506 
                
Long-term Liabilities:               
Long-term deferred income and other   725         725 
Total Liabilities   6,096    135    6,231 
Commitments and Contingencies             
Shareholders’ Equity:               
Common Stock, $0.10 par value, authorized 25,000,000 shares, 3,993,900 and 3,905,648 shares issued and 3,884,029 and 3,778,796 shares outstanding in 2012 and 2011, respectively   388         388 
Undesignated shares, authorized 5,000,000 shares, no shares issued and outstanding             
Additional paid-in capital   20,944         20,944 
Accumulated deficit   (7,474)   930    (6,544)
Accumulated other comprehensive income             
Total Shareholders’ Equity   13,858    930    14,989 
Total Liabilities and Shareholders’ Equity  $19,954   $1,065   $21,019 

 

6
 

 

MGC Diagnostics Corporation

Pro Forma Condensed Consolidated Statement of Comprehensive Loss

Nine Months ended July 31, 2012

(Unaudited, in thousands except per share amounts)

 

   As Reported   Pro forma
Adjustments (2)
   Pro forma 
Revenues               
Equipment, supplies and accessories revenues  $15,738   $            $15,738 
Service revenues   3,188         3,188 
    18,926         18,926 
Cost of revenues               
Cost of equipment, supplies and accessories revenues   7,564         7,564 
Cost of service revenues   1,086         1,086 
    8,650         8,650 
Gross margin   10,276         10,276 
Operating expenses:               
Selling and marketing   5,558         5,558 
General and administrative   2,988         2,988 
Research and development   2,455         2,455 
Amortization of intangibles   329         329 
    11,330         11,330 
Operating loss   (1,054)        (1,054)
Interest income   7         7 
Loss from continuing operations before taxes   (1,047)        (1,047)
Provision for taxes   21         21 
Loss from continuing operations   (1,068)        (1,068)
Discontinued operations:               
Income from operations of discontinued operations   277         277 
Net loss   (791)        (791)
Other comprehensive loss; net of tax               
Unrealized loss on securities   (2)        (2)
Comprehensive loss  $(793)       $(793)
(Loss) income per share:               
Basic               
From continuing operations  $(0.28)       $(0.28)
From discontinued operations   0.07         0.07 
Total  $(0.21)       $(0.21)
Diluted               
From continuing operations  $(0.28)       $(0.28)
From discontinued operations   0.07         0.07 
Total  $(0.21)       $(0.21)
Weighted average common shares outstanding:               
Basic   3,808         3,808 
Diluted   3,808         3,808 
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MGC Diagnostics Corporation

Pro Forma Condensed Consolidated Statement of Comprehensive Loss

Year ended October 31, 2011

(Unaudited, in thousands except per share amounts)

 

   As Reported   Pro forma
Adjustments (2)
   Pro forma 
Revenues               
Equipment, supplies and accessories revenues  $24,904   $1,992   $22,912 
Service revenues   4,163    73    4,090 
    29,067    2,065    27,002 
Cost of revenues               
Cost of equipment, supplies and accessories revenues   11,020    704    10,316 
Cost of service revenues   1,501    110    1,391 
    12,521    814    11,707 
Gross margin   16,546    1,251    15,295 
Operating expenses:               
Selling and marketing   8,301    1,543    6,758 
General and administrative   4,299     —    4,299 
Research and development   3,659    420    3,239 
Amortization of intangibles   420     —    420 
    16,679    1,963    14,716 
Operating (loss) income   (133)   (712)   579 
Interest income   21        21 
(Loss) income from continuing operations before taxes   (112)   (712)   600 
Provision for taxes   40        40 
(Loss) income from continuing operations   (152)   (712)   560 
Discontinued operations:               
Loss from operations of discontinued operations       712    (712)
Net loss   (152)       (152)
Other comprehensive loss; net of tax               
Unrealized loss on securities   (5)       (5)
Comprehensive loss  $(157)  $   $(157)
(Loss) income per share:               
Basic               
From continuing operations  $(0.04)  $(0.19)  $0.15 
From discontinued operations   0.00    0.19    (0.19)
Total  $(0.04)  $0.00   $(0.04)
Diluted               
From continuing operations  $(0.04)  $(0.19)  $0.15 
From discontinued operations   0.00    0.19    (0.19)
Total  $(0.04)  $0.00   $(0.04)
Weighted average common shares outstanding:               
Basic   3,767    3,767    3,767 
Diluted   3,767    3,767    3,842 

 

8
 

 

MGC Diagnostics Corporation

Pro Forma Condensed Consolidated Statement of Comprehensive Loss

Nine months ended July 31, 2011

(Unaudited, in thousands except per share amounts)

 

   As Reported   Pro forma
Adjustments (2)
   Pro forma 
Revenues               
Equipment, supplies and accessories revenues  $17,718   $1,542   $16,176 
Service revenues   2,982    49    2,933 
    20,700    1,591    19,109 
Cost of revenues               
Cost of equipment, supplies and accessories revenues   7,747    539    7,208 
Cost of service revenues   1,132    91    1,041 
    8,879    630    8,249 
Gross margin   11,821    961    10,860 
Operating expenses:               
Selling and marketing   6,121    1,191    4,930 
General and administrative   3,243        3,243 
Research and development   2,675    288    2,387 
Amortization of intangibles   315        315 
    12,354    1,479    10,875 
Operating loss   (533)   (518)   (15)
Interest income   20        20 
(Loss) income from continuing operations before taxes   (513)   (518)   5 
Provision for taxes   30        30 
Loss from continuing operations   (543)   (518)   (25)
Discontinued operations:               
Loss from operations of discontinued operations       518    (518)
Net loss   (543)       (543)
Other comprehensive loss; net of tax               
Unrealized loss on securities   (3)       (3)
Comprehensive loss  $(546)  $   $(546)
(Loss) income per share:               
Basic               
From continuing operations  $(0.14)  $(0.13)  $(0.01)
From discontinued operations   0.00    0.13    (0.13)
Total  $(0.14)  $   $(0.14)
Diluted               
From continuing operations  $(0.14)  $(0.13)  $(0.01)
From discontinued operations   0.00    0.13    (0.13)
Total  $(0.14)  $   $(0.14)
Weighted average common shares outstanding:               
Basic   3,767    3,767    3,767 
Diluted   3,767    3,767    3,767 

 

9
 

 

MGC Diagnostics Corporation

Pro Forma Condensed Consolidated Statement of Comprehensive Loss

Year ended October 31, 2010

(Unaudited, in thousands except per share amounts)

 

   As Reported   Pro forma
Adjustments (2)
   Pro forma 
Revenues               
Equipment, supplies and accessories revenues  $25,522   $2,148   $23,374 
Service revenues   3,519    53    3,466 
    29,041    2,201    26,840 
Cost of revenues               
Cost of equipment, supplies and accessories revenues   11,647    887    10,760 
Cost of service revenues   1,603    183    1,420 
    13,250    1,070    12,180 
Gross margin   15,791    1,131    14,660 
Operating expenses:               
Selling and marketing   8,067    1,676    6,391 
General and administrative   4,514        4,514 
Research and development   3,606    688    2,918 
Amortization of intangibles   420        420 
    16,607    2,364    14,243 
Operating (loss) income   (816)   (1,233)   417 
Interest income   8        8 
(Loss) income from continuing operations before taxes   (808)   (1,233)   425 
Provision for taxes   41        41 
(Loss) income from continuing operations   (849)   (1,233)   384 
Discontinued operations:               
Loss from operations of discontinued operations       1,233    (1,233)
Net loss   (849)       (849)
Other comprehensive loss; net of tax               
Unrealized gain on securities   7        7 
Comprehensive loss  $(842)  $   $(842)
(Loss) income per share:               
Basic               
From continuing operations  $(0.21)  $(0.30)  $0.09 
From discontinued operations   0.00    0.30    (0.30)
Total  $(0.21)  $   $(0.21)
Diluted               
From continuing operations  $(0.21)  $(0.30)  $0.09 
From discontinued operations   0.00    0.30    (0.29)
Total  $(0.21)  $   $(0.20)
Weighted average common shares outstanding:               
Basic   4,122    4,122    4,122 
Diluted   4,122    4,122    4,248 
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Notes to Pro Forma Financial Statements

MGC Diagnostics Corporation

Nine Months ended July 31, 2012 and 2011

Years ended October 31, 2011 and 2010

(Unaudited, in thousands)

 

Note 1 – Pro Forma Condensed Consolidated Balance Sheet Adjustment

 

The following adjustments reflect the sale of certain assets of the New Leaf business as of July 31, 2012 pursuant to the Asset Purchase Agreement and the related Patent and Technology License Agreement and Transition Services and Supply Agreement and the accrual of transaction costs. No taxes have been attributed to these adjustments given taxation at minimum state tax levels as a result of net operating loss carryforwards for federal tax reporting.

 

   Debit Credit
      
Cash  $1,000   
Inventory      $ 55
Other current assets (payment receivable)   150   
Other current assets (deferred transaction costs)       90
Intangibles, net       25
Other non-current assets (payment receivable)       85
Accrued expenses       135
Accumulated deficit (transaction costs previously expensed)       87
Accumulated deficit (estimated gain related to sale)       843

 

Note 2 – Pro Forma Condensed Consolidated Statement of Comprehensive Loss Adjustments

 

Pro forma condensed consolidated statements of comprehensive loss for the nine months ended July 31, 2012 and 2011 and the years ended October 31, 2011 and 2010 assume that the sale of certain assets of the New Leaf Business occurred on November 1, 2009. The pro forma adjustments reflect the elimination of sales and costs associated with the New Leaf business operations, as originally reported as follows:

 

   Nine Months Ended July 31,   Year Ended October 31, 
   2012 (a)  2011   2011   2010 
                     
Equipment, supplies and accessories revenues  $              $1,542   $1,992   $2,148 
Services revenues        49    73    53 
Cost of equipment, supplies and accessories revenues        539    704    887 
Cost of services revenues        91    110    183 
Selling and marketing expenses        1,191    1,543    1,676 
Research and development expenses        288    420    688 
Loss from discontinued operation, net of tax        (518)   (712)   (1,233)

 

(a)  Reclassification to discontinued operations is already reflected in the statement of comprehensive loss as filed.

 

(b) Amounts of the expected cash flows from activities that will be ongoing under the Transition Services and Supply Agreement are not sufficient to preclude the Company from the use of discontinued operations treatment for the currently reported event.

 

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