10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
	FORM 10-Q

x     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	for the quarterly period ended July 31, 2012.
	OR
o     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from ___________________ to ____________________.

Commission File Number 001-13543

MGC DIAGNOSTICS CORPORATION

(Exact name of registrant as specified in its charter)

Minnesota	41-1579150
(State or other jurisdiction of incorporation or organization)	(IRS 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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

          Yes x     No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

          Large Accelerated Filer o      Accelerated Filer o      Non-Accelerated Filer o      Smaller Reporting Company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

          Yes o     No x

As of September 4, 2012, the Company had outstanding 3,993,900 shares of Common Stock, $0.10 par value.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	23
Item 4.	Controls and Procedures	23
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 3.	Defaults Upon Senior Securities	24
Item 4.	Mine Safety Disclosure	24
Item 5.	Other Information	25
Item 6.	Exhibits	25
SIGNATURES		26

2

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

MGC DIAGNOSTICS CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
July 31, 2012 and October 31, 2011
(In thousands, except share and per share data)

	July 31, 2012			October 31, 2011
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	8,709		$	8,461
Short-term investments		—			723
Accounts receivable, net of allowance for doubtful accounts of $45 and $96, respectively		4,720			5,958
Inventories, net of obsolescence reserve of $501 and $431, respectively		4,057			3,688
Prepaid expenses and other current assets		550			235
Current assets of discontinued operations		55			62
Total Current Assets		18,091			19,127
Property and equipment, net of accumulated depreciation of $3,887 and $3,709, respectively		400			440
Intangible assets, net		1,438			1,174
Non-current assets of discontinued operations		25			31
Total Assets	$	19,954		$	20,772
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	1,587		$	2,022
Employee compensation		1,367			1,481
Deferred income		1,867			1,771
Warranty reserve		94			141
Other current liabilities and accrued expenses		456			221
Total Current Liabilities		5,371			5,636
Long-term Liabilities:
Long-term deferred income and other		725			817
Total Liabilities		6,096			6,453
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			378
Undesignated shares, authorized 5,000,000 shares, no shares issued and outstanding		—			—
Additional paid-in capital		20,944			20,622
Accumulated deficit		(7,474	)		(6,683	)
Accumulated other comprehensive income		—			2
Total Shareholders’ Equity		13,858			14,319
Total Liabilities and Shareholders’ Equity	$	19,954		$	20,772
See accompanying notes to consolidated financial statements.

3

MGC DIAGNOSTICS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Loss
(Unaudited, in thousands, except per share data)

	Three Months Ended July 31,						Nine Months Ended July 31,
	2012			2011			2012			2011
Revenues
Equipment, supplies and accessories revenues	$	5,876		$	5,313		$	15,738		$	16,176
Service revenues		1,019			1,066			3,188			2,933
		6,895			6,379			18,926			19,109
Cost of revenues
Cost of equipment, supplies and accessories revenues		2,835			2,348			7,564			7,208
Cost of service revenues		354			363			1,086			1,041
		3,189			2,711			8,650			8,249
Gross margin		3,706			3,668			10,276			10,860
Operating expenses:
Selling and marketing		2,132			1,585			5,558			4,930
General and administrative		913			916			2,988			3,243
Research and development		825			924			2,455			2,387
Amortization of intangibles		112			105			329			315
		3,982			3,530			11,330			10,875
Operating (loss) income		(276	)		138			(1,054	)		(15	)
Interest income		3			10			7			20
(Loss) income from continuing operations before taxes		(273	)		148			(1,047	)		5
Provision for taxes		7			10			21			30
(Loss) income from continuing operations		(280	)		138			(1,068	)		(25	)
Discontinued operations (Note 11):
Income (loss) from operations of discontinued operations		147			(219	)		277			(518	)
Net loss		(133	)		(81	)		(791	)		(543	)
Other comprehensive loss; net of tax
Unrealized loss on securities		—			(4	)		(2	)		(3	)
Comprehensive loss	$	(133	)	$	(85	)	$	(793	)	$	(546	)
(Loss) income per share:
Basic
From continuing operations	$	(0.07	)	$	0.04		$	(0.28	)	$	(0.01	)
From discontinued operations		0.04			(0.06	)		0.07			(0.13	)
Total	$	(0.03	)	$	(0.02	)	$	(0.21	)	$	(0.14	)
Diluted
From continuing operations	$	(0.07	)	$	0.04		$	(0.28	)	$	(0.01	)
From discontinued operations		0.04			(0.06	)		0.07			(0.13	)
Total	$	(0.03	)	$	(0.02	)	$	(0.21	)	$	(0.14	)
Weighted average common shares outstanding:
Basic		3,847			3,774			3,808			3,767
Diluted		3,847			3,837			3,808			3,767
See accompanying notes to consolidated financial statements.

4

MGC DIAGNOSTICS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited, in thousands)

	Nine Months Ended July 31,
	2012			2011
Cash flows from operating activities:
Net loss	$	(791	)	$	(543	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation		182			199
Amortization		329			315
Stock-based compensation		269			198
Decrease in allowance for doubtful accounts		(51	)		(54	)
Increase (decrease) in inventory obsolescence reserve		70			(27	)
Loss on disposal of equipment		1			24
Change in operating assets and liabilities:
Accounts receivable		1,289			574
Inventories		(432	)		(407	)
Prepaid expenses and other current assets		(315	)		24
Accounts payable		(435	)		(132	)
Employee compensation		(114	)		(928	)
Deferred income		32			136
Warranty reserve		(47	)		(60	)
Other current liabilities and accrued expenses		235			(108	)
Net cash provided by (used in) operating activities		222			(789	)
Cash flows from investing activities:
Sales of investments		721			2,476
Purchases of property and equipment and intangible assets		(730	)		(427	)
Net cash (used in) provided by investing activities		(9	)		2,049
Cash flows from financing activities:
Proceeds from issuance of common stock under employee stock purchase plan		50			20
Proceeds from the exercise of stock options		97			48
Repurchase of common stock		(66	)		(148	)
Repurchase of common stock upon vesting of restricted stock grants		(46	)		(39	)
Net cash provided by (used in) financing activities		35			(119	)
Net increase in cash and cash equivalents		248			1,141
Cash and cash equivalents at beginning of period		8,461			6,943
Cash and cash equivalents at end of period	$	8,709		$	8,084
Cash paid for taxes	$	22		$	24
Supplemental non-cash items:
Common stock issued for long-term liability	$	42		$	—
Share value received for stock option exercises		—			89

See accompanying notes to consolidated financial statements.

5

MGC DIAGNOSTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Basis of Presentation and Description of Business

          MGC Diagnostics Corporation (the “Company”)(formerly Angeion Corporation) is a global medical technology company dedicated to cardiorespiratory health solutions. Through its Medical Graphics Corporation subsidiary, MGC Diagnostics Corporation designs, markets and sells non-invasive cardiorespiratory diagnostic systems under the MedGraphics brand and trade name (see Note 11 – Discontinued Operations regarding New Leaf brand). This portfolio of products provides solutions for disease detection, integrated care, and wellness across the cardiorespiratory healthcare spectrum. The Company sells its products internationally through distributors and in the United States through a direct sales force targeting heart and lung specialists located in hospitals, university-based medical centers, medical clinics, physician offices, pharmaceutical companies, medical device manufacturers, and clinical research organizations (CROs). The Company changed its name to MGC Diagnostics Corporation effective August 21, 2012.

          The consolidated balance sheet as of July 31, 2012, the consolidated statements of comprehensive loss for the three and nine months ended July 31, 2012 and 2011, the consolidated statements of cash flows for the nine months ended July 31, 2012 and 2011, and the related information presented in these notes have been prepared by management in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, without audit. Accordingly, they do not include all of the information and notes required by U.S. 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. The consolidated balance sheet at October 31, 2011 was derived from the audited consolidated financial statements as of that date. Operating results for the three and nine months ended July 31, 2012 are not necessarily indicative of the results that may be expected for the year ending October 31, 2012. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended October 31, 2011.

          Comprehensive loss is a measure of all non-owner changes in shareholders’ equity and includes items such as net loss, certain foreign currency translation items, minimum pension liability adjustments and changes in the value of available-for-sale securities. Other comprehensive income (loss) for the periods ended July 31, 2012 and 2011 is comprised of unrealized losses on available-for-sale securities.

          Preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities made in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Estimates include accounts receivable, product warranty and inventory reserves, and depreciable lives of property, equipment and intangible assets (including internal software development costs).

          The Company determined there were no events subsequent to July 31, 2012, that required recognition or disclosure in these consolidated financial statements, except for sale of assets of the New Leaf business, as discussed in Note 11 – Discontinued Operations.

6

2. Summary of Significant Accounting Policies

          Revenue Recognition

          The Company recognizes revenue when persuasive evidence of an arrangement exists, transfer of title has occurred or services have been rendered, the selling price is fixed or determinable and collectability is reasonably assured. The Company’s products are sold for cash or on unsecured credit terms requiring payment based on the shipment date. Credit terms can vary between customers due to many factors, but are generally, on average, 30-60 days. Revenue, net of discounts, is generally recognized upon shipment or delivery to customers in accordance with written sales terms. Standard sales terms do not include customer acceptance conditions, future credits, rebates, price protection or general rights of return. The terms of sales to both domestic customers and international distributors are identical, although adherence to these terms is more pervasive with domestic customers than with international customers. In instances when a customer order specifies final acceptance of the system, revenue is deferred until all customer acceptance criteria have been met. Estimated warranty obligations are recorded upon shipment.

          Service contract revenue is based on a stated contractual rate and is deferred and recognized ratably over the service period, which is typically from one to four years. Deferred income associated with service contracts was $2,381,000 and $2,368,000 at July 31, 2012 and October 31, 2011, respectively. Revenue from installation and training services provided to customers is deferred until the service has been performed. The amount of deferred installation and training revenue was $121,000 and $152,000 at July 31, 2012 and October 31, 2011, respectively.

          When a sales arrangement involves multiple deliverables, such as equipment, installation services and training, the amount of the consideration from the sale is allocated to each respective element based on selling price and is recognized as revenue when revenue recognition criteria for each element is met. Consideration allocated to delivered equipment that the Company has concluded has value to the customer on a standalone basis is equal to the total arrangement consideration less the selling price of installation and training. The selling price of installation and training services is based on specific objective evidence, including third-party invoices.

          No customer accounted for more than 10% of revenues for any of the three- or nine-month periods ended July 31, 2012 and 2011.

          Advance Payments from Customers

          The Company typically does not receive advance payments from its customers in connection with the sale of its products. The Company occasionally enters into an arrangement under which a customer agrees to purchase a large quantity of product that will be delivered over a period of time. Depending on the size of these arrangements, the Company may negotiate an advance payment from these customers. At July 31, 2012, advance payments from customers aggregated $88,000, while at October 31, 2011, advance payments from customers aggregated $31,000. Revenue recognition for customer orders that include advance payments is consistent with the Company’s revenue recognition policy described above.

          Internal Software Development Costs

          Internal software development costs consist primarily of internal salaries and consulting fees we have incurred in developing software platforms for sale to, or use by, our customers in equipment we sell. We capitalize costs related to our software product development because these software products will become an integral part of a product or process that we sell. This software is primarily related to our BreezeSuite platform and its underlying support systems.

          We capitalize costs related to software developed for new products and significant enhancements of existing products once technological feasibility has been reached and all research and development for the components of the product have been completed. These costs will be amortized on a straight-line basis over the estimated useful life of the related product, generally between five and seven years, commencing with the date the product becomes available for general release to our customers. At each of July 31, 2012 and October 31, 2011, we have not yet amortized any capitalized software costs because the software has not yet been released for use. The achievement of technological feasibility and the estimate of a product’s economic life require management’s judgment. Any changes in key assumptions, market conditions or other circumstances could result in an impairment of the capitalized asset and a charge to our operating results.

7

          Recent Accounting Pronouncements

          Fair Value Measurement - During May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” ASU No. 2011-04 changes certain fair value measurement principles and enhances certain fair value disclosure requirements, particularly for Level 3 measurements. ASU No. 2011-04 is effective for interim and annual periods beginning after December 15, 2011 and is required to be applied prospectively. The Company’s adoption of ASU No. 2011-04 did not have a material effect on its results of operations, financial position or cash flows.

          Presentation of Comprehensive Income - During June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income.” ASU No. 2011-05 requires the presentation of comprehensive income in either a single continuous financial statement or two separate, but consecutive financial statements. ASU No. 2011-05 also includes a provision requiring the presentation of reclassification adjustments from other comprehensive income to net income on the face of the financial statements. During December 2011, the FASB issued ASU No. 2011-12, “Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05,” which deferred this requirement in order to allow the FASB more time to determine whether reclassification adjustments should be required to be presented on the face of the financial statements. ASUs No. 2011-05 and 2011-12 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 and are required to be applied retrospectively. The Company adopted ASU 2011-05 and ASU No. 2011-12 in the report for the period ended April 30, 2012. The adoptions did not have a material effect on its results of operations, financial position or cash flows.

3. Stock-Based Compensation and Stock Options

          The MGC Diagnostics Corporation 2007 Stock Incentive Plan (the “2007 Plan”) and the MGC Diagnostics Corporation 2002 Stock Option Plan (the “2002 Plan”) both provide that incentive stock options and nonqualified stock options to purchase shares of common stock may be granted at prices determined by the Compensation Committee, except that the purchase price of incentive stock options may not be less than the fair market value of the stock at date of grant. Under the 2007 Plan, all options expire no later than seven years from the grant date while under the 2002 Plan all options expire no later than ten years from the grant date. Options under both plans are subject to various vesting schedules. In addition, the 2007 Plan allows the granting of restricted stock awards, stock appreciation rights and performance stock.

          Total share-based compensation expense included in the Company’s consolidated statements of comprehensive loss for the three months ended July 31, 2012 and 2011 was $86,000 and $89,000, respectively and for the nine months ended July 31, 2012 and 2011 was $269,000 and $198,000, respectively.

8

Stock Options

          A summary of our option activity for the nine-month periods ended July 31, 2012 and 2011 follows:

	For the nine months ended
	July 31, 2012					July 31, 2011
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Outstanding at beginning of year		346,572		$	6.31		600,573		$	6.12
Exercised		(27,500	)		3.52		(49,500	)		2.76
Expired or cancelled		(30,500	)		6.43		(157,166	)		6.77
Outstanding at end of period		288,572		$	6.57		393,907		$	6.28

          The following table summarizes information concerning stock options outstanding as of July 31, 2012:

Exercise Prices		Number Outstanding and Subject to Exercise		Weighted Average Remaining Contractual Life(Years)
$	2.00		1,150		1.18
	2.53		4,000		1.09
	5.08		48,000		1.80
	5.16		37,084		2.93
	5.66		10,000		2.80
	6.23		24,500		1.79
	6.60		36,697		1.97
	7.79		41,500		1.18
	7.86		85,641		2.06
	Total		288,572		1.97

          The total intrinsic value of options exercised during the three months ended July 31, 2012 and 2011 was $1,000 and $0, respectively. The total intrinsic value of options exercised during the nine months ended July 31, 2012 and 2011 was $54,000 and $105,000, respectively. The total intrinsic value of options outstanding and exercisable at July 31, 2012 was $68,000, which was calculated using the closing stock price as of July 31, 2012 less the exercise price of in-the-money options. The Company issues new shares when stock options are exercised. Cash received from the exercise of stock options was $97,000 and $48,000 for the nine months ended July 31, 2012 and 2011, respectively and there was no related tax benefit realized due to the Company’s current tax loss position. There was no unrecognized compensation expense related to outstanding stock options as of July 31, 2012.

          Valuation Assumptions

          The Company uses the Black-Scholes option-pricing model (“Black-Scholes model”) to determine the fair value of stock options as of the grant date. The fair value of stock options under the Black-Scholes model requires management to make assumptions regarding projected employee stock option exercise behaviors, risk-free interest rates, volatility of the Company’s stock price and expected dividends. The Company did not grant any options during any of the three- or nine-month periods ended July 31, 2012 and 2011.

9

          Restricted Stock Awards

Restricted stock awards are awards of common stock that are subject to restrictions on transfer and to a risk of forfeiture if the awardee leaves the Company before the restrictions lapse. The holder of a restricted stock award is generally entitled at all times on and after the date of issuance of the restricted shares to exercise the rights of a shareholder of the Company, including the right to vote the shares. The value of stock awards was established by the market price on the date of grant. A summary of the Company’s restricted stock activity for the nine months ended July 31, 2012 and 2011 is presented in the following table.

	For the nine months ended
	July 31, 2012					July 31, 2011
	Shares			Weighted Average Grant Date Fair Value		Shares			Weighted Average Grant Date Fair Value
Unvested at beginning of year		126,852		$	4.12		101,327		$	3.11
Granted		67,914			5.51		125,610			4.50
Vested and released		(78,229	)		3.98		(27,556	)		2.62
Expired or cancelled		(6,666	)		2.62		(70,555	)		3.79
Unvested at end of period		109,871		$	5.17		128,826		$	4.20

          Unrecognized compensation expense related to outstanding restricted stock awards as of July 31, 2012 was $493,000. The Company expects to recognize this over a weighted average period of 1.83 years.

          Employee Stock Purchase Plan

          The MGC Diagnostics Corporation 2003 Employee Stock Purchase Plan (“Purchase Plan”) allows participating employees to purchase shares of the Company’s common stock at a discount through payroll deductions. The Purchase Plan is available to all employees subject to certain eligibility requirements. Terms of the Purchase Plan provide that participating employees may purchase the Company’s common stock on a voluntary after-tax basis. Employees may currently purchase the Company’s common stock at a price that is the lower of 85% of the fair market value of one share of common stock at the beginning or end of each stock purchase period or phase. The Purchase Plan is carried out in six-month phases, with phases beginning on January 1 and July 1 of each calendar year. For the phases that ended on December 31, 2011 and June 30, 2012, employees purchased 2,504 shares at a price of $4.47 per share and 8,747 shares at a price of $4.44, respectively. As of July 31, 2012, the Company has withheld approximately $12,000 from employees participating in the phase that began on July 1, 2012. In the May 30, 2012 annual meeting, the shareholders adopted plan amendments that increased the available shares by 100,000 shares. At July 31, 2012, 138,389 shares of common stock were available for future purchases under the Purchase Plan.

          Performance Share Awards

          As a part of his compensation arrangements, on December 15, 2011, the Company’s chief executive officer was issued a grant of 25,090 performance shares of Company common stock that would be earned if the Company meets the specified operating earnings target in fiscal 2012. The officer is not entitled to rights of ownership and shares are not regarded as either issued or outstanding until delivered. These shares are valued at $117,000. In the three- and nine-month periods ended July 31, 2012, the Company made no provision for expense related to performance awards, as it is no longer probable that the shares will vest.

10

          Performance share awards to non-employee consultants are an obligation within a consulting arrangement that does not grant any ownership rights until the shares are issued. The value of stock awards to non-employees remains variable until performance criteria have been achieved, when individual share groups to be granted vest, establishing the value of each group over the dates that its related performance criteria was completed. Under variable accounting, the Company expenses amounts for shares it expects will be issued over the performance period, with the value of those whose performance criteria has been met expensed at the market value on the date earned and value of all others marked to market as of the reporting date. At July 31, 2012, of the 24,000 shares available to be earned, 8,250 have vested with an aggregate market value fixed at $42,000. Expense (reversal) was $(1,000) and $14,000 for the three and nine months ended July 31, 2012, respectively and was $28,000 for the three and nine months ended July 31, 2011.

          The following table presents the statement of comprehensive loss classification of pre-tax stock-based compensation expense recognized for the three and nine months ended July 31, 2012 and 2011:

	Three months ended July 31,				Nine months ended July 31,
	2012		2011		2012		2011
Cost of revenues	$	1	$	2	$	3	$	5
Selling and marketing		14		29		29		85
General and administrative		63		47		211		85
Research and development		8		11		26		23
Stock-based compensation expense	$	86	$	89	$	269	$	198

          The table above includes amounts reclassified to discontinued operations from selling and marketing expenses totaling $9,000 in the three months ended July 31, 2011 and $(4,000) and $26,000 for the nine months ended July 31, 2012 and 2011, respectively.

4.	Inventories
	Inventories consisted of the following at July 31, 2012 and October 31, 2011:

(In thousands)	2012		2011
Raw materials	$	1,179	$	1,234
Work-in-Process		415		170
Finished goods		2,463		2,284
	$	4,057	$	3,688

5.	Intangible Assets
	Intangible assets consisted of the following at July 31, 2012 and October 31, 2011:

(In thousands)	2012			2011
Intangible assets:
Developed technology	$	6,806		$	6,788
Trademarks		61			62
Capitalized software in progress		1,143			567
		8,010			7,417
Accumulated Amortization		(6,572	)		(6,243	)
	$	1,438		$	1,174

11

          The intangible assets are being amortized using the straight-line method over the estimated useful lives of the assets which range from seven to ten years. Amortization expense, including discontinued operations, was $112,000 and $105,000 for the three months ended July 31, 2012 and 2011, respectively and $329,000 and $315,000 for the nine months ended July 31, 2012 and 2011, respectively. Estimated amortization expense for each of the succeeding fiscal years based on the intangible assets as of July 31, 2012 is as follows:

(In thousands)	Amortization
Three months ending October 31, 2012	$	113
2013		21
2014		21
2015		21
2016		21
	$	197

          The table above does not include estimated amortization expense for patents, included in developed technology, or capitalized software of $1,143,000, neither of which has been placed in service. The Company capitalized software development costs of $216,000 and $88,000 during the three months ended July 31, 2012 and 2011, respectively and $572,000 and $226,000 during the nine months ended July 31, 2012 and 2011, respectively. The Company expects to amortize this software over five years upon completion of the respective development projects.

6. Warranty Reserve

          Sales of the Company’s equipment are subject to a warranty obligation. Equipment warranties typically extend for a period of twelve months from the date of installation. Standard warranty terms are included in customer contracts. Under the terms of these warranties, the Company is obligated to repair or replace any components or assemblies that it deems defective in workmanship or materials. The Company reserves the right to reject warranty claims if it determines that failure is due to normal wear, customer modifications, improper maintenance or misuse. The Company maintains a warranty reserve that reflects the estimated expenses that it will incur to honor the warranties on its products. The Company adjusts the warranty reserve based on the number and type of equipment that is subject to warranty, adjusted for the remaining months of warranty coverage. The warranty reserve adjustment reflects the Company’s historical warranty experience based on type of equipment. Warranty provisions and claims for the nine months ended July 31, 2012 and 2011 were as follows:

	Nine months ended July 31,
(In thousands)	2012			2011
Balance, beginning of period	$	141		$	175
Warranty provisions		139			157
Periodic reserve adjustment		8			1
Warranty claims		(194	)		(218	)
Balance, end of period	$	94		$	115

7. Income (Loss) per Share

          Basic income (loss) per share is computed by dividing net income (loss) by the weighted average shares outstanding during the reporting period. Diluted income per share is computed similarly to basic income (loss) per share except that in computing diluted income per share the weighted average shares outstanding are increased to include additional shares issuable from the assumed exercise of stock options, if dilutive, as well as the dilutive effects of any unvested restricted share awards. When results are losses, diluted loss per share does not include any of these dilutive effects in its calculation. When dilutive effects are included, the number of additional shares is calculated by assuming that outstanding stock options are exercised, outstanding restricted share grants vest and that the cash proceeds from the exercise together with the assumed employment value represented by the unamortized stock-based compensation were used to reacquire shares of common stock at the average market price during the reporting period.

12

          The Company had unexpired options for the purchase of its common shares and unvested restricted and performance stock awards at July 31, 2012 and 2011 of 423,533 and 522,733 shares, respectively.

          Shares used in the loss per share computations are as follows:

	Three months ended July 31,				Nine months ended July 31,
(In thousands)	2012		2011		2012		2011
Weighted average common shares outstanding – basic		3,847		3,774		3,808		3,767
Dilutive effect of stock options and restricted and performance stock awards		—		63		—		—
Weighted average common shares outstanding – diluted		3,847		3,837		3,808		3,767

          As a result of the loss from continuing operations in the three and nine months ended July 31, 2012 and the nine months ended July 31, 2011, the outstanding stock options and unvested restricted and performance shares were considered antidilutive and, therefore, were excluded from diluted loss per share of those periods. In the calculation of dilutive shares for the three months ended July 31, 2011, options for 369,000 shares were excluded as anti-dilutive because the option price exceeded the average share price in the period.

8. Income Taxes

          The Company has recorded a provision for taxes from operations of $7,000 and $10,000 for the three months ended July 31, 2012 and 2011, respectively. For the nine-month periods ended July 31, 2012 and 2011, the provision for taxes from operations was $21,000 and $30,000, respectively

          At October 31, 2011, the reserve for uncertain tax positions was $41,000, increasing to $41,750 at the end of the third quarter of fiscal 2012. The entire amount of the reserve is related to uncertainties regarding income tax nexus with various states in which the Company has limited activities. Included in the reserve is $17,500 of estimated interest and penalties. The total amount of the reserve has increased the Company’s effective tax rate, and would therefore decrease the effective tax rate if removed.

          Estimated interest and penalties related to potential underpayment of income taxes are classified as a component of tax expense in the consolidated statements of comprehensive loss. The Company does not expect the amount of reserves for uncertain tax positions to change significantly in the next twelve months. Similarly, the Company does not anticipate that the total reserve for uncertain tax positions will significantly change due to the settlement of audits and the expiration of statutes of limitations within the next twelve months.

          The Company files a consolidated federal income tax return in the United States Federal jurisdiction and files various combined and separate tax returns in several state and local jurisdictions. For United States federal tax, the Company is no longer subject to examinations by the authorities for fiscal years ending prior to November 1, 2008. The expiration dates of the statute of limitations related to the various state income tax returns that the Company files vary by state. There is no statute of limitations for assessments related to jurisdictions where the Company may have a nexus but has chosen not to file an income tax return.

13

          The Company had a federal net operating loss carry forward at October 31, 2011 of approximately $15.8 million. This amount is the remaining utilizable carry forward following the application of a limit due to an ownership change under Internal Revenue Code Section 382 that occurred during the fourth quarter of fiscal year 2006. This carry forward is available to offset a portion of taxes payable in future years. If not used, this carry forward will expire in the years 2012 through 2031. The Company also has $109,000 of alternative minimum tax credit carry forwards that do not have expiration dates. Even though the Company has substantial federal net operating loss carry forwards, any income may still be subject to U.S. and State alternative minimum taxes.

          The Company has recorded a full valuation allowance against its net deferred tax asset based on its belief that it was more likely than not that the asset would not be realized in the future. Although this determination was made in a prior fiscal year, it is still applicable as of July 31, 2012, and the Company will continue to assess the need for a full valuation allowance in future quarters. Any reduction of the valuation allowance related to post-bankruptcy net operating losses and other deferred tax assets would (i) first affect earnings as a reduction in the provision for taxes and (ii) thereafter, the remaining $0.9 million would increase additional paid-in capital as these deferred tax assets represent employee stock-based compensation tax deductions included in the Company’s net operating losses.

9. Separation Accruals

          During the first quarter of fiscal 2011, the Company incurred a charge of $418,000 included in general and administrative expenses, consisting of an accrual of separation payments for the former chief executive officer of $451,000 reduced by the effect of forfeitures of previously expensed unvested option and restricted stock award costs. During the third quarter of fiscal 2011, the Company incurred a charge of $91,000 included in general and administrative expenses, consisting of an accrual of separation payments of $176,000 for a second former chief executive officer reduced by the effect of forfeitures of previously expensed unvested option and restricted stock award costs and the reversal of short-term management incentives accrued in the first and second quarters of fiscal 2011.

          During the quarter ended April 30, 2012, the Company incurred charges for separations in certain sales and marketing personnel in relation to executive leadership changes and cost savings force reductions. During the quarter ended July 31, 2012, the Company incurred charges for separations in certain additional sales and marketing personnel in cost savings force reductions.

          The following table reconciles fiscal 2011 and 2012 third quarter and year-to-date activity for accrued separation expenses.

	Three Months ended July 31,						Nine Months ended July 31,
(In thousands)	2012			2011			2012			2011
Balance, beginning of period	$	195		$	318		$	117		$	—
Provision for separations		128			176			344			627
Separation payments		(144	)		(268	)		(282	)		(401	)
Balance, end of period	$	179		$	226		$	179		$	226

14

10. Segment Reporting

          The Company operates in a single industry segment, the manufacture and sale of cardiorespiratory diagnostic products. The Company sells its products into many countries throughout the world. Net sales by geographic area are shown in the following table.

	Three Months ended July 31,				Nine Months ended July 31,
(In thousands)	2012		2011		2012		2011
Revenues from unaffiliated customers:
United States	$	5,637	$	5,276	$	15,230	$	14,784
Americas		347		294		1,325		1,464
Europe		515		544		1,370		1,615
Rest of World		396		265		1,001		1,246
	$	6,895	$	6,379	$	18,926	$	19,109

11. Discontinued Operations

          The Company has been engaged in the sale and support of New Leaf branded products and services sold to customers in the health fitness market for several years. Product development and selling and marketing costs have exceeded generated gross margins since brand introduction. In an effort to focus on core served markets within the healthcare market, the Company took steps to sell the New Leaf business during fiscal 2012. On August 28, 2012, the Company entered into and closed definitive agreements under which it sold to a third party its New Leaf related software and support materials, New Leaf product inventory, and New Leaf trademarks, service marks, and licensed to this third party certain patents and other intellectual property for use in the general wellness and health and fitness field. The Company received $1,000,000 in cash at signing and will receive $235,000 in non-contingent deferred payments, due in installments of $150,000 and $85,000, respectively at nine and eighteen months from the sale date. The Company will retain sufficient assets to service the supply and maintenance needs of customers other than the purchaser that are currently covered by warranty and prepaid extended warranty contracts. In connection with the transaction, the Company and the third-party purchaser each agreed not to compete, for specified periods of time, in the other party’s defined field of use of the licensed intellectual property. The Company has determined that the New Leaf branded product operations are discontinued operations and has reclassified those operations for all periods presented. The Company expects to realize a gain of approximately $850,000 in the fourth quarter of fiscal 2012 related to the transaction.

          The following assets are included in assets of discontinued operations as of July 31, 2012:

(In thousands)	Amount
Inventory	$	55
Machinery and equipment		3
Intangible assets		22
	$	80

15

          Discontinued operations include the following:

	Three Months ended July 31,					Nine Months ended July 31,
(In thousands)	2012		2011			2012		2011
Revenues from unaffiliated customers	$	380	$	468		$	1,690	$	1,591
Pretax profit (loss) from operations of discontinued operations	$	147	$	(219	)	$	277	$	(518	)

          Continuing cash inflows will include sales of supplies and repair services to non-purchaser users though June 30, 2014. Continuing cash outflows will include the costs for supply sales and the costs of technical support and maintenance and repair services to purchaser and non-purchaser users. Amounts of expected future cash flows from these activities are not sufficient to preclude the Company from using discontinued operations treatment for the New Leaf operations. No allocation of taxes has been made to discontinued operations since taxes for all periods presented consist of minimum state taxes, given the net operating loss carry forwards available to offset federal taxes.

12. Litigation

          From time to time, the Company is also subject to claims and lawsuits that have been filed in the ordinary course of business. From time to time, the Company initiates lawsuits against others to enforce patents or to seek collection of debts in the ordinary course of business. There is no material pending or outstanding litigation at the current time.

16

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

Overview

          MGC Diagnostics Corporation is a global medical technology company dedicated to cardiorespiratory health solutions. MGC Diagnostics develops, manufactures and markets non-invasive diagnostic systems. This portfolio of products provides solutions for disease detection, integrated care, and wellness across the spectrum of cardiorespiratory healthcare. The Company sells its products internationally through distributors and in the United States through a direct sales force targeting heart and lung specialists located in hospitals, university-based medical centers, medical clinics, physician offices, pharmaceutical companies, medical device manufacturers, and clinical research organizations (CROs).

          In reporting these results for the three and nine months ended July 31, 2012 and 2011, the Company is presenting results from its New Leaf business line as “discontinued operations.” In December 2011, the Company announced that its Board of Directors had determined that it would seek strategic alternatives, including the possibility of a sale, for the New Leaf business and that it had hired an investment banker to assist it in this process. In May 2012, the Company entered into a letter of intent with a non-affiliated third party for the sale of the New Leaf business. On August 30, 2012, the Company announced it had sold the assets of its New Leaf business to Life Time Fitness for $1.235 million in a transaction that closed on August 28, 2012.

          As a result, in this report the Company has eliminated from its consolidated statements of comprehensive loss all revenues and expenses associated with its New Leaf business and presented the income (loss) from New Leaf activities as “discontinued operations.” The Company has also reclassified its results for prior periods in these financial statements to reflect this discontinued operations treatment for its New Leaf business line. All references to revenues, percentages of revenues and increases(decreases) from prior periods below are based on revenues or components of revenues from continuing operations after reclassification of the discontinued operations.

          Revenues consist of equipment, supplies and accessories sales as well as service revenues. Equipment, supplies and accessories sales reflect sales of non-invasive cardiorespiratory diagnostic equipment and aftermarket sales of peripherals and supplies. Service revenues consist of revenues from extended service contracts, non-warranty service visits and additional training.

          Total revenues for the fiscal third quarter of 2012 were $6.9 million, compared to $6.4 million in 2011. Operating expenses for the fiscal third quarter of 2012 were $4.0 million, an increase of 12.8% from the same period in 2011. Net loss for the three months ended July 31, 2012 was ($133,000), or ($0.03) per basic and diluted share, compared to a net loss of ($81,000), or ($0.02) per basic and diluted share, for the same period in 2011. Total revenues for the nine months ended July 31, 2012 were $18.9 million compared to $19.1 million in 2011. Operating expenses for the nine months ended July 31, 2012 were $11.3 million, an increase of 4.2% from $10.9 million in the same period in 2011. Net loss for the nine months ended July 31, 2012 was ($791,000), or ($0.21) per basic and diluted share, compared to a net loss of ($543,000), or ($0.14) per basic and diluted share, for the same period in 2011.

17

Results of Operations

          The following table contains selected information from the Company’s consolidated statements of comprehensive loss, expressed as a percentage of revenues:

	Three months Ended July 31,						Nine months Ended July 31,
	2012			2011			2012			2011
Revenues		100.0	%		100.0	%		100.0	%		100.0	%
Cost of revenues		46.3			42.5			45.7			43.2
Gross margin		53.7			57.5			54.3			56.8
Operating expenses:
Selling and marketing		30.9			24.8			29.4			25.8
General and administrative		13.2			14.3			15.8			17.0
Research and development		11.9			14.5			13.0			12.5
Amortization of intangibles		1.6			1.7			1.7			1.6
		57.6			55.3			59.9			56.9
Operating (loss) income		(3.9	)		2.2			(5.6	)		(0.1	)
Interest income		0.0			0.1			0.1			0.1
(Loss) income from continuing operations before taxes		(3.9	)		2.3			(5.5	)		(0.0	)
Provision for taxes		0.1			0.1			0.1			0.2
(Loss) income from continuing operations		(4.0	)		2.2			(5.6	)		(0.2	)
Income (loss) from discontinued operations		2.1			(3.4	)		1.4			(2.7	)
Net loss		(1.9	)		(1.2	)		(4.2	)		(2.9	)
Unrealized gain (loss) on securities		0.0			(0.1	)		0.0			0.0
Comprehensive Loss		(1.9	)%		(1.3	)%		(4.2	)%		(2.9	)%

          The following paragraphs discuss the Company’s performance for the three- and nine-month periods ending July 31, 2012 and 2011:

Seasonality

          The Company experiences some seasonality in its revenues, with the first and fourth quarter of its fiscal year historically being its lowest and highest revenue quarters, respectively. The Company experiences additional variability in each quarter due to a number of factors, including customer budget cycles, product introductions, Company sales incentive programs, general economic conditions and the timing of customer orders.

Revenue

          Total revenue for the three months ended July 31, 2012, was $6.9 million compared to $6.4 million in the same period in 2011. This 8.1% increase resulted largely from the Company’s domestic selling efforts, which included sales through contractual Group Purchasing Organizations (GPO) memberships. These sales through GPOs increased to 63% of domestic sales during the quarter from 24% in the prior year quarter. Order backlog increased by $600,000 compared to July 31, 2011 levels to approximately $900,000. International revenue increased by 14.0% from prior year period levels primarily reflecting stronger performance in the Asia/Pacific region.

18

          During the third quarter, equipment, supplies and accessories sales totaled $5.9 million, an increase of 10.6%, compared to $5.3 million during last year’s period. Service revenue decreased 4% to $1,019,000, versus $1,066,000 in last year’s third quarter reflecting a concerted effort to replace older equipment with new, instead of billing customers for repair activities. Recurring revenue, comprised of supplies and service revenues, increased by 2.1% to $2.7 million and accounted for 39.0% of total revenues for the three month period ended July 31, 2012 versus 41.3% for the comparable period of fiscal 2011.

          Total revenue for the nine months ended July 31, 2012, was $18.9 million compared to $19.1 million in the same period in 2011. This 1.0% decrease resulted largely from reduced equipment sales in the first half of fiscal 2012. International revenue decreased by 14.5% from prior year period levels primarily reflecting weaker performance in all regions other than Latin America.

          During the nine months ended July 31, 2012, equipment, supplies and accessories sales totaled $15.7 million, a decrease of 2.7% compared to $16.2 million during last year’s period. Service revenue increased 8.7% to $3,188,000, versus $2,933,000 in last year’s third quarter due to increased usage of service contracts on equipment in place. Recurring revenue, comprised of supplies and service revenues, increased by 8.3% to $8.0 million and accounted for 42.1% of total revenues for the nine-month period ended July 31, 2012 versus 38.5% for the comparable period of fiscal 2011.

Gross Margin

          Gross margin percentage for the three months ended July 31, 2012 was 53.7% compared to 57.5% in the same period in 2011, while the gross margin percentage for the nine months ended July 31, 2012 was 54.3% compared to 56.8% in the 2011 period. The percentage decreases in the 2012 periods were primarily attributable to the increasing effect of GPO revenues, which are generally lower margin sales. We expect gross margin percentage levels to remain in the low- to mid-50% range during the remainder of fiscal 2012.

Selling and Marketing

          Selling and marketing expense increased 34.5% to $2,132,000 for the three months ended July 31, 2012 from $1,585,000 for the comparable period of 2011. The $547,000 increase in selling and marketing expenses was primarily due to approximately $170,000 of higher expense associated with personnel changes, conventions and travel. In addition, the Company incurred $128,000 for separation costs associated with sales management changes during the three-month period ending July 31, 2012. The Company also incurred an additional $82,000 of fees associated with increased sales through our GPO channels and $46,000 related to our rebranding efforts. Finally the Company reduced its management incentive accrual totaling $116,000 during the three-month period ending July 31, 2011 and made no accrual for 2012.

          Selling and marketing expense increased 12.7% to $5,558,000 for the nine months ended July 31, 2012 from $4,930,000 for the comparable period of 2011. The $628,000 increase in selling and marketing expense during the nine months ended July 31, 2012 was primarily due to personnel changes of $157,000, separations of $204,000, increased GPO fees of $178,000 and marketing-related consulting expense increases totaling $87,000.

General and Administrative

          General and administrative expense decreased 0.3% to $913,000 for the three months ended July 31, 2012 from $916,000 for the comparable period of 2011. Costs in the quarter ended July 31, 2011 included $194,000 of costs in relation to a CEO separation. This charge was partially offset by the reduction of the management incentive accrual totaling $86,000. In the quarter ended July 31, 2012, administrative costs increased from prior year levels by $66,000 for legal and Sarbanes Oxley compliance consulting costs, as well as by $18,000 for stock-based compensation for officers added in 2011 and early 2012.

19

          General and administrative expense decreased 7.9% to $2,988,000 for the nine months ended July 31, 2012 from $3,243,000 for the comparable period of 2011. The $255,000 decrease in general and administrative expense was primarily due to the absence of a one-time charge of $612,000 (net of stock-based compensation reversal of $68,000) related to the separation of two former chief executive officers that occurred during the Company’s first and third quarters of 2011. The remaining difference is primarily comprised of $254,000 in increased compensation and consultant related costs for the additional administrative staff that joined the Company in the late fiscal 2011 and current fiscal 2012 periods. Also, the Company incurred increased stock-based compensation of $78,000 during the current fiscal period.

Research and Development

          Research and development expense decreased 10.7% to $825,000 for the three months ended July 31, 2012 from $924,000 for the comparable period of 2011. The decrease in research and development expense was primarily due to $181,000 of software development costs capitalized in the third quarter of fiscal 2012 compared to $88,000 in the same period of fiscal 2011. The Company capitalizes software development costs associated with software projects after they have achieved “technological feasibility.” As we have discussed previously, while this capitalized cost spending affects our cash flow and to a lesser extent our bottom line, we believe that both of these investments provide the foundation for a future product pipeline of new integrated patient care and consumer health programs that will deliver sustained growth. Portions of these software projects will be ongoing during the remainder of fiscal 2012 and beyond into fiscal 2013, when we expect the benefits of this effort will become available for use in our product offerings.

          Research and development expense increased 2.9% to $2,455,000 for the nine months ended July 31, 2012 from $2,387,000 for the comparable period of 2011. The $68,000 increase in research and development expense was primarily due to additional staff and consultant costs of $83,000 and increased ongoing product development expense of $400,000. These increases were offset in part by reduced recruitment cost and management incentive accrual of $80,000 and $23,000, respectively. In addition, we capitalized approximately $537,000 of software development costs in the nine-month period ended July 31, 2012, compared to $226,000 in the same period of fiscal 2011, as software projects in progress as described above.

Amortization of Intangibles

          Amortization of developed technology was $112,000 and $329,000 for the three and nine months ended July 31, 2012, respectively, and $105,000 and $315,000 for the three and nine months ended July 31, 2011, respectively. Within the $113,000 expected amortization in the remaining quarter of fiscal 2012, $105,000 is related to assets that will be fully amortized at October 31, 2012. The release of products incorporating software currently being capitalized will require the amortization of those software costs in the periods following their expected releases.

Provision for Income Taxes

          The Company is required to present the provision for taxes as if it were fully taxable in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 852-740. In prior years, the Company used its pre-emergence bankruptcy NOLs in the calculation of its income taxes payable but is still required to pay U.S. and State alternative minimum taxes (“AMT”) in certain jurisdictions, even though it has substantial federal and state NOL carry forwards available. During the three- and nine-month periods ended July 31, 2012 and 2011, the Company did not use any tax benefits related to pre-emergence bankruptcy NOLs. See note 8 to the consolidated financial statements, “Income Taxes,” in this Form 10-Q for additional discussion of the accounting for income taxes.

20

Liquidity and Capital Resources

          The Company has financed its liquidity needs over the last several years through revenue generated by the operations of its Medical Graphics Corporation subsidiary.

          The Company had cash and cash equivalents of $8.7 million and working capital of $12.7 million as of July 31, 2012.

          During the nine-month period ended July 31, 2012, the Company reported a net loss of $791,000. However, cash flows from operating activities for the period were $222,000, primarily due to reductions in accounts receivable of $1,289,000 (seasonal changes after fiscal year end), increases to other accrued expenses of $235,000 and the add-back of non-cash expenses totaling $780,000 for depreciation, amortization and stock-based compensation expense. These favorable changes were offset in part by increases in inventory of $432,000 as a result of our introduction of our new Real Time Diffusion (RTD) product line and $549,000 for accounts payable and accrued employee compensation reductions and increased prepaid expenses and other current assets of $315,000.

          For the nine months ended July 31, 2012, the Company used $730,000 of cash for the purchase of property and equipment and intangible assets, consisting of $576,000 for software capitalization, and received $721,000 from the sale of maturing investment grade debt instruments.

          The Company received cash from financing activities of $35,000 during the nine months ended July 31, 2012, reflecting proceeds from the exercise of stock options and the issuance of shares under the Employee Stock Purchase Plan, totaling $97,000 and $50,000, respectively. These receipts were partially offset by the payment of $46,000 for repurchase of shares for tax withholding in connection with the vesting of restricted stock grants. Also, the Company spent $66,000 under its share repurchase program, which has $2,735,000 remaining in the current program authorized through July 31, 2013.

          The Company believes that its liquidity and capital resource needs for fiscal 2012 and the following twelve months will be met through its cash flows resulting from operations, proceeds from the sale of the assets of the New Leaf business, as well as current cash and cash equivalents.

          In addition, as previously discussed, the Company has developed a market-focused approach to strategically leverage the strength of its MedGraphics brand and worldwide selling and distribution capability. The Company has held discussions with various potential strategic product and technology partners. The Company may use some of its cash and capital resources in the acquisition of new technologies or businesses. Although the Company is continuing to look at a number of these opportunities, it currently has no agreements or understandings with any of these third parties.

21

Forward Looking Statements.

The discussion above contains forward-looking statements about our future financial results and business prospects that by their nature involve substantial risks and uncertainties. You can identify these statements by the use of words such as “anticipate,” “believe,” “estimate,” “expect,” “project,” “intend,” “plan,” “will,” “target,” and other words and terms of similar meaning in connection with any discussion of future operating or financial performance or business plans or prospects.
	Our actual results may differ materially depending on a variety of factors including:
•	national and worldwide economic and capital market conditions, including the continuing uncertainty in the European market;
•	continuing cost-containment efforts in our hospital, clinic and office markets;
•	our ability to remain as a qualified provider for group purchasing organizations (GPOs), thereby ensuring continued access to customers and markets, increasing our sales potential to expanded numbers of companies that are members of these groups;
•	the fact that we may incur lower margins and higher selling expenses in our GPO sales;
•	any changes in medical reimbursement that may result from national healthcare reform;
•	any effect that the 2.3% medical device tax that is scheduled to go into effect on January 1, 2013 may have on our revenues or operating results;
•	our ability to develop new and improved cardiorespiratory diagnostic products and services and sell these products and services into existing and new markets;
•	any change in the key assumptions, market conditions or other circumstances related to our capitalized internal software development costs, or the failure of this software to perform the manner we anticipate, could result in an impairment to this capital asset and a charge to our operating results;
•	the success of our rebranding and repositioning efforts;
•	our ability to complete our software development initiatives and migrate our MedGraphics platform to a next generation technology;
•	our ability to maintain our cost structure at a level that is appropriate to our near to mid-term revenue expectations and that will enable us to increase revenues and profitability as opportunities develop;
•	our ability to expand our international revenue through our distribution partners;
•	our ability to defend our existing intellectual property and obtain protection for intellectual property we develop in the future;
•	our ability to develop and maintain an effective system of internal controls and procedures and disclosure controls and procedures;
•	our dependence on third-party vendors; and

22

• the ability of new members of our senior management to make a successful transition into their new roles and for all members of senior management to ultimately develop and implement a strategic plan.

          Additional information with respect to the risks and uncertainties faced by the Company may be found in, and the above discussion is qualified in its entirety by, the other risk factors that are described from time to time in the Company’s Securities and Exchange Commission reports, including the Annual Report on Form 10-K for the year ended October 31, 2011.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

None.

Item 4. Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures

          Management, with the participation of the Company’s chief executive officer, Gregg O. Lehman, Ph.D., and chief financial officer, Robert M. Wolf, has evaluated the effectiveness of the design and operation of the disclosure controls and procedures, as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934, as of the end of the period covered by this report. Management has concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that the Company files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that the disclosure controls are also effective to ensure that information required to be disclosed in the Company’s Exchange Act reports is accumulated and communicated to management, including the chief executive officer and principal accounting officer, to allow timely decisions regarding required disclosure.

(b) Changes in Internal Controls

          There have been no changes in internal control over financial reporting that occurred during the third fiscal quarter of 2012 that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.

23

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

          From time to time, the Company is also subject to claims and lawsuits that have been filed in the ordinary course of business. From time to time, the Company initiates lawsuits against others to enforce patents or to seek collection of debts in the ordinary course of business. There is no material pending or outstanding litigation at the current time.

Item 1A. Risk Factors

          We described the most significant risk factors applicable to the Company in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended October 31, 2011. We believe there have been no material changes from the risk factors disclosed in that Annual Report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

          In the three months ended July 31, 2012, the Company repurchased shares of its common stock, as follows:

Issuer Purchases of Equity Securities(1)
Period	(a) Total Number of Shares Purchased		(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Program		(d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program
May 1-31, 2012		4,747	$	5.75		—		—
June 1-30, 2012		13,350		5.56		10,100		—
July 1-31, 2012		—		—		—		—
Total		18,097	$	5.61		10,100	$	2,735,000

Sale of Unrestricted Securities

          On July 31, 2012, the Company issued 8,250 shares of its common stock valued at $41,562 to a third-party institutional investor advisory firm. The shares were issued pursuant to an agreement under which the firm advised the Company with respect to professional investment community strategy and communications, and a portion of the firm’s compensation was payable in Company common stock. The shares were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and the share certificate that was issued to the firm bore a restrictive legend.

Item 3. Defaults Upon Senior Securities.

          None.

Item 4. Mine Safety Disclosure

          Not Applicable.

24

Item 5. Other Information.

          None.

Item 6. Exhibits.

3.1	Restated Articles of Incorporation of MGC Diagnostics Corporation, as amended through August 21, 2012.
3.2	Bylaws of MGC Diagnostics Corporation, as amended through August 21, 2012.
10.1	Fourth Addendum dated June 25, 2012 to lease with respect to premises at 350 Oak Grove Parkway, Vadnais Heights, Minnesota.
31.1	Certification of Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 of the Exchange Act.
31.2	Certification of Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 of the Exchange Act.
32.	Certifications pursuant to 18 U.S.C. §1350.

25

SIGNATURES

          Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	MGC DIAGNOSTICS CORPORATION
	(Registrant)
September 14, 2012
	By:	/s/ Gregg O. Lehman
		Gregg O. Lehman
		President and Chief Executive Officer
September 14, 2012
	By:	/s/ Robert M. Wolf
		Robert M. Wolf
		Chief Financial Officer

26

EX-3.1

Exhibit 3.1

AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF
MGC DIAGNOSTICS CORPORATION

Pursuant to the provisions of Chapter 302A of the Minnesota Statutes, known as the Minnesota Business Corporation Act, and amendments thereto, the following Amended and Restated Articles of Incorporation are adopted and shall supersede and take the place of the existing Articles of Incorporation and all amendments thereto.

ARTICLE I - NAME

The name of the corporation is MGC Diagnostics Corporation.

ARTICLE II- REGISTERED OFFICE

The registered office of the corporation is located at 350 Oak Grove Parkway, Saint Paul, Minnesota 55127.

ARTICLE III - CAPITAL STOCK

The aggregate number of shares the corporation has authority to issue is Thirty Million (30,000,000) shares, which shall have a par value of $.01 per share solely for the purpose of any statute or regulation imposing a tax or fee based upon the capitalization of the corporation, and which will consist of Twenty Five Million (25,000,000) common shares, which shall have a par value of $.10 and Five Million (5,000,000) undesignated shares. The Board of Directors of the corporation is authorized to establish from the undesignated shares, by resolution adopted and filed in the manner provided by law, one or more classes or series of shares, to designate each class or series (which may include but is not limited to designation as additional common shares), and to fix the relative powers, qualifications, restrictions, rights and preferences of each such class or series, including, without limitation, the right to create voting, dividend and liquidation rights and preferences greater than those of common stock.

ARTICLE IV - RIGHTS OF SHAREHOLDERS

Section 1. No Preemptive Rights. No shares of any class or series of the corporation will entitle the holders to any preemptive rights to subscribe for or purchase additional shares of that class or series or any other class or series of the corporation now or hereafter authorized or issued.

Section 2. No Cumulative Voting Rights. There is no cumulative voting by the shareholders of the corporation.

1

ARTICLE V - DIRECTORS

Section 1. Number, Term and Director Appointees. The business and affairs of this corporation will be managed by or under the direction of a Board of Directors consisting of not less than three or more than seven directors, as may be designated by the Board of Directors from time to time. Each director will serve until a successor has been duly elected and qualified, unless the director earlier retires, resigns, dies or is removed.

Section 2. Vacancies. Any vacancies occurring in the Board of Directors for any reason, and any newly created directorships resulting from an increase in the number of directors, may be filled by a majority of the directors then in office. Any directors so chosen will hold office until the next election of the class for which the directors have been chosen and until their successors are elected and qualified subject, however, to prior retirement, resignation, death or removal from office.

Section 3. Quorum. A majority of the members of the Board of Directors will constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if less than such a majority is present at a meeting, a majority of the directors present may adjourn the meeting from time to time without further notice. The directors present at a duly organized meeting may continue to transact business until adjournment notwithstanding that the withdrawal of enough directors originally present leaves less than the number otherwise required for a quorum.

Section 4. Act of the Board. The Board may take action by the affirmative vote of the greater of (1) a majority of the directors present at a duly held meeting at the time the action is taken, or (2) a majority of the minimum proportion or number of directors that would constitute a quorum for the transaction of business at the meeting.

Section 5. Written Action by Directors. Any action required or permitted to be taken at a meeting of the Board of Directors, or a committee thereof, may be taken by written action signed by all of the directors or, in cases where the action need not be approved by the shareholders, by written action signed by the number of directors that would be required to take the same action at a meeting of the Board or a committee thereof at which all directors were present.

ARTICLE VI- LIMITATION OF DIRECTOR LIABILITY

Section 1. Liability and Indemnification. No director shall be personally liable to the corporation or to its shareholders for monetary damages for any breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the laws of the State of Minnesota as the same may exist or may hereafter be amended. Any repeal or modification of the provisions of this Article shall not adversely affect any right or protection of a director of the corporation existing at the time of such repeal or modification.

Any person who at any time shall serve or shall have served as a director, officer, or employee of the corporation, or of any other enterprise at the request of the corporation, and the heirs, executors and administrators of such person shall be indemnified by the corporation in accordance with, and to the fullest extent permitted by, the provisions of the Minnesota Business Corporation Act, as it may be amended from time to time.

2

Section 2. Insurance. The corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liability under the provisions of the Minnesota Business Corporation Act.

IN WITNESS WHEREOF, the undersigned have hereunto set their hands this 21st day of August, 2012.

/s/ Gregg O. Lehman

Gregg O. Lehman, Ph.D.
President and Chief Executive Officer

/s/ Robert M. Wolf

Robert M. Wolf
Senior Vice President and Chief Financial Officer

3

EX-3.2

Exhibit 3.2

AMENDED AND RESTATED Bylaws

of

MGC DIAGNOSTICS Corporation

ARTICLE I

OFFICES AND CORPORATE SEAL

The registered office of the corporation will be located at 350 Oak Grove Parkway, Saint Paul, Minnesota 55127 or in the most recent amendment thereof, or in a statement of the Board of Directors filed with the Secretary of State of the State of Minnesota changing the registered office in the manner prescribed by law. The corporation may also have offices and places of business at such other locations as the Board of Directors may from time to time designate, or the business of the corporation may require.

ARTICLE II

SHAREHOLDER’S MEETINGS

SECTION 2.1. TIME AND PLACE OF MEETINGS. Regular or special meetings of the shareholders, if any, will be held on the date and at time and place fixed by the President/Chief Executive Officer or the Board of Directors, except that a meeting called by, or at the demand of a shareholder or shareholders, pursuant to the Minnesota Business Corporation Act, as now enacted or hereinafter amended, (the “Minnesota Business Corporation Act”) will be held in the county where the principal executive office is located.

SECTION 2.2. REGULAR MEETINGS. An annual meeting of the shareholders will be held at such place as the Board of Directors designates, either within or without the State of Minnesota, and on such date and at such time as may be determined by the Board of Directors and communicated to the shareholders according to the requirements set forth herein, for the purpose or electing directors and for the transaction of any other business which may properly come before it. Additional regular meetings of the shareholders may be held on a less frequent periodic basis. No meeting will be considered a regular meeting unless specifically designated as such in the notice of meeting or unless all the shareholders are present in person or by proxy and none of them objects to such designation. Any business appropriate for action by the shareholder may be transacted at a regular meeting.

SECTION 2.3. SPECIAL MEETINGS. Special meetings of the shareholders may be held for any purpose or purposes, unless otherwise prescribed by statute. Such a meeting may be called by the President/Chief Executive Officer, the Chief Financial Officer or two or more directors and must be called by the President/Chief Executive Officer at the request in writing of shareholders owning not less than ten percent or more of the voting stock of the corporation.

SECTION 2.4. NOTICE OF MEETINGS. Written notice of a meeting of the shareholders stating the time and place thereof must be mailed at least 5 days but not more than 60 days prior to the meeting, except as otherwise provided by statute, to each shareholder entitled to vote thereat to the last known address of such shareholder as the same appears upon the books of the corporation.

Every notice of any special meeting must state the purpose or purposes for which the meeting has been called, and the business transacted at all special meetings will be confined to the purpose stated in the call, unless all of the shareholders are present in person or by proxy and none of them objects to consideration of a particular item of business.

1

SECTION 2.5. RECORD DATE. The Board of Directors may fix a date as a record date for the determination of the shareholders entitled to notice of, and to vote at, a regular or special meeting, notwithstanding any transfer of shares on the books of the corporation after any record date so fixed. The Board may close the books of the corporation against the transfer of shares during the whole or any part of such period. If no record date is fixed by the Board, the record date for the determination of shareholders entitled to notice of, and to vote at, any meeting of shareholders will be the date five days before the date of such meeting.

SECTION 2.6. WAIVER OF NOTICE. Notice of the time, place and purpose of any meeting of shareholders, whether required by statue, the Articles of Incorporation or these Bylaws, may be waived by any shareholder. Such waiver may be given before, at, or after the meeting, and may be given in writing, orally or by attendance.

SECTION 2.7. ACTION WITHOUT MEETING. Any action which may be taken at a meeting of the shareholders may be taken without a meeting, if authorized in writing or writings signed by all shareholders who would be entitled to notice of a meeting for such purpose.

SECTION 2.8. QUORUM. The presence at any meeting, in person or by proxy, of the holders of a majority of the shares entitled to vote, will constitute a quorum for the transaction of business. If, however, such majority will not be present in person or by proxy at any meeting of the shareholders, those present will have the power to adjourn the meeting from time to time, without notice other than by announcement at the meeting, until the requisite amount of voting shares are represented. At any such adjourned meeting at which the required number of voting shares are represented, any business may be transacted which might have been transacted at the meeting as originally noticed.

SECTION 2.9. VOTING. At all meetings of the shareholders, each shareholder having the right to vote will be entitled to vote in person or by proxy, duly appointed by an instrument in writing subscribed by such shareholder. Each shareholder will have one vote for each share having voting power standing in such shareholder’s name on the books of the corporation. Upon the demand of any shareholder, the vote for directors or the vote upon any question before the meeting will be by ballot. All elections must be had and all questions decided by a majority vote except as otherwise required by these Bylaws, the Articles of Incorporation, any applicable shareholder agreement, or statute.

SECTION 2.10. PROXIES. At all meetings of shareholders, a shareholder may vote by proxy executed in writing by the shareholder or by such shareholder’s duly authorized attorney-in-fact. Such proxy must be filed with the Secretary of the corporation at or before the time of the meeting. A proxy will be valid for the period specified in the proxy or, if no expiration date is provided in the proxy, for a period not to exceed eleven months from the date of its execution. A proxy's authority will not be revoked by the death or incapacity of the maker unless, before the vote is cast and the authority exercised, written notice of such death or incapacity is given to the corporation.

ARTICLE III

BOARD OF DIRECTORS

SECTION 3.1. ELECTION OF DIRECTORS. The business and affairs of this corporation will be managed by its Board of Directors. The number of directors will be the number last elected by a majority vote of the shareholders or by the Board of Directors, which number must not be less than three nor more than seven directors. Directors need not be shareholders. Each of the directors will hold office until the regular meeting of the shareholders next held after his or her election, until a successor has been elected and qualifies, or until he or she has or has been removed as hereinafter provided.

2

SECTION 3.2. BOARD MEETINGS; PLACE AND NOTICE. Meetings of the Board of Directors may be held from time to time at anyplace within or without the State of Minnesota that the Board of Directors may designate. In the absence of designation by the Board of Directors, board meetings must be held at the principal executive office of the corporation, except as may be otherwise unanimously agreed orally or in writing or by attendance. Any director may call a meeting of the Board of Directors by giving two days notice to all directors of the date and time of the meeting. The notice need not state the purpose of the meeting. Notice may be given by mail, telephone, telegram, facsimile or in person. If a meeting schedule is adopted by the Board of Directors, or if the date and time of a Board of Directors meeting has been announced at a previous meeting, no notice is required.

SECTION 3.3. WAIVER OF NOTICE. Notice of the time, place and purpose of any meeting of the Board of Directors, whether required by statue, the Articles of Incorporation, or these Bylaws, may be waived by any director. Such waiver may be given before, at, or after the meeting and may be given in writing, orally or by attendance. The attendance of a director at a meeting and participation therein will constitute waiver of notice of such meeting unless the director attends for the express purpose of objecting to the transaction of business because the meeting is not lawfully called or convened, the director so states at the meeting, and the director does not thereafter participate in the meeting.

SECTION 3.4. QUORUM AND ACTION OF BOARD. At all meetings of the Board of Directors, a majority of the director will be necessary and sufficient to constitute a quorum for the transaction of business; provided, that if less than a majority of the directors are present, a majority of those present may adjourn the meeting from time to time without notice other than an announcement at the meeting at which adjournment is taken.

The directors present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment, notwithstanding the withdrawal of enough directors to leave less than a quorum. The act of a majority of the directors present at any meeting at which a quorum is present, or at any meeting at which a quorum was present and at which the remaining directors are authorized under this Section to continue to transact business will be the act of the Board of Directors.

SECTION 3.5. ELECTRONIC COMMUNICATIONS. A conference among directors by any means of communication through which the directors may simultaneously hear each other during the conference constitutes a board meeting, if the same notice is given of the conference as required by these Bylaws for a meeting, and if the number of directors participating in the conference would be sufficient to constitute a quorum at a meeting. Participation in a meeting by such electronic means of communication constitutes presence in person at the meeting.

SECTION 3.6. VACANCIES. Any vacancies occurring in the Board of Directors for any reason, and any newly created directorships resulting from an increase in the number of directors, may be filled by a majority of the directors then in office. Any directors so chosen will hold office until the next election of the class for which such directors will have been chosen and until their successors will be elected and qualified subject, however, to prior retirement, resignation, death or removal from office.

SECTION 3.7. RESIGNATIONS. Any director of the corporation may resign at any time by giving written notice to the Chair of the Board or to the President/Chief Executive Officer or Secretary of the corporation. Unless a later date is specified in the notice of resignation as the effective date of resignation, resignation will take effect on the date of receipt of the written notice by the Chair, President/Chief Executive Officer, or Secretary. Unless otherwise specified in such notice, the acceptance of the resignation will not be necessary to make it effective.

3

SECTION 3.8. REMOVAL. At a meeting of shareholders called expressly for that purpose, any director or the entire Board of Directors may be removed, with or without cause, by a vote of the holders of a majority of the shares then entitled to vote at an election of directors. Provided, however, that if less than the entire Board is to be removed, no one of the directors may be removed if the votes cast against removal of such director would be sufficient to elect such director if then cumulatively voted at an election of the entire Board of Directors.

SECTION 3.9. ABSENT DIRECTORS. A director may give advance written consent or opposition to a proposal to be acted on at a Board meeting. If the director is not present at the meeting, consent or opposition to a proposal does not constitute presence for purposes of determining the existence of a quorum, but consent or opposition stated in writing and delivered to the President/Chief Executive Officer or the officer or director presiding at the meeting will be counted as a vote in favor of or against the proposal if the proposal acted on at the meeting is substantially the same or has substantially the same effect as the proposal to which the director has consented or objected. Such written consent or opposition will be entered in the minutes or other record of action at the meeting.

SECTION 3.10. ACTION WITHOUT MEETING. Any action which is required or may be taken at a meeting of the Board of Directors may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by a majority of all the directors entitled to vote with respect to the subject matter thereof, except as to matters that require shareholder approval, in which case such consent in writing must be signed by all of the directors. Action taken by such written consent will be effective on the date when signed by the required number of directors, or such earlier effective date as set forth therein. When written action is permitted to be taken by less than all of the directors, all directors must be notified immediately of its text and effective date. Failure to provide the notice will not invalidate the written action. A director who does not sign or consent to the written action will have no liability for the action or actions taken thereby.

SECTION 3.11. PRESUMPTION OF ASSENT. For purposes of any liability as a director, a director of the corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken will be presumed to have assented to the action taken unless:

(a) such director objects at the beginning of the meeting to the transaction of business because the meeting is not lawfully called or convened and does not thereafter participate in the meeting;

(b) such director votes against the action at the meeting; or

(c) such director is prohibited from voting at the meeting due to a conflict of interest.

SECTION 3.12. COMMITTEES. The Board of Directors may, by a majority vote, designate two or more of their number to constitute an executive committee, which, to the extent determined by the Board and allowed by law, will have and exercise the authority of the Board in the management of the business of the corporation. Such executive committee will act only in the interval between meetings of the Board and will be subject at all times to the control and direction of the Board. The Board of Directors by a majority vote may also appoint one or more natural persons who need not be Board members to serve on such other committees as the Board may determine. Such other committees will have powers and duties as will from time to time be prescribed by the Board. A majority of the members of any committee present at a meeting is a quorum for the transaction of business. All committees will keep accurate minutes of their meetings, which minutes will be made available upon request to members of that committee and to any director.

SECTION 3.13. CHAIR. The Board may elect one of their number to serve as Chair, who will preside, when present, at all meetings of the Board.

4

SECTION 3.14. COMPENSATION. The directors of the corporation and all members of committees will serve without salary, unless ordered by the directors; however, they will be paid the necessary expenses incurred in the execution of their duties. Nothing herein will preclude the paying by the corporation of a salary or other compensation to an officer or employee who is also a director.

SECTION 3.15. LIMITATION OF LIABILITY. Except as expressly provided in the Minnesota Business Corporation Act, a member of the Board of Directors of this corporation will have no personal liability to this corporation or to the shareholders for monetary damages for breach of fiduciary duty as a member of the Board of Directors.

ARTICLE IV

OFFICERS

SECTION 4.1. ELECTION OF OFFICERS. The Board of Directors will, from time to time, elect a President/Chief Executive Officer and a Treasurer/Chief Financial Officer. The Board of Directors may, but will not be required to, elect a Secretary and 1 or more Vice Presidents, as they may determine, one of whom may be designated as an Executive Vice President. In addition, the Board of Directors may elect such other officers and agents as it may determine necessary, including Assistant Secretaries and Assistant Treasurers. Such officers will exercise such powers and perform such duties as are prescribed by the Articles of Incorporation or the Bylaws or as may be otherwise determined from time to time by the Board of Directors. Any number of offices or functions of those officers may be held or exercised by the same person.

SECTION 4.2. TERMS OF OFFICE. The officers of the corporation will hold office for such terms as will be determined from time to time by the Board of Directors or until their successors are chosen and qualify in their stead. Any officer elected or appointed by the Board of Directors may be removed by the affirmative vote of a majority of the whole Board of Directors with or without cause.

SECTION 4.3. SALARIES. The salaries of all officers and agents of the corporation will be determined by the Board of Directors.

SECTION 4.4. PRESIDENT/CHIEF EXECUTIVE OFFICER. As used herein or in other writings of, or documents delivered on behalf of, the corporation, the titles “President” and “Chief Executive Officer” will mean one and the same person and will be interchangeable. The President will be the chief executive officer of the corporation, and will have the general direction of the affairs of the corporation. The President will preside at all meetings of the shareholders and of the Board of Directors. The President will direct general active management of the business of the corporation, and will see that all orders and resolutions of the Board of Directors are carried into effect. The President will execute all contracts, mortgages and other instruments of the corporation, and may appoint and discharge agents and employees. The President will be ex officio a member of any executive committee which may be constituted hereunder, and all other standing committees, and will perform all such other duties as are incident to the office, or are properly required by the Board of Directors.

SECTION 4.5. VICE PRESIDENT. The Vice Presidents in the order designated by the Board of Directors will perform the duties and exercise the powers of the President in the absence or incapacity of the President. The Vice Presidents will perform such other duties as the Board of Directors may from time to time prescribe.

5

SECTION 4.6. SECRETARY AND ASSISTANT SECRETARIES. The Secretary will attend all sessions of the Board of Directors and all meetings of the shareholders, and record all votes and minutes for all proceedings in a book kept for that purpose, and will perform like duties of the standing committees when required. The Secretary will give or cause to be given notice of all meetings of the shareholders and of the Board of Directors, and will perform such other duties as may be prescribed by the Board of Directors or the President under whose supervision the Secretary serves. The Secretary will keep in safe custody the seal, if any, of the corporation, and will affix the same to any instrument requiring it.

The Assistant Secretary will, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary, and will perform such other duties as the Board of Directors prescribes.

SECTION 4.7. TREASURER/CHIEF FINANCIAL OFFICER AND ASSISTANT TREASURERS. As used herein or in other writings of, or documents delivered on behalf of, the corporation, the titles “Treasurer” and “Chief Financial Officer” will mean one and the same person and will be interchangeable. The Treasurer will have the custody of the corporate funds and securities, and will keep full and accurate account of receipt and disbursements in books belonging to the corporation, and will deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated from time to time by the Board of Directors. The Treasurer will disburse the funds of the corporation in discharge of corporate liabilities and obligations as may be ordered by the Board of Directors from time to time, taking the proper vouchers for such disbursements, and will render to the President and the Board of Directors whenever they may require the same, an account of all transactions and of the financial condition of the corporation, The Treasurer will give the corporation a bond, if required by the Board of Directors, in such sum as the Board of Directors may be resolution determine; and with one or more sureties satisfactory to the Board of Directors for the faithful performance of the duties of the office of Treasurer, and for the restoration to the corporation in case of death, resignation, retirement or removal form office of all books, vouchers, papers, money and other property of whatsoever kind in possession or under control of the Treasurer and belonging to the corporation.

SECTION 4.8. VACANCIES. If the office of any officer or agent becomes vacant by reason of death, resignation, retirement, disqualification, removal from office or otherwise, the Board of Directors, by a majority vote, will choose a successor or successors who will hold office for the unexpired term in respect of which such vacancy occurred.

SECTION 4.9. DELEGATION OF AUTHORITY. An officer elected or appointed by the Board of Directors may delegate some or all of the duties or powers of such office to other persons, provided that such delegation is in writing.

SECTION 4.10. CONTRACT RIGHTS. The election or appointment of a person as an officer or agent does not, of itself, create contract rights.

ARTICLE V

INDEMNIFICATION

To the full extent permitted or required by the Minnesota Business Corporation Act or by other provisions of law, each person who was or is a party or is threatened to be made a party to any threatened, pending, or pleaded action, suit, or proceeding, whenever brought, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director, officer or agent of the corporation, or such person is or was serving at the specific request of the corporation as a director, officer, employee, fiduciary, or agent of another corporation, partnership, joint venture, trust or other entity or enterprise, shall be indemnified by the corporation against expenses, including attorneys' fees, judgments, fines, and amounts paid in settlement, actually and reasonably incurred by such person in connection with such action, suit, or proceeding; provided, however, that the indemnification with respect to a person who is or was serving as a director, officer, employee, fiduciary, or agent of another corporation, partnership, joint venture, trust, or other enterprise shall apply only to the extent such person is not indemnified by such other corporation, partnership, joint venture, trust, or other entity or enterprise. Indemnification provided by this paragraph shall continue as to a person or agent and shall inure to the benefit of the heirs, executors, and administrators of such person and shall apply whether or not the claim against such person arises out of matters occurring before the adoption of this paragraph.

6

To the full extent permitted by the Minnesota Business Corporation Act the corporation will have the authority to purchase and maintain insurance for officers, directors, employees and agents against liability arising out of their status as such.

Further, to the full extent permitted by the Minnesota Business Corporation Act the corporation shall have the authority to enter into such agreements as the Board of Directors deem appropriate for the indemnification of present or future directors and officers of the corporation in connection with their service to, or status with, the corporation or any other corporation, entity or enterprise with which such person is serving at the express written request of the corporation.

ARTICLE VI

SHARES

SECTION 6.1. ISSUANCE OF SHARES. The Board of Directors is authorized and empowered to issue shares of the capital stock of the corporation to the full amount authorized by the Articles of Incorporation and all amendments thereto in such amounts and at such times as may be determined by the Board of Directors and as permitted by law.

SECTION 6.2. CERTIFICATES. Shares of this corporation’s stock may be certificated or uncertificated, as provided under Minnesota law. Any certificates of stock issued by the corporation will be in such form as prescribed by law and adopted by the Board of Directors, certifying the number of shares owned by such shareholder and be signed by the CEO or President and the Secretary, unless some other persons are specifically authorized by resolution of the Board of Directors.

SECTION 6.3. LOST CERTIFICATES. Any shareholder claiming a certificate of shares to be lost, stolen or destroyed must make an affidavit or affirmation of that fact in such form as the Board of Directors may require, and must, if the Board of Directors so requires:

(a) advertise such fact in such manner as the Board of Directors may require;

(b) give to the corporation and its transfer agent and registrar, if any, a bond of indemnity in open penalty as to amount or in such other sum as the Board of Directors may direct, in form satisfactory to the Board of Directors and to the transfer agent and registrar of the corporation, if any, and with or without such sureties as the Board of Directors with the approval of the transfer agent and registrar, if any, may prescribe; and

(c) satisfy such other requirements as may be imposed by the Board.

If notice by the shareholder of the loss, destruction, or wrongful taking of a certificate is received by the corporation before the corporation has received notice that the shares represented by such certificate have been acquired by a bona fide purchaser, and if the foregoing requirements imposed by the Board are satisfied, then the Board of Directors will authorize the issuance of a new certificate for shares of the same tenor and for the same number of shares as the one alleged to have been lost or destroyed.

7

SECTION 6.4. DIVIDENDS. The Board of Directors may declare dividends to the extent permitted by the Minnesota Business Corporation Act as and when it deems expedient. Before declaring any dividend, there may be reserved out of the accumulated profits such sums as the Board of Directors from time to time, in its discretion, thinks proper for working capital or as a reserve fund to meet contingencies or for equalizing dividends, or for such other purposes as the Board of Directors will think conducive to the interests of the corporation.

Shareholders entitled to payment of such dividend will be those shareholders of record on the date fixed by the Board for closing of the books of the corporation. If no date for closing of the books is fixed by the Board, the shareholders entitled to payment of the dividend will be the shareholders of record on the date on which the resolution declaring such dividend is adopted by the Board.

ARTICLE VII

MISCELLANEOUS

SECTION 7.1. BOOKS OF ACCOUNT. The corporation will keep such books of account as are required by the Minnesota Business Corporation Act and every shareholder will have a right to examine such books, in person or by agent or attorney, to the extent provided in the Minnesota Business Corporation Act.

SECTION 7.2. CORPORATE SEAL. If so directed by the Board of Directors, the corporation may use a corporate seal. The failure to use such seal, however, will not affect the validity of any documents executed on behalf of the corporation. The seal need only include the word “seal”, but it may also include, at the discretion of the Board of Directors, such additional wording as is permitted by law.

SECTION 7.3. CHECKS AND DOCUMENTS. All checks or demands for money and notes of the corporation and all other instrument, documents or deeds of every kind, nature and description required to be executed in the name and in behalf of the corporation must be signed by such of the officers or agents of the corporation as the Board of Directors may from time to time by resolution designate and determine.

SECTION 7.4. FISCAL YEAR. The fiscal year of this corporation will be as determined by resolution of the Board of Directors.

SECTION 7.5. AMENDMENTS TO BYLAWS. These Bylaws may be amended or altered by the vote of a majority of the Board of Directors present at any meeting provided that notice of such proposed amendments will have been given in the notice given to the directors of such meeting. Such authority of the Board of Directors is subject to the power of the shareholders to change or repeal such Bylaws as prescribed by statute and subject to any other limitations on such authority prescribed by statute.

As amended August 21, 2012

8

EX-10.1

Exhibit 10.1

FOURTH ADDENDUM TO LEASE

          This Fourth Addendum to Lease (the “Fourth Addendum”) is made and entered into this 25^th day of June, 2012, as an addendum to that certain Lease for the real property located at 350 Oak Grove Parkway, Vadnais Heights, Minnesota, made as of December 15, 2003, by and between VRT Properties, LLC, as successor to Vadnais Heights Investment Company, a Minnesota general partnership, MCHA Capital, LLC, a Minnesota limited liability company, Robert Tipler and Richard K. Mathews, (“Lessor”) and Angeion Corporation, a Minnesota corporation, and Medical Graphics Corporation, a Minnesota corporation (collectively “Tenant”), as amended by the First Addendum to Lease, the Second Addendum to Lease and the Third Addendum to Lease (as amended, the “Lease”). All capitalized terms in the Lease shall have the same meaning in this Fourth Addendum.

          WHEREAS, the term of the Lease is set to expire on December 31, 2012, and Lessor and Tenant desire to enter into this Fourth Addendum regarding Tenant’s continued occupancy of the Premises and certain other matters relating to the extension.

          NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Lessor and Tenant agree to the following:

          The following sections of the Lease are hereby amended by this Fourth Addendum:

1.	TERM. The term of the Lease shall be extended for sixty (60) months commencing January 1, 2013 and terminating on December 31, 2017.
2.	RENT. During the sixty (60) month extension period, Tenant shall pay rent to Lessor in the following amounts, which for each year shall be payable in equal monthly installments as set forth below, payable in advance on the first day of each month:

	Annual Rent		Monthly Rent
First year	$	305,914.32	$	25,492.86
Second year	$	312,032.61	$	26,002.72
Third year	$	318,273.26	$	26,522.77
Fourth year	$	324,638.72	$	27,053.23
Fifth year	$	331,131.50	$	27,594.29

3.	COSTS. Tenant agrees to continue to pay all costs and expenses relating to the leased premises consistent with the terms of the Lease and consistent with the ordinary course of business established by Tenant and Lessor during the term of the Lease, including without limitation, all operating expenses, taxes, utilities, maintenance and repairs, except for those specifically described below.
4.	IMPROVEMENTS. Lessor agrees to complete and pay for those improvements described on Exhibit A, attached hereto and incorporated herein. Lessor and Tenant agree that the improvements will be completed according to an agreed-upon schedule. Tenant agrees to cooperate with Lessor to permit Lessor to schedule and complete the work efficiently and on-time.
5.	BROKER FEE. Lessor agrees to pay Tenant’s broker, Philip J. Kluesner of Gannett Peak Partners, a broker fee equal to two percent (2%) of the rent payable over the sixty (60) month extension; provided however, that Tenant’s broker must share the fee with

1

Lessor’s counsel Steven D. Snelling of Snelling Law Office, LLC, in a proportion to be negotiated and agreed to by Tenant’s broker and Lessor’s counsel. The fee shall be payable upon execution of this Fourth Addendum by Lessor and Tenant.

          Except as amended or modified herein, all other provisions of the Lease remain in full force and effect.

          IN TESTIMONY WHEREOF, Lessor and Tenant have executed this Fourth Addendum to Lease as of the day and year first above written.

LESSOR:		TENANT:
VRT Properties, LLC		Angeion Corporation
By:	/s/ Albert M. Hafner	By:	/s/ Robert M. Wolf
Its:	Owner	Its:	CFO
		Medical Graphics Corporation
		By:	/s/ Robert M. Wolf
		Its:	CFO

2

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Gregg O. Lehman, certify that:

1.	I have reviewed this Form 10-Q of MGC Diagnostics Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
		(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
		(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
		(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
		(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
		(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
		(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	September 14, 2012	/s/ Gregg O. Lehman
		President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Robert M. Wolf, certify that:

1.	I have reviewed this Form 10-Q of MGC Diagnostics Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
		(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
		(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
		(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
		(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
		(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
		(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	September 14, 2012	/s/ Robert M. Wolf
		Chief Financial Officer

EX-32

Exhibit 32

CERTIFICATION

The undersigned certify pursuant to 18 U.S.C. § 1350, that:

(1)	The accompanying Quarterly Report on Form 10-Q for the period ended July 31, 2012 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the accompanying Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	September 14, 2012	/s/ Gregg O. Lehman
		President and Chief Executive Officer
Date:	September 14, 2012	/s/ Robert M. Wolf
		Chief Financial Officer

XML

Income (Loss) Per Share (Schedule Of Loss Per Share Computations) (Details) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Jul. 31, 2012	Jul. 31, 2011	Jul. 31, 2012	Jul. 31, 2011
Net Loss Per Share [Abstract]
Weighted average common shares outstanding - basic	3,847	3,774	3,808	3,767
Dilutive effect of stock options and restricted and performance stock awards		63
Weighted average common shares outstanding - diluted	3,847	3,837	3,808	3,767

XML

Discontinued Operations (Summary Of Revenue From Discontinued Operations) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Jul. 31, 2012	Jul. 31, 2011	Jul. 31, 2012	Jul. 31, 2011
Discontinued Operations [Abstract]
Revenues from unaffiliated customers	$ 380	$ 468	$ 1,690	$ 1,591
Pretax profit (loss) from operations of discontinued operations	$ 147	$ (219)	$ 277	$ (518)

XML

Inventories (Schedule Of Inventories) (Details) (USD $) In Thousands, unless otherwise specified	Jul. 31, 2012	Oct. 31, 2011
Inventories [Abstract]
Raw materials	$ 1,179	$ 1,234
Work-in-Process	415	170
Finished goods	2,463	2,284
Total inventories	$ 4,057	$ 3,688

XML

Segment Reporting (Tables)

9 Months Ended

Jul. 31, 2012

Segment Reporting [Abstract]

Schedule Of Net Sales By Geographic Area

	Three Months ended July 31,				Nine Months ended July 31,
(In thousands)	2012		2011		2012		2011
Revenues from unaffiliated customers:
United States	$	5,637	$	5,276	$	15,230	$	14,784
Americas		347		294		1,325		1,464
Europe		515		544		1,370		1,615
Rest of World		396		265		1,001		1,246
	$	6,895	$	6,379	$	18,926	$	19,109

XML

Separation Accrual (Schedule of Accrued Separation Expenses) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Jul. 31, 2012	Jul. 31, 2011	Jul. 31, 2012	Jul. 31, 2011
Separation Accrual [Abstract]
Balance, beginning of period	$ 195	$ 318	$ 117
Provision for separations	128	176	344	627
Separation payments	(144)	(268)	(282)	(401)
Balance, end of period	$ 179	$ 226	$ 179	$ 226

XML

Warranty Reserve (Schedule Of Warranty Provisions And Claims) (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Jul. 31, 2012	Jul. 31, 2011
Warranty Reserve [Abstract]
Balance, beginning of period	$ 141	$ 175
Warranty provisions	139	157
Periodic reserve adjustment	8	1
Warranty claims	(194)	(218)
Balance, end of period	$ 94	$ 115

XML

Inventories

9 Months Ended

Jul. 31, 2012

Inventories [Abstract]

Inventories

4.	Inventories
	Inventories consisted of the following at July 31, 2012 and October 31, 2011:

(In thousands)	2012		2011
Raw materials	$	1,179	$	1,234
Work-in-Process		415		170
Finished goods		2,463		2,284
	$	4,057	$	3,688

XML

Segment Reporting (Schedule of Net Sales By Geographic Area) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Jul. 31, 2012	Jul. 31, 2011	Jul. 31, 2012	Jul. 31, 2011
Revenue from unaffiliated customers	$ 6,895	$ 6,379	$ 18,926	$ 19,109
United States [Member]
Revenue from unaffiliated customers	5,637	5,276	15,230	14,784
Americas [Member]
Revenue from unaffiliated customers	347	294	1,325	1,464
Europe [Member]
Revenue from unaffiliated customers	515	544	1,370	1,615
Rest Of World [Member]
Revenue from unaffiliated customers	$ 396	$ 265	$ 1,001	$ 1,246

XML

Stock-Based Compensation And Stock Options (Schedule Of Our Option Activity) (Details) (USD $)	9 Months Ended
	Jul. 31, 2012	Jul. 31, 2011
Stock-Based Compensation And Stock Options [Abstract]
Outstanding at beginning of year, Shares	346,572	600,573
Exercised, Shares	(27,500)	(49,500)
Expired or cancelled, Shares	(30,500)	(157,166)
Outstanding at end of period, Shares	288,572	393,907
Outstanding at beginning of year, Weighted average exercise price	$ 6.31	$ 6.12
Exercised, Weighted Average Exercise Price	$ 3.52	$ 2.76
Expired or cancelled, Weighted Average Exercise Price	$ 6.43	$ 6.77
Outstanding at end of period, Weighted average exercise price	$ 6.57	$ 6.28

XML

Stock-Based Compensation And Stock Options (Narrative) (Details) (USD $)	0 Months Ended	3 Months Ended		6 Months Ended		9 Months Ended			9 Months Ended		7 Months Ended		0 Months Ended
	Jul. 31, 2012	Jul. 31, 2012	Jul. 31, 2011	Jun. 30, 2012	Dec. 31, 2011	Jul. 31, 2012	Jul. 31, 2011	Jul. 31, 2012 Employee Stock Purchase Plan [Member]	Jul. 31, 2012 Maximum [Member] 2002 Plan [Member]	Jul. 31, 2012 Maximum [Member] 2007 Plan [Member]	Jul. 31, 2012 Maximum [Member] Employee Stock Purchase Plan [Member]	Jul. 31, 2012 Restricted Stock [Member]	Dec. 15, 2011 Chief Executive Officer [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Period of time from the grant date when all options expire									10 years	7 years
Total share-based compensation expense		$ 86,000	$ 89,000			$ 269,000	$ 198,000
Total intrinsic value of options exercised		1,000	0			54,000	105,000
Total intrinsic value of options outstanding and exercisable	68,000	68,000				68,000
Cash received from the exercise of stock options						97,000	48,000
Unrecognized compensation expense related to outstanding stock options												493,000
Compensation expense recognition, weighted average period	1 year 9 months 29 days
Purchase price of common stock expressed as a percentage of its fair market value, percent											85.00%
Employees stock purchase plan, shares purchased				8,747	2,504
Employees stock purchase plan, price per share				$ 4.44	$ 4.47
Amount withheld from employees participating in the Employee Stock Purchase Plan	12,000	12,000				12,000
Additional number of shares available for issuance		100,000
Shares of common stock were available for future purchase								138,389
The Company awarded shares of common shares													25,090
Aggregate value of common stock shares													117,000
Non-employee performance shares expected to be granted	24,000	24,000				24,000
Non-employee performance shares vested	8,250	8,250				8,250
Fixed aggregate market value of non-employee performance shares vested	42,000	42,000				42,000
Expense (reversal) for performance share awards for non-employee consultants		(1,000)	28,000			14,000	28,000
Comprehensive loss includes amounts reclassified to discontinued operations			$ 9,000			$ (4,000)	$ 26,000

XML

Discontinued Operations (Narrative) (Details) (USD $)	0 Months Ended
	Aug. 28, 2012
Discontinued Operations [Abstract]
Cash amount of selling price	$ 1,000,000
Amount of non-contingent deferred payments	235,000
Installments due first period	9 months
Installments due second period	18 months
Non-contingent deferred payment due in installments at nine months	150,000
Non-contingent deferred payment due in installments at eighteen months	85,000
Disposal gain expected to be realized	$ 850,000

XML

Stock-Based Compensation And Stock Options (Schedule Of Stock Options Outstanding) (Details) (USD $)	9 Months Ended
	Jul. 31, 2012
Exercise Price Of Stock Options [Line Items]
Number Outstanding and Subject to Exercise	288,572
Weighted Average Remaining Contractual Life	1 year 11 months 19 days
Exercise Price $2.00 [Member]
Exercise Price Of Stock Options [Line Items]
Exercise Prices	2.00
Number Outstanding and Subject to Exercise	1,150
Weighted Average Remaining Contractual Life	1 year 2 months 5 days
Exercise Price $2.53 [Member]
Exercise Price Of Stock Options [Line Items]
Exercise Prices	2.53
Number Outstanding and Subject to Exercise	4,000
Weighted Average Remaining Contractual Life	1 year 1 month 2 days
Exercise Price $5.08 [Member]
Exercise Price Of Stock Options [Line Items]
Exercise Prices	5.08
Number Outstanding and Subject to Exercise	48,000
Weighted Average Remaining Contractual Life	1 year 9 months 18 days
Exercise Price $5.16 [Member]
Exercise Price Of Stock Options [Line Items]
Exercise Prices	5.16
Number Outstanding and Subject to Exercise	37,084
Weighted Average Remaining Contractual Life	2 years 11 months 5 days
Exercise Price $5.66 [Member]
Exercise Price Of Stock Options [Line Items]
Exercise Prices	5.66
Number Outstanding and Subject to Exercise	10,000
Weighted Average Remaining Contractual Life	2 years 9 months 18 days
Exercise Price $6.23 [Member]
Exercise Price Of Stock Options [Line Items]
Exercise Prices	6.23
Number Outstanding and Subject to Exercise	24,500
Weighted Average Remaining Contractual Life	1 year 9 months 15 days
Exercise Price $6.60 [Member]
Exercise Price Of Stock Options [Line Items]
Exercise Prices	6.60
Number Outstanding and Subject to Exercise	36,697
Weighted Average Remaining Contractual Life	1 year 11 months 19 days
Exercise Price $7.79 [Member]
Exercise Price Of Stock Options [Line Items]
Exercise Prices	7.79
Number Outstanding and Subject to Exercise	41,500
Weighted Average Remaining Contractual Life	1 year 2 months 5 days
Exercise Price $7.86 [Member]
Exercise Price Of Stock Options [Line Items]
Exercise Prices	7.86
Number Outstanding and Subject to Exercise	85,641
Weighted Average Remaining Contractual Life	2 years 22 days

XML

Stock-Based Compensation And Stock Options (Schedule Of Restricted Stock Activity) (Details) (Restricted Stock [Member], USD $)	9 Months Ended
	Jul. 31, 2012	Jul. 31, 2011
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unvested at beginning of year, Shares	126,852	101,327
Granted, Shares	67,914	125,610
Vested and released, Shares	(78,229)	(27,556)
Expired or cancelled, Shares	(6,666)	(70,555)
Unvested at end of period, Shares	109,871	128,826
Unvested at beginning of year, Weighted Average Grant Date Fair Value	$ 4.12	$ 3.11
Granted, Weighted Average Grant Date Fair Value	$ 5.51	$ 4.50
Vested and released, Weighted Average Grant Date Fair Value	$ 3.98	$ 2.62
Expired or cancelled, Weighted Average Grant Date Fair Value	$ 2.62	$ 3.79
Unvested at end of period, Weighted Average Grant Date Fair Value	$ 5.17	$ 4.20

XML

Stock-Based Compensation And Stock Options

9 Months Ended

Jul. 31, 2012

Stock-Based Compensation And Stock Options [Abstract]

Stock-Based Compensation And Stock Options

3. Stock-Based Compensation and Stock Options

          The MGC Diagnostics Corporation 2007 Stock Incentive Plan (the "2007 Plan") and the MGC Diagnostics Corporation 2002 Stock Option Plan (the "2002 Plan") both provide that incentive stock options and nonqualified stock options to purchase shares of common stock may be granted at prices determined by the Compensation Committee, except that the purchase price of incentive stock options may not be less than the fair market value of the stock at date of grant. Under the 2007 Plan, all options expire no later than seven years from the grant date while under the 2002 Plan all options expire no later than ten years from the grant date. Options under both plans are subject to various vesting schedules. In addition, the 2007 Plan allows the granting of restricted stock awards, stock appreciation rights and performance stock.

          Total share-based compensation expense included in the Company's consolidated statements of comprehensive loss for the three months ended July 31, 2012 and 2011 was $86,000 and $89,000, respectively and for the nine months ended July 31, 2012 and 2011 was $269,000 and $198,000, respectively.

Stock Options

          A summary of our option activity for the nine-month periods ended July 31, 2012 and 2011 follows:

	For the nine months ended
	July 31, 2012					July 31, 2011
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Outstanding at beginning of year		346,572		$	6.31		600,573		$	6.12
Exercised		(27,500	)		3.52		(49,500	)		2.76
Expired or cancelled		(30,500	)		6.43		(157,166	)		6.77
Outstanding at end of period		288,572		$	6.57		393,907		$	6.28

          The following table summarizes information concerning stock options outstanding as of July 31, 2012:

Exercise Prices		Number Outstanding and Subject to Exercise		Weighted Average Remaining Contractual Life(Years)
$	2.00		1,150		1.18
	2.53		4,000		1.09
	5.08		48,000		1.80
	5.16		37,084		2.93
	5.66		10,000		2.80
	6.23		24,500		1.79
	6.60		36,697		1.97
	7.79		41,500		1.18
	7.86		85,641		2.06
	Total		288,572		1.97

          The total intrinsic value of options exercised during the three months ended July 31, 2012 and 2011 was $1,000 and $0, respectively. The total intrinsic value of options exercised during the nine months ended July 31, 2012 and 2011 was $54,000 and $105,000, respectively. The total intrinsic value of options outstanding and exercisable at July 31, 2012 was $68,000, which was calculated using the closing stock price as of July 31, 2012 less the exercise price of in-the-money options. The Company issues new shares when stock options are exercised. Cash received from the exercise of stock options was $97,000 and $48,000 for the nine months ended July 31, 2012 and 2011, respectively and there was no related tax benefit realized due to the Company's current tax loss position. There was no unrecognized compensation expense related to outstanding stock options as of July 31, 2012.

          Valuation Assumptions

          The Company uses the Black-Scholes option-pricing model ("Black-Scholes model") to determine the fair value of stock options as of the grant date. The fair value of stock options under the Black-Scholes model requires management to make assumptions regarding projected employee stock option exercise behaviors, risk-free interest rates, volatility of the Company's stock price and expected dividends. The Company did not grant any options during any of the three- or nine-month periods ended July 31, 2012 and 2011.

          Restricted Stock Awards

Restricted stock awards are awards of common stock that are subject to restrictions on transfer and to a risk of forfeiture if the awardee leaves the Company before the restrictions lapse. The holder of a restricted stock award is generally entitled at all times on and after the date of issuance of the restricted shares to exercise the rights of a shareholder of the Company, including the right to vote the shares. The value of stock awards was established by the market price on the date of grant. A summary of the Company's restricted stock activity for the nine months ended July 31, 2012 and 2011 is presented in the following table.

	For the nine months ended
	July 31, 2012					July 31, 2011
	Shares			Weighted Average Grant Date Fair Value		Shares			Weighted Average Grant Date Fair Value
Unvested at beginning of year		126,852		$	4.12		101,327		$	3.11
Granted		67,914			5.51		125,610			4.50
Vested and released		(78,229	)		3.98		(27,556	)		2.62
Expired or cancelled		(6,666	)		2.62		(70,555	)		3.79
Unvested at end of period		109,871		$	5.17		128,826		$	4.20

          Unrecognized compensation expense related to outstanding restricted stock awards as of July 31, 2012 was $493,000. The Company expects to recognize this over a weighted average period of 1.83 years.

          Employee Stock Purchase Plan

          The MGC Diagnostics Corporation 2003 Employee Stock Purchase Plan ("Purchase Plan") allows participating employees to purchase shares of the Company's common stock at a discount through payroll deductions. The Purchase Plan is available to all employees subject to certain eligibility requirements. Terms of the Purchase Plan provide that participating employees may purchase the Company's common stock on a voluntary after-tax basis. Employees may currently purchase the Company's common stock at a price that is the lower of 85% of the fair market value of one share of common stock at the beginning or end of each stock purchase period or phase. The Purchase Plan is carried out in six-month phases, with phases beginning on January 1 and July 1 of each calendar year. For the phases that ended on December 31, 2011 and June 30, 2012, employees purchased 2,504 shares at a price of $4.47 per share and 8,747 shares at a price of $4.44, respectively. As of July 31, 2012, the Company has withheld approximately $12,000 from employees participating in the phase that began on July 1, 2012. In the May 30, 2012 annual meeting, the shareholders adopted plan amendments that increased the available shares by 100,000 shares. At July 31, 2012, 138,389 shares of common stock were available for future purchases under the Purchase Plan.

          Performance Share Awards

          As a part of his compensation arrangements, on December 15, 2011, the Company's chief executive officer was issued a grant of 25,090 performance shares of Company common stock that would be earned if the Company meets the specified operating earnings target in fiscal 2012. The officer is not entitled to rights of ownership and shares are not regarded as either issued or outstanding until delivered. These shares are valued at $117,000. In the three- and nine-month periods ended July 31, 2012, the Company made no provision for expense related to performance awards, as it is no longer probable that the shares will vest.

          Performance share awards to non-employee consultants are an obligation within a consulting arrangement that does not grant any ownership rights until the shares are issued. The value of stock awards to non-employees remains variable until performance criteria have been achieved, when individual share groups to be granted vest, establishing the value of each group over the dates that its related performance criteria was completed. Under variable accounting, the Company expenses amounts for shares it expects will be issued over the performance period, with the value of those whose performance criteria has been met expensed at the market value on the date earned and value of all others marked to market as of the reporting date. At July 31, 2012, of the 24,000 shares available to be earned, 8,250 have vested with an aggregate market value fixed at $42,000. Expense (reversal) was $(1,000) and $14,000 for the three and nine months ended July 31, 2012, respectively and was $28,000 for the three and nine months ended July 31, 2011.

          The following table presents the statement of comprehensive loss classification of pre-tax stock-based compensation expense recognized for the three and nine months ended July 31, 2012 and 2011:

	Three months ended July 31,				Nine months ended July 31,
	2012		2011		2012		2011
Cost of revenues	$	1	$	2	$	3	$	5
Selling and marketing		14		29		29		85
General and administrative		63		47		211		85
Research and development		8		11		26		23
Stock-based compensation expense	$	86	$	89	$	269	$	198

          The table above includes amounts reclassified to discontinued operations from selling and marketing expenses totaling $9,000 in the three months ended July 31, 2011 and $(4,000) and $26,000 for the nine months ended July 31, 2012 and 2011, respectively.

XML

Stock-Based Compensation And Stock Options (Schedule Of Pre-Tax Stock-Based Compensation Expense Recognized) (Details) (USD $)	3 Months Ended		9 Months Ended
	Jul. 31, 2012	Jul. 31, 2011	Jul. 31, 2012	Jul. 31, 2011
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	$ 86,000	$ 89,000	$ 269,000	$ 198,000
Cost of revenues [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	1,000	2,000	3,000	5,000
Selling and marketing [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	14,000	29,000	29,000	85,000
General and administrative [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	63,000	47,000	211,000	85,000
Research and development [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	$ 8,000	$ 11,000	$ 26,000	$ 23,000

XML

Income Taxes (Narrative) (Details) (USD $)	3 Months Ended		9 Months Ended
	Jul. 31, 2012	Jul. 31, 2011	Jul. 31, 2012	Jul. 31, 2011	Oct. 31, 2011
Income Taxes [Abstract]
Provision for income taxes from operations	$ 7,000	$ 10,000	$ 21,000	$ 30,000
Reserve for uncertain tax positions	41,750		41,750		41,000
Estimate reserve for interest and penalties	17,500		17,500
Unrecognized federal tax benefit from net operating loss carry forward					15,800,000
Alternative minimum tax credit carry forwards	109,000		109,000
Additional paid-in capital as these deferred tax assets represent employee stock-based compensation tax deductions included in the Company's net operating losses	$ 900,000		$ 900,000

XML

Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Jul. 31, 2012	Oct. 31, 2011
Current Assets:
Cash and cash equivalents	$ 8,709	$ 8,461
Short-term investments		723
Accounts receivable, net of allowance for doubtful accounts of $45 and $96, respectively	4,720	5,958
Inventories, net of obsolescence reserve of $501 and $431, respectively	4,057	3,688
Prepaid expenses and other current assets	550	235
Current assets of discontinued operations	55	62
Total Current Assets	18,091	19,127
Property and equipment, net of accumulated depreciation of $3,887 and $3,709, respectively	400	440
Intangible assets, net	1,438	1,174
Non-current assets of discontinued operations	25	31
Total Assets	19,954	20,772
Current Liabilities:
Accounts payable	1,587	2,022
Employee compensation	1,367	1,481
Deferred income	1,867	1,771
Warranty reserve	94	141
Other current liabilities and accrued expenses	456	221
Total Current Liabilities	5,371	5,636
Long-term Liabilities:
Long-term deferred income and other	725	817
Total Liabilities	6,096	6,453
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	378
Undesignated shares, authorized 5,000,000 shares, no shares issued and outstanding
Additional paid-in capital	20,944	20,622
Accumulated deficit	(7,474)	(6,683)
Accumulated other comprehensive income		2
Total Shareholders' Equity	13,858	14,319
Total Liabilities and Shareholders' Equity	$ 19,954	$ 20,772

XML

Discontinued Operations (Summary Of Assets Included In Discontinued Operations) (Details) (USD $) In Thousands, unless otherwise specified	Jul. 31, 2012
Discontinued Operations [Abstract]
Inventory	$ 55
Machinery and equipment	3
Intangible assets	22
Total assets	$ 80

XML

Basis Of Presentation And Description Of Business

9 Months Ended

Jul. 31, 2012

Basis Of Presentation And Description Of Business [Abstract]

Basis Of Presentation And Description Of Business

1. Basis of Presentation and Description of Business

          MGC Diagnostics Corporation (the "Company")(formerly Angeion Corporation) is a global medical technology company dedicated to cardiorespiratory health solutions. Through its Medical Graphics Corporation subsidiary, MGC Diagnostics Corporation designs, markets and sells non-invasive cardiorespiratory diagnostic systems under the MedGraphics brand and trade name (see Note 11 – Discontinued Operations regarding New Leaf brand). This portfolio of products provides solutions for disease detection, integrated care, and wellness across the cardiorespiratory healthcare spectrum. The Company sells its products internationally through distributors and in the United States through a direct sales force targeting heart and lung specialists located in hospitals, university-based medical centers, medical clinics, physician offices, pharmaceutical companies, medical device manufacturers, and clinical research organizations (CROs). The Company changed its name to MGC Diagnostics Corporation effective August 21, 2012.

          The consolidated balance sheet as of July 31, 2012, the consolidated statements of comprehensive loss for the three and nine months ended July 31, 2012 and 2011, the consolidated statements of cash flows for the nine months ended July 31, 2012 and 2011, and the related information presented in these notes have been prepared by management in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, without audit. Accordingly, they do not include all of the information and notes required by U.S. 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. The consolidated balance sheet at October 31, 2011 was derived from the audited consolidated financial statements as of that date. Operating results for the three and nine months ended July 31, 2012 are not necessarily indicative of the results that may be expected for the year ending October 31, 2012. For further information, refer to the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended October 31, 2011.

          Comprehensive loss is a measure of all non-owner changes in shareholders' equity and includes items such as net loss, certain foreign currency translation items, minimum pension liability adjustments and changes in the value of available-for-sale securities. Other comprehensive income (loss) for the periods ended July 31, 2012 and 2011 is comprised of unrealized losses on available-for-sale securities.

          Preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities made in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Estimates include accounts receivable, product warranty and inventory reserves, and depreciable lives of property, equipment and intangible assets (including internal software development costs).

          The Company determined there were no events subsequent to July 31, 2012, that required recognition or disclosure in these consolidated financial statements, except for sale of assets of the New Leaf business, as discussed in Note 11 – Discontinued Operations.

XML

Intangible Assets (Schedule Of Intangible Assets) (Details) (USD $)	Jul. 31, 2012	Oct. 31, 2011
Acquired Finite-Lived Intangible Assets [Line Items]
Intangible Assets	$ 8,010,000	$ 7,417,000
Accumulated Amortization	(6,572,000)	(6,243,000)
Intangible assets, net	1,438,000	1,174,000
Capitalized Software In Progress [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Intangible Assets	1,143,000	567,000
Developed Technology [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Intangible Assets	6,806,000	6,788,000
Trademarks [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Intangible Assets	$ 61,000	$ 62,000

XML

Warranty Reserve (Tables)

9 Months Ended

Jul. 31, 2012

Warranty Reserve [Abstract]

Schedule Of Warranty Provisions And Claims

	Nine months ended July 31,
(In thousands)	2012			2011
Balance, beginning of period	$	141		$	175
Warranty provisions		139			157
Periodic reserve adjustment		8			1
Warranty claims		(194	)		(218	)
Balance, end of period	$	94		$	115

XML

Intangible Assets (Schedule Of Expected Amortization Expense) (Details) (USD $) In Thousands, unless otherwise specified	Jul. 31, 2012
Intangible Assets [Abstract]
Three months ending October 31, 2012	$ 113
2013	21
2014	21
2015	21
2016	21
Total	$ 197

XML

Separation Accrual (Tables)

9 Months Ended

Jul. 31, 2012

Separation Accrual [Abstract]

Schedule Of Accrued Separation Expenses

	Three Months ended July 31,						Nine Months ended July 31,
(In thousands)	2012			2011			2012			2011
Balance, beginning of period	$	195		$	318		$	117		$	—
Provision for separations		128			176			344			627
Separation payments		(144	)		(268	)		(282	)		(401	)
Balance, end of period	$	179		$	226		$	179		$	226

XML

Summary Of Significant Accounting Policies

9 Months Ended

Jul. 31, 2012

Summary Of Significant Accounting Policies [Abstract]

Summary Of Significant Accounting Policies

2.      Summary of Significant Accounting Policies

          Revenue Recognition

          The Company recognizes revenue when persuasive evidence of an arrangement exists, transfer of title has occurred or services have been rendered, the selling price is fixed or determinable and collectability is reasonably assured. The Company's products are sold for cash or on unsecured credit terms requiring payment based on the shipment date. Credit terms can vary between customers due to many factors, but are generally, on average, 30-60 days. Revenue, net of discounts, is generally recognized upon shipment or delivery to customers in accordance with written sales terms. Standard sales terms do not include customer acceptance conditions, future credits, rebates, price protection or general rights of return. The terms of sales to both domestic customers and international distributors are identical, although adherence to these terms is more pervasive with domestic customers than with international customers. In instances when a customer order specifies final acceptance of the system, revenue is deferred until all customer acceptance criteria have been met. Estimated warranty obligations are recorded upon shipment.

          Service contract revenue is based on a stated contractual rate and is deferred and recognized ratably over the service period, which is typically from one to four years. Deferred income associated with service contracts was $2,381,000 and $2,368,000 at July 31, 2012 and October 31, 2011, respectively. Revenue from installation and training services provided to customers is deferred until the service has been performed. The amount of deferred installation and training revenue was $121,000 and $152,000 at July 31, 2012 and October 31, 2011, respectively.

          When a sales arrangement involves multiple deliverables, such as equipment, installation services and training, the amount of the consideration from the sale is allocated to each respective element based on selling price and is recognized as revenue when revenue recognition criteria for each element is met. Consideration allocated to delivered equipment that the Company has concluded has value to the customer on a standalone basis is equal to the total arrangement consideration less the selling price of installation and training. The selling price of installation and training services is based on specific objective evidence, including third-party invoices.

          No customer accounted for more than 10% of revenues for any of the three- or nine-month periods ended July 31, 2012 and 2011.

          Advance Payments from Customers

          The Company typically does not receive advance payments from its customers in connection with the sale of its products. The Company occasionally enters into an arrangement under which a customer agrees to purchase a large quantity of product that will be delivered over a period of time. Depending on the size of these arrangements, the Company may negotiate an advance payment from these customers. At July 31, 2012, advance payments from customers aggregated $88,000, while at October 31, 2011, advance payments from customers aggregated $31,000. Revenue recognition for customer orders that include advance payments is consistent with the Company's revenue recognition policy described above.

          Internal Software Development Costs

          Internal software development costs consist primarily of internal salaries and consulting fees we have incurred in developing software platforms for sale to, or use by, our customers in equipment we sell. We capitalize costs related to our software product development because these software products will become an integral part of a product or process that we sell. This software is primarily related to our BreezeSuite platform and its underlying support systems.

         We capitalize costs related to software developed for new products and significant enhancements of existing products once technological feasibility has been reached and all research and development for the components of the product have been completed. These costs will be amortized on a straight-line basis over the estimated useful life of the related product, generally between five and seven years, commencing with the date the product becomes available for general release to our customers. At each of July 31, 2012 and October 31, 2011, we have not yet amortized any capitalized software costs because the software has not yet been released for use. The achievement of technological feasibility and the estimate of a product's economic life require management's judgment. Any changes in key assumptions, market conditions or other circumstances could result in an impairment of the capitalized asset and a charge to our operating results.

         Recent Accounting Pronouncements

          Fair Value Measurement - During May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-04, "Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs." ASU No. 2011-04 changes certain fair value measurement principles and enhances certain fair value disclosure requirements, particularly for Level 3 measurements. ASU No. 2011-04 is effective for interim and annual periods beginning after December 15, 2011 and is required to be applied prospectively. The Company's adoption of ASU No. 2011-04 did not have a material effect on its results of operations, financial position or cash flows.

          Presentation of Comprehensive Income - During June 2011, the FASB issued ASU No. 2011-05, "Comprehensive Income (Topic 220): Presentation of Comprehensive Income." ASU No. 2011-05 requires the presentation of comprehensive income in either a single continuous financial statement or two separate, but consecutive financial statements. ASU No. 2011-05 also includes a provision requiring the presentation of reclassification adjustments from other comprehensive income to net income on the face of the financial statements. During December 2011, the FASB issued ASU No. 2011-12, "Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05," which deferred this requirement in order to allow the FASB more time to determine whether reclassification adjustments should be required to be presented on the face of the financial statements. ASUs No. 2011-05 and 2011-12 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 and are required to be applied retrospectively. The Company adopted ASU 2011-05 and ASU No. 2011-12 in the report for the period ended April 30, 2012. The adoptions did not have a material effect on its results of operations, financial position or cash flows.

XML

Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Jul. 31, 2012	Oct. 31, 2011
Consolidated Balance Sheets [Abstract]
Accounts receivable, allowance for doubtful accounts	$ 45	$ 96
Inventories, obsolescence reserve	501	431
Property and equipment, accumulated depreciation	$ 3,887	$ 3,709
Common stock, par value	$ 0.1	$ 0.1
Common stock, shares authorized	25,000,000	25,000,000
Common stock, shares issued	3,993,900	3,905,648
Common stock, shares outstanding	3,884,029	3,778,796
Undesignated shares, shares authorized	5,000,000	5,000,000
Undesignated shares, shares issued	0	0
Undesignated shares, shares outstanding	0	0

XML

Litigation

9 Months Ended

Jul. 31, 2012

Litigation [Abstract]

Litigation

12.          Litigation

From time to time, the Company is also subject to claims and lawsuits that have been filed in the ordinary course of business. From time to time, the Company initiates lawsuits against others to enforce patents or to seek collection of debts in the ordinary course of business. There is no material pending or outstanding litigation at the current time.

XML

Document And Entity Information	9 Months Ended
	Jul. 31, 2012	Sep. 04, 2012
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jul. 31, 2012
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2012
Entity Registrant Name	MGC Diagnostics Corporation
Entity Central Index Key	0000815093
Current Fiscal Year End Date	--10-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		3,993,900
Trading Symbol	mgcd

XML

Summary Of Significant Accounting Policies (Policies)

9 Months Ended

Jul. 31, 2012

Summary Of Significant Accounting Policies [Abstract]

Revenue Recognition

          Revenue Recognition

          The Company recognizes revenue when persuasive evidence of an arrangement exists, transfer of title has occurred or services have been rendered, the selling price is fixed or determinable and collectability is reasonably assured. The Company's products are sold for cash or on unsecured credit terms requiring payment based on the shipment date. Credit terms can vary between customers due to many factors, but are generally, on average, 30-60 days. Revenue, net of discounts, is generally recognized upon shipment or delivery to customers in accordance with written sales terms. Standard sales terms do not include customer acceptance conditions, future credits, rebates, price protection or general rights of return. The terms of sales to both domestic customers and international distributors are identical, although adherence to these terms is more pervasive with domestic customers than with international customers. In instances when a customer order specifies final acceptance of the system, revenue is deferred until all customer acceptance criteria have been met. Estimated warranty obligations are recorded upon shipment.

          Service contract revenue is based on a stated contractual rate and is deferred and recognized ratably over the service period, which is typically from one to four years. Deferred income associated with service contracts was $2,381,000 and $2,368,000 at July 31, 2012 and October 31, 2011, respectively. Revenue from installation and training services provided to customers is deferred until the service has been performed. The amount of deferred installation and training revenue was $121,000 and $152,000 at July 31, 2012 and October 31, 2011, respectively.

          When a sales arrangement involves multiple deliverables, such as equipment, installation services and training, the amount of the consideration from the sale is allocated to each respective element based on selling price and is recognized as revenue when revenue recognition criteria for each element is met. Consideration allocated to delivered equipment that the Company has concluded has value to the customer on a standalone basis is equal to the total arrangement consideration less the selling price of installation and training. The selling price of installation and training services is based on specific objective evidence, including third-party invoices.

          No customer accounted for more than 10% of revenues for any of the three- or nine-month periods ended July 31, 2012 and 2011.

Advance Payments From Customers

          Advance Payments from Customers

          The Company typically does not receive advance payments from its customers in connection with the sale of its products. The Company occasionally enters into an arrangement under which a customer agrees to purchase a large quantity of product that will be delivered over a period of time. Depending on the size of these arrangements, the Company may negotiate an advance payment from these customers. At July 31, 2012, advance payments from customers aggregated $88,000, while at October 31, 2011, advance payments from customers aggregated $31,000. Revenue recognition for customer orders that include advance payments is consistent with the Company's revenue recognition policy described above.

Internal Software Development Costs

          Internal Software Development Costs

          Internal software development costs consist primarily of internal salaries and consulting fees we have incurred in developing software platforms for sale to, or use by, our customers in equipment we sell. We capitalize costs related to our software product development because these software products will become an integral part of a product or process that we sell. This software is primarily related to our BreezeSuite platform and its underlying support systems.

         We capitalize costs related to software developed for new products and significant enhancements of existing products once technological feasibility has been reached and all research and development for the components of the product have been completed. These costs will be amortized on a straight-line basis over the estimated useful life of the related product, generally between five and seven years, commencing with the date the product becomes available for general release to our customers. At each of July 31, 2012 and October 31, 2011, we have not yet amortized any capitalized software costs because the software has not yet been released for use. The achievement of technological feasibility and the estimate of a product's economic life require management's judgment. Any changes in key assumptions, market conditions or other circumstances could result in an impairment of the capitalized asset and a charge to our operating results.

Recent Accounting Pronouncements

         Recent Accounting Pronouncements

          Fair Value Measurement - During May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-04, "Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs." ASU No. 2011-04 changes certain fair value measurement principles and enhances certain fair value disclosure requirements, particularly for Level 3 measurements. ASU No. 2011-04 is effective for interim and annual periods beginning after December 15, 2011 and is required to be applied prospectively. The Company's adoption of ASU No. 2011-04 did not have a material effect on its results of operations, financial position or cash flows.

          Presentation of Comprehensive Income - During June 2011, the FASB issued ASU No. 2011-05, "Comprehensive Income (Topic 220): Presentation of Comprehensive Income." ASU No. 2011-05 requires the presentation of comprehensive income in either a single continuous financial statement or two separate, but consecutive financial statements. ASU No. 2011-05 also includes a provision requiring the presentation of reclassification adjustments from other comprehensive income to net income on the face of the financial statements. During December 2011, the FASB issued ASU No. 2011-12, "Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05," which deferred this requirement in order to allow the FASB more time to determine whether reclassification adjustments should be required to be presented on the face of the financial statements. ASUs No. 2011-05 and 2011-12 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 and are required to be applied retrospectively. The Company adopted ASU 2011-05 and ASU No. 2011-12 in the report for the period ended April 30, 2012. The adoptions did not have a material effect on its results of operations, financial position or cash flows.

XML

Consolidated Statements Of Comprehensive Loss (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Jul. 31, 2012	Jul. 31, 2011	Jul. 31, 2012	Jul. 31, 2011
Revenues
Equipment, supplies and accessories revenues	$ 5,876	$ 5,313	$ 15,738	$ 16,176
Service revenues	1,019	1,066	3,188	2,933
Total revenues	6,895	6,379	18,926	19,109
Cost of revenues
Cost of equipment, supplies and accessories revenues	2,835	2,348	7,564	7,208
Cost of service revenues	354	363	1,086	1,041
Total cost of revenues	3,189	2,711	8,650	8,249
Gross margin	3,706	3,668	10,276	10,860
Operating expenses:
Selling and marketing	2,132	1,585	5,558	4,930
General and administrative	913	916	2,988	3,243
Research and development	825	924	2,455	2,387
Amortization of intangibles	112	105	329	315
Total operating expenses	3,982	3,530	11,330	10,875
Operating (loss) income	(276)	138	(1,054)	(15)
Interest income	3	10	7	20
(Loss) income from continuing operations before taxes	(273)	148	(1,047)	5
Provision for taxes	7	10	21	30
(Loss) income from continuing operations	(280)	138	(1,068)	(25)
Income (loss) from operations of discontinued operations	147	(219)	277	(518)
Net loss	(133)	(81)	(791)	(543)
Other comprehensive loss; net of tax
Unrealized loss on securities		(4)	(2)	(3)
Comprehensive loss	$ (133)	$ (85)	$ (793)	$ (546)
(Loss) income per share:
Basic - From continuing operations	$ (0.07)	$ 0.04	$ (0.28)	$ (0.01)
Basic - From discontinued operations	$ 0.04	$ (0.06)	$ 0.07	$ (0.13)
Basic - Total	$ (0.03)	$ (0.02)	$ (0.21)	$ (0.14)
Diluted - From continuing operations	$ (0.07)	$ 0.04	$ (0.28)	$ (0.01)
Diluted - From discontinued operations	$ 0.04	$ (0.06)	$ 0.07	$ (0.13)
Diluted - Total	$ (0.03)	$ (0.02)	$ (0.21)	$ (0.14)
Weighted average common shares outstanding:
Basic	3,847	3,774	3,808	3,767
Diluted	3,847	3,837	3,808	3,767

XML

Income (Loss) Per Share

9 Months Ended

Jul. 31, 2012

Net Loss Per Share [Abstract]

Net Loss Per Share

7. Income (Loss) per Share

          Basic income (loss) per share is computed by dividing net income (loss) by the weighted average shares outstanding during the reporting period. Diluted income per share is computed similarly to basic income (loss) per share except that in computing diluted income per share the weighted average shares outstanding are increased to include additional shares issuable from the assumed exercise of stock options, if dilutive, as well as the dilutive effects of any unvested restricted share awards. When results are losses, diluted loss per share does not include any of these dilutive effects in its calculation. When dilutive effects are included, the number of additional shares is calculated by assuming that outstanding stock options are exercised, outstanding restricted share grants vest and that the cash proceeds from the exercise together with the assumed employment value represented by the unamortized stock-based compensation were used to reacquire shares of common stock at the average market price during the reporting period.

          The Company had unexpired options for the purchase of its common shares and unvested restricted and performance stock awards at July 31, 2012 and 2011 of 423,533 and 522,733 shares, respectively.

          Shares used in the loss per share computations are as follows:

	Three months ended July 31,				Nine months ended July 31,
(In thousands)	2012		2011		2012		2011
Weighted average common shares outstanding – basic		3,847		3,774		3,808		3,767
Dilutive effect of stock options and restricted and performance stock awards		—		63		—		—
Weighted average common shares outstanding – diluted		3,847		3,837		3,808		3,767

          As a result of the loss from continuing operations in the three and nine months ended July 31, 2012 and the nine months ended July 31, 2011, the outstanding stock options and unvested restricted and performance shares were considered antidilutive and, therefore, were excluded from diluted loss per share of those periods. In the calculation of dilutive shares for the three months ended July 31, 2011, options for 369,000 shares were excluded as anti-dilutive because the option price exceeded the average share price in the period.

XML

Warranty Reserve

9 Months Ended

Jul. 31, 2012

Warranty Reserve [Abstract]

Warranty Reserve

6.             Warranty Reserve

Sales of the Company's equipment are subject to a warranty obligation. Equipment warranties typically extend for a period of twelve months from the date of installation. Standard warranty terms are included in customer contracts. Under the terms of these warranties, the Company is obligated to repair or replace any components or assemblies that it deems defective in workmanship or materials. The Company reserves the right to reject warranty claims if it determines that failure is due to normal wear, customer modifications, improper maintenance or misuse. The Company maintains a warranty reserve that reflects the estimated expenses that it will incur to honor the warranties on its products. The Company adjusts the warranty reserve based on the number and type of equipment that is subject to warranty, adjusted for the remaining months of warranty coverage. The warranty reserve adjustment reflects the Company's historical warranty experience based on type of equipment. Warranty provisions and claims for the nine months ended July 31, 2012 and 2011 were as follows:

	Nine months ended July 31,
(In thousands)	2012			2011
Balance, beginning of period	$	141		$	175
Warranty provisions		139			157
Periodic reserve adjustment		8			1
Warranty claims		(194	)		(218	)
Balance, end of period	$	94		$	115

XML

Income (Loss) per Share (Tables)

9 Months Ended

Jul. 31, 2012

Net Loss Per Share [Abstract]

Schedule Of Shares Used In Loss Per Share Computations

	Three months ended July 31,				Nine months ended July 31,
(In thousands)	2012		2011		2012		2011
Weighted average common shares outstanding – basic		3,847		3,774		3,808		3,767
Dilutive effect of stock options and restricted and performance stock awards		—		63		—		—
Weighted average common shares outstanding – diluted		3,847		3,837		3,808		3,767

XML

Stock-Based Compensation And Stock Options (Tables)

9 Months Ended

Jul. 31, 2012

Stock-Based Compensation And Stock Options [Abstract]

Schedule Of Stock Option Activity

	For the nine months ended
	July 31, 2012					July 31, 2011
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Outstanding at beginning of year		346,572		$	6.31		600,573		$	6.12
Exercised		(27,500	)		3.52		(49,500	)		2.76
Expired or cancelled		(30,500	)		6.43		(157,166	)		6.77
Outstanding at end of period		288,572		$	6.57		393,907		$	6.28

Schedule Of Stock Options Outstanding

Exercise Prices		Number Outstanding and Subject to Exercise		Weighted Average Remaining Contractual Life(Years)
$	2.00		1,150		1.18
	2.53		4,000		1.09
	5.08		48,000		1.80
	5.16		37,084		2.93
	5.66		10,000		2.80
	6.23		24,500		1.79
	6.60		36,697		1.97
	7.79		41,500		1.18
	7.86		85,641		2.06
	Total		288,572		1.97

Schedule Of Restricted Stock Activity

	For the nine months ended
	July 31, 2012					July 31, 2011
	Shares			Weighted Average Grant Date Fair Value		Shares			Weighted Average Grant Date Fair Value
Unvested at beginning of year		126,852		$	4.12		101,327		$	3.11
Granted		67,914			5.51		125,610			4.50
Vested and released		(78,229	)		3.98		(27,556	)		2.62
Expired or cancelled		(6,666	)		2.62		(70,555	)		3.79
Unvested at end of period		109,871		$	5.17		128,826		$	4.20

Schedule Of Pre-Tax Stock-Based Compensation Expense Recognized

	Three months ended July 31,				Nine months ended July 31,
	2012		2011		2012		2011
Cost of revenues	$	1	$	2	$	3	$	5
Selling and marketing		14		29		29		85
General and administrative		63		47		211		85
Research and development		8		11		26		23
Stock-based compensation expense	$	86	$	89	$	269	$	198

XML

Segment Reporting

9 Months Ended

Jul. 31, 2012

Segment Reporting [Abstract]

Segment Reporting

10.          Segment Reporting

The Company operates in a single industry segment, the manufacture and sale of cardiorespiratory diagnostic products. The Company sells its products into many countries throughout the world. Net sales by geographic area are shown in the following table.

	Three Months ended July 31,				Nine Months ended July 31,
(In thousands)	2012		2011		2012		2011
Revenues from unaffiliated customers:
United States	$	5,637	$	5,276	$	15,230	$	14,784
Americas		347		294		1,325		1,464
Europe		515		544		1,370		1,615
Rest of World		396		265		1,001		1,246
	$	6,895	$	6,379	$	18,926	$	19,109

XML

Income Taxes

9 Months Ended

Jul. 31, 2012

Income Taxes [Abstract]

Income Taxes

8. Income Taxes

          The Company has recorded a provision for taxes from operations of $7,000 and $10,000 for the three months ended July 31, 2012 and 2011, respectively. For the nine-month periods ended July 31, 2012 and 2011, the provision for taxes from operations was $21,000 and $30,000, respectively

          At October 31, 2011, the reserve for uncertain tax positions was $41,000, increasing to $41,750 at the end of the third quarter of fiscal 2012. The entire amount of the reserve is related to uncertainties regarding income tax nexus with various states in which the Company has limited activities. Included in the reserve is $17,500 of estimated interest and penalties. The total amount of the reserve has increased the Company's effective tax rate, and would therefore decrease the effective tax rate if removed.

          Estimated interest and penalties related to potential underpayment of income taxes are classified as a component of tax expense in the consolidated statements of comprehensive loss. The Company does not expect the amount of reserves for uncertain tax positions to change significantly in the next twelve months. Similarly, the Company does not anticipate that the total reserve for uncertain tax positions will significantly change due to the settlement of audits and the expiration of statutes of limitations within the next twelve months.

          The Company files a consolidated federal income tax return in the United States Federal jurisdiction and files various combined and separate tax returns in several state and local jurisdictions. For United States federal tax, the Company is no longer subject to examinations by the authorities for fiscal years ending prior to November 1, 2008. The expiration dates of the statute of limitations related to the various state income tax returns that the Company files vary by state. There is no statute of limitations for assessments related to jurisdictions where the Company may have a nexus but has chosen not to file an income tax return.

          The Company had a federal net operating loss carry forward at October 31, 2011 of approximately $15.8 million. This amount is the remaining utilizable carry forward following the application of a limit due to an ownership change under Internal Revenue Code Section 382 that occurred during the fourth quarter of fiscal year 2006. This carry forward is available to offset a portion of taxes payable in future years. If not used, this carry forward will expire in the years 2012 through 2031. The Company also has $109,000 of alternative minimum tax credit carry forwards that do not have expiration dates. Even though the Company has substantial federal net operating loss carry forwards, any income may still be subject to U.S. and State alternative minimum taxes.

          The Company has recorded a full valuation allowance against its net deferred tax asset based on its belief that it was more likely than not that the asset would not be realized in the future. Although this determination was made in a prior fiscal year, it is still applicable as of July 31, 2012, and the Company will continue to assess the need for a full valuation allowance in future quarters. Any reduction of the valuation allowance related to post-bankruptcy net operating losses and other deferred tax assets would (i) first affect earnings as a reduction in the provision for taxes and (ii) thereafter, the remaining $0.9 million would increase additional paid-in capital as these deferred tax assets represent employee stock-based compensation tax deductions included in the Company's net operating losses.

XML

Separation Accrual

9 Months Ended

Jul. 31, 2012

Separation Accrual [Abstract]

Separation Accrual

9. Separation Accruals

          During the first quarter of fiscal 2011, the Company incurred a charge of $418,000 included in general and administrative expenses, consisting of an accrual of separation payments for the former chief executive officer of $451,000 reduced by the effect of forfeitures of previously expensed unvested option and restricted stock award costs. During the third quarter of fiscal 2011, the Company incurred a charge of $91,000 included in general and administrative expenses, consisting of an accrual of separation payments of $176,000 for a second former chief executive officer reduced by the effect of forfeitures of previously expensed unvested option and restricted stock award costs and the reversal of short-term management incentives accrued in the first and second quarters of fiscal 2011.

          During the quarter ended April 30, 2012, the Company incurred charges for separations in certain sales and marketing personnel in relation to executive leadership changes and cost savings force reductions. During the quarter ended July 31, 2012, the Company incurred charges for separations in certain additional sales and marketing personnel in cost savings force reductions.

          The following table reconciles fiscal 2011 and 2012 third quarter and year-to-date activity for accrued separation expenses.

	Three Months ended July 31,						Nine Months ended July 31,
(In thousands)	2012			2011			2012			2011
Balance, beginning of period	$	195		$	318		$	117		$	—
Provision for separations		128			176			344			627
Separation payments		(144	)		(268	)		(282	)		(401	)
Balance, end of period	$	179		$	226		$	179		$	226

XML

Discontinued Operations

9 Months Ended

Jul. 31, 2012

Discontinued Operations [Abstract]

Discontinued Operations

11. Discontinued Operations

          The Company has been engaged in the sale and support of New Leaf branded products and services sold to customers in the health fitness market for several years. Product development and selling and marketing costs have exceeded generated gross margins since brand introduction. In an effort to focus on core served markets within the healthcare market, the Company took steps to sell the New Leaf business during fiscal 2012. On August 28, 2012, the Company entered into and closed definitive agreements under which it sold to a third party its New Leaf related software and support materials, New Leaf product inventory, and New Leaf trademarks, service marks, and licensed to this third party certain patents and other intellectual property for use in the general wellness and health and fitness field. The Company received $1,000,000 in cash at signing and will receive $235,000 in non-contingent deferred payments, due in installments of $150,000 and $85,000, respectively at nine and eighteen months from the sale date. The Company will retain sufficient assets to service the supply and maintenance needs of customers other than the purchaser that are currently covered by warranty and prepaid extended warranty contracts. In connection with the transaction, the Company and the third-party purchaser each agreed not to compete, for specified periods of time, in the other party's defined field of use of the licensed intellectual property. The Company has determined that the New Leaf branded product operations are discontinued operations and has reclassified those operations for all periods presented. The Company expects to realize a gain of approximately $850,000 in the fourth quarter of fiscal 2012 related to the transaction.

          The following assets are included in assets of discontinued operations as of July 31, 2012:

(In thousands)	Amount
Inventory	$	55
Machinery and equipment		3
Intangible assets		22
	$	80

          Discontinued operations include the following:

	Three Months ended July 31,					Nine Months ended July 31,
(In thousands)	2012		2011			2012		2011
Revenues from unaffiliated customers	$	380	$	468		$	1,690	$	1,591
Pretax profit (loss) from operations of discontinued operations	$	147	$	(219	)	$	277	$	(518	)

          Continuing cash inflows will include sales of supplies and repair services to non-purchaser users though June 30, 2014. Continuing cash outflows will include the costs for supply sales and the costs of technical support and maintenance and repair services to purchaser and non-purchaser users. Amounts of expected future cash flows from these activities are not sufficient to preclude the Company from using discontinued operations treatment for the New Leaf operations. No allocation of taxes has been made to discontinued operations since taxes for all periods presented consist of minimum state taxes, given the net operating loss carry forwards available to offset federal taxes.

XML

Intangible Assets (Narrative) (Details) (USD $)	3 Months Ended		9 Months Ended			9 Months Ended		0 Months Ended		3 Months Ended		9 Months Ended
	Jul. 31, 2012	Jul. 31, 2011	Jul. 31, 2012	Jul. 31, 2011	Oct. 31, 2011	Jul. 31, 2012 Maximum [Member]	Jul. 31, 2012 Minimum [Member]	Jul. 31, 2012 Capitalized Software [Member]	Jul. 31, 2012 Capitalized Software [Member] Developed Technology [Member]	Jul. 31, 2012 Software Development [Member]	Jul. 31, 2011 Software Development [Member]	Jul. 31, 2012 Software Development [Member]	Jul. 31, 2011 Software Development [Member]
Finite-Lived Intangible Assets [Line Items]
Estimated useful lives of intangible assets						10 years	7 years	5 years
Amortization expense	$ 112,000	$ 105,000	$ 329,000	$ 315,000
Estimated amortization expense	1,438,000		1,438,000		1,174,000				1,143,000
Development costs										$ 216,000	$ 88,000	$ 572,000	$ 226,000

XML

Intangible Assets (Tables)

9 Months Ended

Jul. 31, 2012

Intangible Assets [Abstract]

Schedule Of Intangible Assets

(In thousands)	2012			2011
Intangible assets:
Developed technology	$	6,806		$	6,788
Trademarks		61			62
Capitalized software in progress		1,143			567
		8,010			7,417
Accumulated Amortization		(6,572	)		(6,243	)
	$	1,438		$	1,174

Schedule Of Expected Amortization Expense

(In thousands)	Amortization
Three months ending October 31, 2012	$	113
2013		21
2014		21
2015		21
2016		21
	$	197

XML

Discontinued Operations (Tables)

9 Months Ended

Jul. 31, 2012

Discontinued Operations [Abstract]

Summary Of Assets Included In Discontinued Operations

(In thousands)	Amount
Inventory	$	55
Machinery and equipment		3
Intangible assets		22
	$	80

Summary Of Revenue From Discontinued Operations

	Three Months ended July 31,					Nine Months ended July 31,
(In thousands)	2012		2011			2012		2011
Revenues from unaffiliated customers	$	380	$	468		$	1,690	$	1,591
Pretax profit (loss) from operations of discontinued operations	$	147	$	(219	)	$	277	$	(518	)

XML

Separation Accrual (Narrative) (Details) (Separation Accruals [Member], USD $)	3 Months Ended
	Jan. 31, 2011 Former Chief Executive Officer [Member]	Jul. 31, 2011 Second Former Chief Executive Officer [Member]
Deferred Compensation Arrangement with Individual, Excluding Share-based Payments and Postretirement Benefits [Line Items]
Incurred charge for general and administrative expenses, consisting of an accrual of separation payments for the former chief executive officer (CEO)	$ 418,000	$ 91,000
Gross general and administrative expense before reduction from effect of forfeitures of previously expensed unvested option	$ 451,000	$ 176,000

XML

Consolidated Statements Of Cash Flows (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Jul. 31, 2012	Jul. 31, 2011
Cash flows from operating activities:
Net loss	$ (791)	$ (543)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation	182	199
Amortization	329	315
Stock-based compensation	269	198
Decrease in allowance for doubtful accounts	(51)	(54)
Increase (decrease) in inventory obsolescence reserve	70	(27)
Loss on disposal of equipment	1	24
Change in operating assets and liabilities:
Accounts receivable	1,289	574
Inventories	(432)	(407)
Prepaid expenses and other current assets	(315)	24
Accounts payable	(435)	(132)
Employee compensation	(114)	(928)
Deferred income	32	136
Warranty reserve	(47)	(60)
Other current liabilities and accrued expenses	235	(108)
Net cash provided by (used in) operating activities	222	(789)
Cash flows from investing activities:
Sales of investments	721	2,476
Purchases of property and equipment and intangible assets	(730)	(427)
Net cash provided by (used in) investing activities	(9)	2,049
Cash flows from financing activities:
Proceeds from issuance of common stock under employee stock purchase plan	50	20
Proceeds from the exercise of stock options	97	48
Repurchase of common stock	(66)	(148)
Repurchase of common stock upon vesting of restricted stock grants	(46)	(39)
Net cash provided by (used in) financing activities	35	(119)
Net increase in cash and cash equivalents	248	1,141
Cash and cash equivalents at beginning of period	8,461
Cash and cash equivalents at end of period	8,709	8,084
Cash paid for taxes	22	24
Supplemental non-cash items:
Common stock issued for long-term liability	42
Share value received for stock option exercises		$ 89

XML

Intangible Assets

9 Months Ended

Jul. 31, 2012

Intangible Assets [Abstract]

Intangible Assets

5.	Intangible Assets
	Intangible assets consisted of the following at July 31, 2012 and October 31, 2011:

(In thousands)	2012			2011
Intangible assets:
Developed technology	$	6,806		$	6,788
Trademarks		61			62
Capitalized software in progress		1,143			567
		8,010			7,417
Accumulated Amortization		(6,572	)		(6,243	)
	$	1,438		$	1,174

          The intangible assets are being amortized using the straight-line method over the estimated useful lives of the assets which range from seven to ten years. Amortization expense, including discontinued operations, was $112,000 and $105,000 for the three months ended July 31, 2012 and 2011, respectively and $329,000 and $315,000 for the nine months ended July 31, 2012 and 2011, respectively. Estimated amortization expense for each of the succeeding fiscal years based on the intangible assets as of July 31, 2012 is as follows:

(In thousands)	Amortization
Three months ending October 31, 2012	$	113
2013		21
2014		21
2015		21
2016		21
	$	197

          The table above does not include estimated amortization expense for patents, included in developed technology, or capitalized software of $1,143,000, neither of which has been placed in service. The Company capitalized software development costs of $216,000 and $88,000 during the three months ended July 31, 2012 and 2011, respectively and $572,000 and $226,000 during the nine months ended July 31, 2012 and 2011, respectively. The Company expects to amortize this software over five years upon completion of the respective development projects.

XML

Summary Of Significant Accounting Policies (Narrative) (Details) (USD $)					9 Months Ended
	Jul. 31, 2012	Oct. 31, 2011	Jul. 31, 2012 Service Agreements [Member]	Oct. 31, 2011 Service Agreements [Member]	Jul. 31, 2012 Maximum [Member]	Jul. 31, 2012 Maximum [Member] Software Development [Member]	Jul. 31, 2012 Minimum [Member]	Jul. 31, 2012 Minimum [Member] Software Development [Member]	Jul. 31, 2012 Installation And Training [Member]	Oct. 31, 2011 Installation And Training [Member]
Unsecured credit, terms, days					60 days		30 days
Service contract, service term					4 years		1 year
Deferred revenue			$ 2,381,000	$ 2,368,000					$ 121,000	$ 152,000
Advance payments from customers, aggregated	$ 88,000	$ 31,000
Percentage of revenues					10.00%
Estimated useful life of related product					10 years	7 years	7 years	5 years

XML

Income (Loss) Per Share (Narrative) (Details)	3 Months Ended
	Jul. 31, 2011	Jul. 31, 2012
Net Loss Per Share [Abstract]
Unexpired options for the purchase of common shares and unvested restricted and performance stock awards	522,733	423,533
Shares of options excluded as anti-dilutive	369,000

XML

Inventories (Tables)

9 Months Ended

Jul. 31, 2012

Inventories [Abstract]

Schedule Of Inventories

(In thousands)	2012		2011
Raw materials	$	1,179	$	1,234
Work-in-Process		415		170
Finished goods		2,463		2,284
	$	4,057	$	3,688