Note 7. Supplemental Balance Sheet Information

Inventories: Inventories as of October 31, 2013 and July 31, 2013, respectively, were as follows (dollars in thousands):

	October 31,2013		July 31, 2013
Raw material and component parts	$	6,786	$	7,418
Work in progress		1,829		1,133
Finished goods		7,414		6,274
	$	16,029	$	14,825

Property and Equipment: Property and equipment as of October 31, 2013 and July 31, 2013, respectively, were as follows:

	October 31, 2013		July 31, 2013
Land	$	730	$	730
Building and improvements		6,515		6,365
Machinery and equipment		8,799		8,665
Furniture and fixtures		1,040		1,058
Software		1,108		1,107
Construction in progress		275		177
		18,467		18,102
Less accumulated depreciation		9,469		9,140
	$	8,998	$	8,962

Other Intangible Assets: Information regarding the Company’s other intangible assets as of October 31, 2013 and July 31, 2013, respectively, were as follows:

	Gross Carrying Value		Accumulated Amortization		Net
	October 31, 2013
Proprietary know-how	$	4,057	$	2,348	$	1,709
Trademark		5,940		--		5,940
Licensing agreement		5,834		2,834		3,000
Customer relationships		557		17		540
Other intangibles		427		13		414
Patents		2,350		910		1,440
	$	19,165	$	6,122	$	13,043

	July 31, 2013
Proprietary know-how	$	4,057	$	2,286	$	1,771
Trademark		5,938		--		5,938
Licensing agreement		5,834		2,766		3,068
Customer relationships		531		--		531
Other intangibles		407		--		407
Patents		2,270		859		1,411
	$	19,037	$	5,911	$	13,126

Goodwill of $1,568,000 and other intangibles of $984,000 are a result of the acquisition of M.I.S.S. completed on July 8, 2013. Goodwill of $10,660,000 and proprietary know-how of $4,057,000 are a result of the reverse merger transaction completed on September 21, 2005.

The Company did not incur costs to renew or extend the term of acquired intangible assets during the period ended October 31, 2013. Amortization expense is included in general and administrative expense and was $180,000 for the three months ended October 31, 2013. Amortization expense for the next five years is expected to approximate $800,000 annually.

Pledged Assets; Short and Long-Term Debt (Excluding Revenue Bonds Payable): Short-term debt as of October 31, 2013 and July 31, 2013, consisted of the following:

Revolving Credit Facility: The Company has a credit facility with a bank which allows for borrowings of up to $9.5 million (collateral available on October 31, 2013 permits borrowings up to $8.9 million) with an interest rate based on either the one-, two- or three-month LIBOR plus 2.0 percent and adjusting each quarter based upon our leverage ratio. As of October 31, 2013, interest under the facility would have been 2.24 percent. The unused portion of the facility is charged at a rate of 0.20 percent. There were no borrowings under this facility at October 31, 2013. Outstanding amounts are collateralized by the Company’s domestic receivables and inventory. This credit facility was amended on September 30, 2013, to extend the termination date through September 30, 2016.

The facility has two financial covenants: a maximum leverage ratio of 3.75 times and a minimum fixed charge coverage ratio of 1.1 times. As of October 31, 2013, the leverage ratio was 0.61 times and the minimum fixed charge coverage ratio was 553.1 times. The facility restricts the payment of dividends if, following the distribution, the fixed charge coverage ratio would fall below the required minimum.

Equipment Line of Credit: Under this credit facility, the Company may borrow up to $1.0 million, with interest at one-month LIBOR plus 3.0 percent. Pursuant to the terms of the equipment line of credit, under no circumstances shall the rate be less than 3.5 percent per annum. The unused portion of the facility is not charged a fee. There were no borrowings under this facility at October 31, 2013. The equipment line of credit was amended on September 30, 2013, to extend the maturity date to September 30, 2016.

Deferred Revenue: Deferred revenue as of October 31, 2013 and July 31, 2013, respectively, consisted of the following:

	October 31, 2013		July 31, 2013
Deferred revenue – Alcon settlement	$	15,496	$	15,818
Less: Short-term portion		1,288		1,288
Long-term portion	$	14,208	$	14,530