###### ** **

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

# **FORM 10-QSB**

 
| **ý** | **Quarterly report under Section 13 or 15(d) of the  Securities Exchange Act of 1934.** |
|------------|-----------------------------------------------------------------------------------------|

 

**For the quarterlyperiod ended September 30, 2002**

 

**OR**

 
| **o** | **Transition report under Section 13 or 15(d) of the Exchange  Act.** |
|-------|-----------------------------------------------------------------------|

 

**For the transition period from             to             .**

 

## **Commission file number 001-13543**

 

| **Angeion Corporation**                                            |
|--------------------------------------------------------------------|
| (Exact name of small business issuer as  specified in its charter) |
|                                                               |   |   |
| **Minnesota**                                                      |   | **41-1579150** |
| (State or other jurisdiction of  incorporation or organization)    |   | (I.R.S. Employer  Identification No.) |
|                                                               |   |   |
| **350 Oak Grove Parkway, Saint Paul,  Minnesota 55127-8599**       |
| (Address of principal executive offices)                           |
|                                                               |
| **(651) 484-4874**                                                 |
| (Issuer’s telephone number, including area  code)             |

 

Check whether the registrant filed alldocuments and reports required to be filed by Section 12, 13 or 15(d) of theExchange Act of 1934 after distribution of securities under a plan confirmed bya court:

Yes         ý         No         o

 

Check whether the issuer (1) filed all reports required to be filed bySection 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (orfor such shorter period that the issuer was required to file such reports), and(2) has been subject to such filing requirements for the past 90 days.

Yes         ý         No         o

 

The Company had 3,594,627 shares of common stock, $0.01 par value,outstanding as of November 11, 2002.

 

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Transitional Small Business Disclosure Format (Check one):

Yes         o         No         ý

 

 

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**PART I - FINANCIAL INFORMATION**

 

**Item1.  Financial Statements**

 

**ANGEION CORPORATION AND SUBSIDIARIES**

** **

**Consolidated Balance Sheets**

(unaudited,in thousands except share data)

 
|                                                                                                                                                                                                                                   |   | **September 30, 2002** |       | **December 31,  2001** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|------------|------------------------|--------|
|                                                                                                                                                                                                                                   |   | **Historical**         |       | **Pro-Forma**          |   |   |
| **Assets**                                                                                                                                                                                                                             |   |                   |       |                   |   |   |   |
| **Current assets:**                                                                                                                                                                                                                    |   |                   |       |                   |   |   |   |
| Cash and cash equivalents                                                                                                                                                                                                              |   | $                      | 1,707      |                   | $      | 4,607 |   | $ | 1,361 |   |
| Accounts receivable, net of allowance for doubtful accounts of $315  and $244, respectively                                                                                                                                            |   | 6,469                  |       | 3,569                  |   | 4,268 |   |
| Inventories                                                                                                                                                                                                                            |   | 3,041                  |       | 3,041                  |   | 4,145 |   |
| Prepaid expenses and other current assets                                                                                                                                                                                              |   | 66                     |       | 66                     |   | 196 |   |
| Total current assets                                                                                                                                                                                                                   |   | 11,283                 |       | 11,283                 |   | 9,970 |   |
|                                                                                                                                                                                                                                   |   |                   |       |                   |   |   |   |
| Net non-current assets of discontinued operations                                                                                                                                                                                      |   | 24                     |       | 24                     |   | 100 |   |
| Equipment and fixtures, net                                                                                                                                                                                                            |   | 919                    |       | 919                    |   | 1,338 |   |
| Intangible assets, net                                                                                                                                                                                                                 |   | 10,098                 |       | 10,098                 |   | 11,379 |   |
| Other assets                                                                                                                                                                                                                           |   | —                 |       | —                 |   | 176 |   |
| Goodwill, net                                                                                                                                                                                                                          |   | 1,935                  |       | —                 |   | 1,935 |   |
| Reorganization value in excess of identifiable assets                                                                                                                                                                                  |   | —                 |       | 1,935                  |   | — |   |
|                                                                                                                                                                                                                                   |   | **$**                  | **24,259** |                   | **$**  | **24,259** | ** ** | **$** | **24,898** | ** ** |
|                                                                                                                                                                                                                                   |   |                   |       |                   |   |   | ** ** |
| **Liabilities  and Shareholders’ Equity (Deficit)**                                                                                                                                                                               |   |                   |       |                   |   |   |   |
| **Current liabilities:**                                                                                                                                                                                                               |   |                   |       |                   |   |   |   |
| Accounts payable                                                                                                                                                                                                                       |   | $                      | 810        |                   | $      | 810 |   | $ | 942 |   |
| Employee compensation                                                                                                                                                                                                                  |   | 705                    |       | 705                    |   | 658 |   |
| Deferred income                                                                                                                                                                                                                        |   | 1,047                  |       | 1,047                  |   | 1,017 |   |
| Warranty reserve                                                                                                                                                                                                                       |   | 116                    |       | 116                    |   | 141 |   |
| Net current liabilities of discontinued operations                                                                                                                                                                                     |   | 164                    |       | 164                    |   | 718 |   |
| Other liabilities and accrued expenses                                                                                                                                                                                                 |   | 751                    |       | 751                    |   | 790 |   |
| Total current liabilities not subject to compromise                                                                                                                                                                                    |   | 3,593                  |       | 3,593                  |   | 4,266 |   |
| Current liabilities subject to compromise                                                                                                                                                                                              |   | 21,266                 |       | —                 |   | — |   |
| Total current liabilities                                                                                                                                                                                                              |   | 24,859                 |       | 3,593                  |   | 4,266 |   |
|                                                                                                                                                                                                                                   |   |                   |       |                   |   |   |   |
| **Long-term debt**                                                                                                                                                                                                                     |   | —                 |       | —                 |   | 20,198 |   |
|                                                                                                                                                                                                                                   |   |                   |       |                   |   |   |   |
| **Shareholders’ equity (deficit):**                                                                                                                                                                                               |   |                   |       |                   |   |   |   |
| Common stock, $0.01and $0.10 par value, historical and pro forma,  respectively.  Authorized 10,000,000  and 25,000,000 shares, historical and pro forma, respectively; issued and  outstanding 3,594,627 shares in 2002 and 2001 |   | 36                     |       | 359                    |   | 36 |   |
| Additional paid-in capital                                                                                                                                                                                                             |   | 124,011                |       | 20,307                 |   | 124,011 |   |
| Accumulated deficit                                                                                                                                                                                                                    |   | (124,647               | )          | —                 |   | (123,613 | ) |
| Total shareholders’ equity (deficit)                                                                                                                                                                                              |   | (600                   | )          | 20,666                 |   | 434 |   |
|                                                                                                                                                                                                                                   |   | **$**                  | **24,259** |                   | **$**  | **24,259** | ** ** | **$** | **24,898** | ** ** |

 

See accompanying notes to consolidatedfinancial statements

 

2

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**ANGEION CORPORATION AND SUBSIDIARIES**

** **

**Consolidated Statements of Operations**

**(unaudited, in thousands except per share amounts)**

 
|                                                |   | **Three Months Ended  September 30,** |       | **Nine Months Ended  September 30,** |       |
|-----------------------------------------------------|--------|---------------------------------------|------------|--------------------------------------|------------|
|                                                |   | **2002**                              |       | **2001**                             |       | **2002** |   | **2001** |   |
| **Revenues**                                        |   |                                  | ** ** |                                 | ** ** |   | ** ** |   | ** ** |
| Equipment and supply sales                          |   | $                                     | 3,439      |                                 | $          | 3,349 |   | $ | 10,237 |   | $ | 10,368 |   |
| Service revenue                                     |   | 792                                   |       | 659                                  |       | 2,303 |   | 1,925 |   |
|                                                |   | 4,231                                 |       | 4,008                                |       | 12,540 |   | 12,293 |   |
| **Cost of goods sold**                              |   |                                  |       |                                 |       |   |   |   |   |
| Cost of equipment and supplies                      |   | 2,327                                 |       | 2,231                                |       | 7,062 |   | 6,768 |   |
| Cost of service revenue                             |   | 166                                   |       | 104                                  |       | 417 |   | 331 |   |
|                                                |   | 2,493                                 |       | 2,335                                |       | 7,479 |   | 7,099 |   |
|                                                |   |                                  |       |                                 |       |   |   |   |   |
| **Gross margin**                                    |   | 1,738                                 |       | 1,673                                |       | 5,061 |   | 5,194 |   |
|                                                |   |                                  |       |                                 |       |   |   |   |   |
| **Operating expenses:**                             |   |                                  |       |                                 |       |   |   |   |   |
| Selling and marketing                               |   | 1,291                                 |       | 1,284                                |       | 3,705 |   | 3,766 |   |
| General and administrative                          |   | 614                                   |       | 966                                  |       | 1,839 |   | 2,263 |   |
| Research and development                            |   | 306                                   |       | 441                                  |       | 927 |   | 1,204 |   |
| Amortization of intangibles                         |   | 207                                   |       | 276                                  |       | 567 |   | 924 |   |
| Impairment loss on intangible assets                |   | —                                |       | —                               |       | 1,085 |   | — |   |
| Reorganization items                                |   | (177                                  | )          | —                               |       | 96 |   | — |   |
|                                                |   | 2,241                                 |       | 2,967                                |       | 8,219 |   | 8,157 |   |
|                                                |   |                                  |       |                                 |       |   |   |   |   |
| **Operating income (loss)**                         |   | (503                                  | )          | (1,294                               | )          | (3,158 | ) | (2,963 | ) |
|                                                |   |                                  |       |                                 |       |   |   |   |   |
| **Other income (expense):**                         |   |                                  |       |                                 |       |   |   |   |   |
| Licensing revenue, net                              |   | 2,900                                 |       | —                               |       | 2,900 |   | — |   |
| Interest income                                     |   | 2                                     |       | 29                                   |       | 9 |   | 160 |   |
| Interest expense                                    |   | —                                |       | (511                                 | )          | (877 | ) | (1,531 | ) |
|                                                |   |                                  |       |                                 |       |   |   |   |   |
| **Income (loss) before taxes**                      |   | 2,399                                 |       | (1,776                               | )          | (1,126 | ) | (4,334 | ) |
|                                                |   |                                  |       |                                 |       |   |   |   |   |
| Provision (benefit) for taxes                       |   | —                                |       | —                               |       | (92 | ) | — |   |
|                                                |   |                                  |       |                                 |       |   |   |   |   |
| **Income (loss) from continuing operations**        |   | 2,399                                 |       | (1,776                               | )          | (1,034 | ) | (4,334 | ) |
|                                                |   |                                  |       |                                 |       |   |   |   |   |
| **Loss from discontinued operations**               |   | —                                |       | —                               |       | — |   | (29 | ) |
|                                                |   |                                  |       |                                 |       |   |   |   |   |
| **Net income (loss)**                               |   | $                                     | 2,399      |                                 | $          | (1,776 | ) | $ | (1,034 | ) | $ | (4,363 | ) |
|                                                |   |                                  |       |                                 |       |   |   |   |   |
| **Net income (loss) per share - basic and diluted** |   |                                  |       |                                 |       |   |   |   |   |
| Continuing operations                               |   | $                                     | 0.67       |                                 | $          | (0.50 | ) | $ | (0.29 | ) | $ | (1.24 | ) |
| Discontinued operations                             |   | —                                |       | —                               |       | — |   | (0.01 | ) |
| Net loss                                            |   | $                                     | 0.67       |                                 | $          | (0.50 | ) | $ | (0.29 | ) | $ | (1.25 | ) |
|                                                |   |                                  |       |                                 |       |   |   |   |   |
| **Weighted average common shares outstanding**      |   |                                  |       |                                 |       |   |   |   |   |
| Basic and diluted                                   |   | 3,595                                 |       | 3,543                                |       | 3,595 |   | 3,502 |   |

 

Seeaccompanying notes to consolidated financial statements

 

3

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**ANGEION CORPORATION AND SUBSIDIARIES**

 

**Consolidated Statements of Cash Flows**

**(unaudited, in thousands)**
|                                                                                             |   | **Nine Months Ended  September 30,** |       |
|--------------------------------------------------------------------------------------------------|--------|--------------------------------------|------------|
|                                                                                             |   | **2002**                             |       | **2001** |   |
| **Cash Flows From Operating Activities:**                                                        |   |                                 |       |   |   |
| Net loss                                                                                         |   | $                                    | (1,034     | ) | $ | (4,363 | ) |
| Adjustments to reconcile net loss to net cash flows provided by (used  in) operating activities: |   |                                 |       |   |   |
| Loss from discontinued operations                                                                |   | —                               |       | 29 |   |
| Depreciation and amortization                                                                    |   | 1,032                                |       | 1,428 |   |
| Impairment loss on intangible assets                                                             |   | 1,085                                |       | — |   |
| Reorganization items                                                                             |   | 96                                   |       | — |   |
| Changes in operating assets and liabilities:                                                     |   |                                 |       |   |   |
| Accounts receivable                                                                              |   | (2,201                               | )          | 460 |   |
| Inventories                                                                                      |   | 1,104                                |       | (1,218 | ) |
| Prepaid expenses and other assets                                                                |   | 306                                  |       | 92 |   |
| Accounts payable                                                                                 |   | (132                                 | )          | (18 | ) |
| Employee compensation                                                                            |   | 47                                   |       | 132 |   |
| Other liabilities and accrued expenses                                                           |   | 709                                  |       | 815 |   |
| Net cash provided by (used in) continuing operations                                             |   | 1,012                                |       | (2,643 | ) |
| Net cash used in discontinued operations                                                         |   | (262                                 | )          | (252 | ) |
| Net cash provided by (used in) operating activities                                              |   | 750                                  |       | (2,895 | ) |
|                                                                                             |   |                                 |       |   |   |
| **Cash Flows From Investing Activities:**                                                        |   |                                 |       |   |   |
| Purchase of equipment and fixtures                                                               |   | (46                                  | )          | (58 | ) |
| Investment in proprietary software                                                               |   | (301                                 | )          | (404 | ) |
| Investment in perpetual license                                                                  |   | (70                                  | )          | — |   |
| Net cash used in continuing operations                                                           |   | (417                                 | )          | (462 | ) |
| Net cash provided by discontinued operations                                                     |   | 13                                   |       | 45 |   |
| Net cash used in investing activities                                                            |   | (404                                 | )          | (417 | ) |
|                                                                                             |   |                                 |       |   |   |
| **Cash Flows From Financing Activities:**                                                        |   |                                 |       |   |   |
| Proceeds from stock transactions                                                                 |   | —                               |       | 14 |   |
| Net cash provided by financing activities                                                        |   | —                               |       | 14 |   |
|                                                                                             |   |                                 |       |   |   |
| **Net increase (decrease) in cash and cash equivalents**                                         |   | 346                                  |       | (3,298 | ) |
|                                                                                             |   |                                 |       |   |   |
| **Cash and cash equivalents at beginning of period**                                             |   | 1,361                                |       | 6,350 |   |
|                                                                                             |   |                                 |       |   |   |
| **Cash and cash equivalents at end of period**                                                   |   | **$**                                | **1,707**  | ** ** | **$** | **3,052** | ** ** |
|                                                                                             |   |                                 | ** ** |   | ** ** |
| **Cash paid for interest expense**                                                               |   | **$**                                | **—** | ** ** | **$** | **757** | ** ** |

 

See accompanying notes to consolidatedfinancial statements

 

4

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**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

September 30, 2002

(Unaudited)

 

**1.****             Basisof Presentation**

 

The consolidated historical balance sheet as of September 30, 2002, theconsolidated statements of operations and cash flows for the three and ninemonths ended September 30, 2002 and 2001, and the related information presentedin these notes have been prepared by management in accordance with accountingprinciples generally accepted in the United States of America for interimfinancial information and with the instructions to Form 10-QSB and Rule 10-01of Regulation S-X, without audit. Accordingly, they do not include all of the information and notesrequired by accounting principles generally accepted in the United States ofAmerica for complete financial statements. In the opinion of management, all adjustments considered necessary for afair presentation of results have been included.  The balance sheet at December 31, 2001 was derived from theaudited financial statements as of that date. Operating results for the three and nine months ended September 30, 2002are not necessarily indicative of the results that may be expected for the yearending December 31, 2002.  For furtherinformation, refer to the financial statements and notes thereto included inAngeion Corporation’s Annual Report on Form 10-KSB for the year ended December31, 2001.

 

During March 2000, Angeion Corporation discontinued its historicalbusiness, the research, development, manufacturing and marketing of implantablecardioverter defibrillators (“ICD”). Consequently, the accompanying consolidated statements of operationspresent all activities of the ICD business under discontinued operationsaccounting rules.  Although the lastsales of ICD products were made during the second quarter of 2000, the Companycontinues to pursue the license or transfer of its ICD technology.

 

Comprehensive income is a measure of all non-owner changes inshareholders’ equity and includes such items as net income, certain foreigncurrency translation items, minimum pension liability adjustments and changesin the value of available-for-sale securities. For the three and nine months ended September 30, 2002 and 2001,comprehensive income (loss) for Angeion Corporation was equivalent to netincome (loss) as reported.

 

**2.****             Reorganizationand Recent Events**

 

***Reorganization UnderChapter 11.*** On June 17, 2002, Angeion Corporation, the parent company, filed avoluntary petition for reorganization under Chapter 11 of the federalbankruptcy laws (“Chapter 11” or “Bankruptcy Case”) in the United StatesBankruptcy Court for the District of Minnesota under case number 02-32260.  The Joint Modified Plan of Reorganization(“Plan”) was filed jointly with the holders of the Company’s 7-1⁄2% SeniorConvertible Notes (“Notes”) due April 2003. During the bankruptcy period, the Company continued to operate as debtorin possession.  As debtor-in-possession,the Company operated as an ongoing business, but could not engage intransactions outside the ordinary course of business without approval of theBankruptcy Court.

 

The Company’s subsidiary, Medical Graphics Corporation, was not part ofthe Chapter 11 filing and continued to do business as usual during thebankruptcy period.  The reorganizationdid not have an adverse impact upon the day–to–day operations,customers or suppliers of the Company’s Medical Graphics operations.

 

***Lease Amendment.***  Bankruptcy law empowers a debtor inpossession to assume or reject executory contracts and unexpired leases andlimits the amount that a landlord may claim. The Company

 

5

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previously leased space in Brooklyn Park, Minnesota that served asoffice, manufacturing and warehouse space for its discontinued ICDbusiness.  In May 2000, the Companyentered into an agreement that terminated its future rental obligations forapproximately 64% of its Brooklyn Park space in exchange for a payment of$476,000.  In early 2002, the Companysigned a sublease with CHF Solutions, Inc. for the balance of the leasedBrooklyn Park building.  The Companynegotiated an amendment with the landlord and CHF Solutions, Inc. to the leasethat requires the Company to continue making lease payments subsequent to itsfiling of the Chapter 11 petition through June 2003, and releases the Companyfrom all other obligations.  The BankruptcyCourt approved this amendment on August 21, 2002.  As a result, the Company recognized a $292,000 gain by decreasingits liability for future rental obligations. The gain in included in reorganization items.

 

***License forProprietary Technology.***  On September 19, 2002, the Company entered into a Settlement andLicense Agreement (“Settlement Agreement”) with Biotronik, Inc. (“Biotronik”)pursuant to which the Company granted to Biotronik a perpetual, non-exclusivelicense to use the Company’s cardiac stimulation technology.  In return, Biotronik agreed to make aone-time cash payment of $4,000,000 within 30 days of execution of thecontract.  As a result, the Companyrecorded license revenue of $2,900,000 relating to the Settlement Agreement,which is net of the related contingent transaction expenses of $1,100,000.  The payment was received on October 18,2002.

 

***Confirmation of ThePlan.***  OnOctober 24, 2002, the Bankruptcy Court entered an order confirming theCompany’s Plan.   The Plan becameeffective on October 25, 2002, the first business day after the date ofconfirmation.  Upon the effectiveness ofthe Plan, Messrs. Arnold A. Angeloni, John C. Penn, Richard E. Jahnke andJeffrey T. Schmitz constitute the Board of Directors of the Company.

 

Asof June 17, 2002, the date the Chapter 11 petition was filed with the Court,there were 3,594,627 shares of the Company’s common stock issued andoutstanding (the “Old Common Stock”). As a result of the Plan, all of the Company’s Old Common Stock has beencanceled and all options and warrants to purchase the Company’s Old CommonStock existing as of the petition date have been canceled.  To effectuate the Plan, the Company issued3,594,627 shares of its common stock in replacement of the Old Common Stock(the “Replacement Common Stock”).

 

Under the Plan, each holder of the Company’s Notes and each holder ofcertain other unsecured claims received such holder’s pro rata share of 95% ofthe Replacement Common Stock.  Eachholder of the Company’s Old Common Stock received a pro rata share of 5% of theReplacement Common Stock and one common stock purchase warrant for each shareof Replacement Common Stock (the “New Warrants”).  For each 20 shares of common stock owned prior to the Planconfirmation date, shareholders will receive one share of Replacement CommonStock and one New Warrant to purchase one share of Replacement CommonStock.  The New Warrants expire onOctober 31, 2007 and are subject to redemption by the Company under certaincircumstances.  The exercise price ofthe New Warrants is $7.79 per share of common stock issuable uponexercise.  The New Warrants were issuedpursuant to a Warrant Agreement between the Company and the Company’s transferagent, Wells Fargo Bank Minnesota, N.A., as warrant agent.

 

The Company has also reserved 600,000 shares of its Replacement commonstock for issuance upon exercise of stock options to be issued to employeespursuant to the Angeion Corporation 2002 Stock Option Plan.  The 2002 Stock Option Plan provides,however, that options to purchase no more than 359,463 shares of the Company’scommon stock may be issued in the first two years after the confirmation of thePlan without approval of the Designee of the Creditors Committee.

 

***Nasdaq Listing.***  On September 12, 2002, Nasdaq advised theCompany that, despite the Company’s bankruptcy filing, continued listing on theNasdaq SmallCap Market was appropriate,

 

6

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subject to certain conditions. The Company’s common stock continued to trade on the NASDAQ SmallCapMarket during the bankruptcy period. Subsequent to confirmation of the bankruptcy, the Company has metcertain of the conditions for continued listing but must maintain a closing bidprice of $1.00 per share to remain listed on Nasdaq.

 

**3.****             Accounting Policies forEntities Under the Bankruptcy Code**

 

Since the Petition Date, the Company has operated its business as a debtor-in-possession under the Bankruptcy Code.  The American Institute of Certified Public Accountants’ Statement of Position 90-7 “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code” (“SOP 90-7”) provides guidance for financial reporting by entities that have filed petitions with the Bankruptcy Court and expect to reorganize under Chapter 11 of the Bankruptcy Code.

 

Under SOP 90-7, the financial statements of an entity in a Chapter 11 reorganization proceeding should distinguish transactions and events that are directly associated with the reorganization from the operations of the ongoing business as it evolves.  Accordingly, SOP 90-7 requires the following financial reporting or accounting treatments with respect to the financial statements:

 

***Balance Sheet.***  The balance sheet should distinguish (i) pre-petition liabilities subject to compromise from those that are not subject to compromise, such as fully secured liabilities, and (ii) post-petition liabilities.  Pre-petition liabilities that may be affected by the plan should be reported at the expected amounts to be allowed, even if they may ultimately be settled for lesser amounts.

 

Consolidated financial statements that include one or more entities in reorganization proceedings and one or more entities not in reorganization proceedings should include condensed combined financial statements of the entities in reorganization proceedings.  Intercompany receivables and payables of entities in reorganization proceedings should be disclosed in the condensed combined financial statements.

 

***Statement of Operations.***  The statement of operations should portray the results of operations of the reporting entity while it is in Chapter 11 proceedings.  Revenues, expenses (including professional fees), realized gains and losses, and provisions for losses resulting from the reorganization and restructuring of the business are reported separately as reorganization items, except for those required to be reported as discontinued operations in conformity with APB Opinion 30, “Reporting the Results of Operations.”  Professional fees and similar types of expenditures directly relating to the Chapter 11 proceeding should be expensed as incurred and reported as reorganization items.

 

Interest should be reported only to the extent that it will be paid during the Chapter 11 proceeding or that it is probable that it will be an allowed claim.  Interest expense is not a reorganization item.  The extent to which reported interest expense differs from stated contractual interest should be disclosed.

 

***Statement of Cash Flows.***  Reorganization items should be disclosed separately within the operating, investing and financing categories of the statement of cash flows.

 

**4.****             Current LiabilitiesSubject to Compromise**

 

Current liabilities subject to compromise refer to liabilities incurredprior to the Chapter 11 filing excluding those claims that will not beimpaired.  The liabilities subject tocompromise represent management’s best estimate of known and potential claimsto be resolved in connection with the Chapter 11 filing.  These claims may be subject to futureadjustments depending on Court action, further

 

7

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developments with respect to disputed claims or other events.  The liabilities subject to compromise arelisted in the following table:

 
| **(In thousands)**                 |   | **September  30,  2002** |   |
|------------------------------------|--------|--------------------------|--------|
| 7-1⁄2% Senior Convertible Notes |   | $                        | 20,198 |   |
| Accrued interest on the Notes      |   | 1,017                    |   |
| Professional fees                  |   | 51                       |   |
|                               |   | $                        | 21,266 |   |

 

The Company negotiated an amendment to the real estate lease thatrequires it to continue making lease payments for one year through June 2003,at which time all obligations of the Company will be released.  The Bankruptcy Court approved this amendmenton August 21, 2002.  As a result, theCompany recognized a $292,000 gain by adjusting its liability for future rentalobligations.  The gain is included inreorganization items.

 

**5.****             Reorganization Items**

 

A summary of the expenses and gains recognized during the three andnine months ended September 30, 2002 is listed in the following table.

 
| **(In thousands)**                                |   | **Three  Months  Ended  September 30,  2002** |   | **Nine  Months  Ended  September 30,  2002** |   |
|---------------------------------------------------|--------|-----------------------------------------------|--------|----------------------------------------------|--------|
| Provision for professional fees                   |   | $                                             | 48     |                                         | 258    |   |
| Write-down of equipment held for sale             |   | —                                        |   | 63                                           |   |
| Mailings to shareholders and noteholders          |   | 67                                            |   | 67                                           |   |
| Gain from reduction of future rental  obligations |   | (292                                          | )      | (292                                         | )      |
|                                              |   | $                                             | (177)  |                                         | 96     |   |

 

**6.****             Condensed FinancialStatements of the Debtor**

 

SOP 90-7 requires presentation of condensed financial statements of thedebtor when the consolidated financial statements include entities that are notpart of the reorganization proceedings. Angeion’s subsidiary, Medical Graphics Corporation, was not included inthe Chapter 11 proceedings and continues to do business as usual.  The following table presents the condensedbalance sheet of Angeion Corporation.

 

8

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| **(In thousands)**                        |   | **September  30,  2002** |   | **December  31,  2001** |   |
|-------------------------------------------|--------|--------------------------|--------|-------------------------|--------|
| Current assets:                           |   |                     |   |                    |   |
| Cash and cash equivalents                 |   | $                        | 124    |                    | $      | 1,011 |   |
| Account receivable                        |   | 2,900                    |   | —                  |   |
| Prepaid expenses                          |   | 50                       |   | 54                      |   |
|                                      |   | 3,074                    |   | 1,065                   |   |
|                                      |   |                     |   |                    |   |
| Intercompany receivable                   |   | 10,452                   |   | 10,282                  |   |
| Equity in subsidiary                      |   | 7,731                    |   | 10,174                  |   |
| Other assets                              |   | 24                       |   | 276                     |   |
|                                      |   | $                        | 21,281 |                    | $      | 21,797 |   |
|                                      |   |                     |   |                    |   |
| Current liabilities:                      |   |                     |   |                    |   |
| Current liabilities subject to compromise |   | $                        | 21,266 |                    | $      | — |   |
| Other current liabilities                 |   | 615                      |   | 1,165                   |   |
|                                      |   | 21,881                   |   | 1,165                   |   |
|                                      |   |                     |   |                    |   |
| Long term debt                            |   | —                   |   | 20,198                  |   |
| Shareholders’ equity (deficit)       |   | (600                     | )      | 434                     |   |
|                                      |   | $                        | 21,281 |                    | $      | 21,797 |   |

 

**7.****             Fresh Start Reporting**

** **

The Company is obligated to adopt fresh start reporting as defined inSOP 90-7 upon its emergence from bankruptcy. The Company will adopt the principles of fresh start reporting upon itsemergence from bankruptcy on October 31, 2002. The following pro forma consolidated financial statements of the Companyillustrate the presently estimated financial effects of implementing theCompany’s Plan and adoption of fresh start reporting principles.  The pro forma consolidated balance sheet asof September 30, 2002 is presented as if the Company had adopted fresh startreporting on that date.  The pro formaconsolidated statements of operations for the three and nine months endedSeptember 30, 2002 have been presented as if the Company had emerged fromChapter 11 bankruptcy proceedings and adopted fresh start reporting as ofJanuary 1, 2002, the first day of the Company’s fiscal 2002.

 

These pro forma consolidated financial statements reflect theadjustments outlined in the Company’s Plan with respect to the conversion ofdebt to equity.  Under terms of thePlan, the holders of the Notes due April 2003 agreed to convert the debt toequity.  They and other holders ofcertain unsecured claims received a pro rata share of 95% of Replacement CommonStock to be issued pursuant to the Plan. The conversion has taken place and all outstanding notes have beencancelled.  The pro forma consolidatedbalance sheet has also been adjusted to reflect the $2,900,000 in cash receivedon October 18, 2002 for license revenue, net of related transaction expenses.

 

Under SOP 90-7, the value of all of the Company’s assets, whichsubstantially is the Company’s investment in Medical Graphics Corporation mustbe determined and allocated to this subsidiary’s net assets in conformity withthe procedures specified by Accounting Principles Board Opinion No. 16,“Business Combinations.”  The valuationmust be accomplished despite the fact that Medical Graphics was not part of theChapter 11 filing.  Although the Companyis not aware of any adjustment that will be required in connection with thisvaluation, the Company anticipates that it will obtain an appraisal from anindependent third party to determine the value of its investment in the netassets of Medical Graphics.

 

9

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The only adjustment included in the pro formaconsolidated financial statements that is associated with revaluing the netassets of Medical Graphics is the Company’s characterization of historical“goodwill” as “reorganization value in excess of identifiable assets.”  Accordingly, final allocations may differfrom the amounts reflected herein and as a consequence may affect operatingresults and financial condition.

 

The pro forma adjustments are based on available information andcertain assumptions that the Company believes are reasonable under thecircumstances.  These pro formafinancial statements are not necessarily indicative of what the results wouldhave been had the Company emerged from bankruptcy on January 1, 2002.  The estimated reorganization equity value ofthe Company for purposes of these pro forma consolidated financial statementsis approximately $20 million.

 

10

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**Angeion Corporation and Subsidiaries**

**Pro Forma Consolidated Balance Sheet**

**September 30, 2002**

**(unaudited, in thousands except share data)**

 
|                                                                                                                                                           |   | **Historical** |   | **Fresh Start  Reporting  Adjustments** |   | **Other  Adjustments** |   | **Pro Forma** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|--------|-----------------------------------------|--------|------------------------|--------|---------------|--------|
| **Assets**                                                                                                                                                     |   |           |   |                                    |   |                   |   |          |   |
| **Current assets:**                                                                                                                                            |   |           |   |                                    |   |                   |   |          |   |
| Cash and cash equivalents                                                                                                                                      |   | $              | 1,707  |                                    | $      |                   |   | $             | 2,900  | (a) | $ | 4,607 |   |
| Accounts receivable                                                                                                                                            |   | 6,469          |   |                                    |   | (2,900                 | )(a)   | 3,569         |   |
| Inventories                                                                                                                                                    |   | 3,041          |   |                                    |   |                   |   | 3,041         |   |
| Prepaid expenses and other current assets                                                                                                                      |   | 66             |   |                                    |   |                   |   | 66            |   |
| Total current assets                                                                                                                                           |   | 11,283         |   | —                                  |   | —                 |   | 11,283        |   |
| Net non-current assets of discontinued  operations                                                                                                             |   | 24             |   |                                    |   |                   |   | 24            |   |
| Equipment and fixtures                                                                                                                                         |   | 919            |   |                                    |   |                   |   | 919           |   |
| Intangible assets                                                                                                                                              |   | 10,098         |   |                                    |   |                   |   | 10,098        |   |
| Goodwill                                                                                                                                                       |   | 1,935          |   | (1,935                                  | )(b)   |                   |   | —        |   |
| Reorganization value in excess of  identifiable assets                                                                                                         |   | —         |   | 1,935                                   | (c)    |                   |   | 1,935         |   |
|                                                                                                                                                           |   | $              | 24,259 |                                    | $      | —                 |   | $             | — |   | $ | 24,259 |   |
|                                                                                                                                                           |   |           |   |                                    |   |                   |   |          |   |
| **Liabilities and Shareholders’ Equity  (Deficit)**                                                                                                       |   |           |   |                                    |   |                   |   |          |   |
| **Current  liabilities:**                                                                                                                                      |   |           |   |                                    |   |                   |   |          |   |
| Accounts payable                                                                                                                                               |   | $              | 810    |                                    | $      |                   |   | $             |   |   | $ | 810 |   |
| Employee compensation                                                                                                                                          |   | 705            |   |                                    |   |                   |   | 705           |   |
| Deferred income                                                                                                                                                |   | 1,047          |   |                                    |   |                   |   | 1,047         |   |
| Warrant reserve                                                                                                                                                |   | 116            |   |                                    |   |                   |   | 116           |   |
| Net current liabilities of discontinued  operations                                                                                                            |   | 164            |   |                                    |   |                   |   | 164           |   |
| Other liabilities and accrued expenses                                                                                                                         |   | 751            |   |                                    |   |                   |   | 751           |   |
| Total current liabilities not subject to  compromise                                                                                                           |   | 3,593          |   | —                                  |   | —                 |   | 3,593         |   |
| Current liabilities subject to compromise                                                                                                                      |   | 21,266         |   | (21,266                                 | )(d)   |                   |   | —        |   |
| Total current liabilities                                                                                                                                      |   | 24,859         |   | (21,266                                 | )      | —                 |   | 3,593         |   |
| **Shareholders’  equity (deficit)**                                                                                                                       |   |           |   |                                    |   |                   |   |          |   |
| Common stock, $0.01 and $0.10 par value,  historical and pro forma, respectively.   Authorized 25,000,000 shares; issued and outstanding 3,594,627 shares |   | 36             |   | 323                                     | (e)    |                   |   | 359           |   |
| Additional paid-in capital                                                                                                                                     |   | 124,011        |   | (103,704                                | )(f)   |                   |   | 20,307        |   |
| Accumulated deficit                                                                                                                                            |   | (124,647       | )      | 124,647                                 | (g)    |                   |   | —        |   |
| Total shareholders’ equity (deficit)                                                                                                                      |   | (600           | )      | 21,266                                  |   | —                 |   | 20,666        |   |
|                                                                                                                                                           |   | $              | 24,259 |                                    | $      | —                 |   | $             | — |   | $ | 24,259 |   |

 

11

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**Angeion Corporation and Subsidiaries**

 

**Pro Forma Consolidated Statement ofOperations**

**Three Months Ended September 30, 2002**

**(unaudited, in thousands except per shareamounts)**

 
|                                               |   | **Historical** |   | **Fresh Start  Reporting  Adjustments** |   | **Pro Forma** |   |
|----------------------------------------------------|--------|----------------|--------|-----------------------------------------|--------|---------------|--------|
| **Revenues**                                       |   |           |   |                                    |   |          |   |
| Equipment and supply sales                         |   | $              | 3,349  |                                    | $      |          |   | $ | 3,349 |   |
| Service revenue                                    |   | 792            |   |                                    |   | 792           |   |
|                                               |   | 4,231          |   | —                                  |   | 4,231         |   |
| **Cost of goods sold**                             |   |           |   |                                    |   |          |   |
| Cost of equipment and supplies                     |   | 2,327          |   |                                    |   | 2,327         |   |
| Cost of  service revenue                           |   | 166            |   |                                    |   | 166           |   |
|                                               |   | 2,493          |   | —                                  |   | 2,493         |   |
|                                               |   |           |   |                                    |   |          |   |
| **Gross margin**                                   |   | 1,738          |   | —                                  |   | 1,738         |   |
|                                               |   |           |   |                                    |   |          |   |
| **Operating expenses:**                            |   |           |   |                                    |   |          |   |
| Selling and  marketing                             |   | 1,291          |   |                                    |   | 1,291         |   |
| General and  administrative                        |   | 614            |   |                                    |   | 614           |   |
| Research and  development                          |   | 306            |   |                                    |   | 306           |   |
| Amortization  of intangibles                       |   | 207            |   |                                    |   | 207           |   |
| Reorganization items                               |   | (177           | )      | 177                                     | (h)    | —        |   |
|                                               |   | 2,241          |   | 177                                     |   | 2,418         |   |
|                                               |   |           |   |                                    |   |          |   |
| **Operating loss**                                 |   | (503           | )      | (177                                    | )      | (680          | )      |
|                                               |   |           |   |                                    |   |          |   |
| **Other income  (expense):**                       |   |           |   |                                    |   |          |   |
| Licensing revenue, net                             |   | 2,900          |   |                                    |   | 2,900         |   |
| Interest income                                    |   | 2              |   |                                    |   | 2             |   |
| Interest expense                                   |   | —         |   |                                    | (i)    | —        |   |
|                                               |   |           |   |                                    |   |          |   |
| **Income before taxes**                            |   | 2,399          |   | (177                                    | )      | 2,222         |   |
|                                               |   |           |   |                                    |   |          |   |
| Provision (benefit) for taxes                      |   | —         |   |                                    |   | —        |   |
|                                               |   |           |   |                                    |   |          |   |
| **Net income**                                     |   | $              | 2,399  |                                    | $      | (177          | )      | $ | 2,222 |   |
|                                               |   |           |   |                                    |   |          |   |
| **Net income per  share – basic and diluted** |   | $              | 0.67   |                                    | $      | (0.05         | )      | $ | 0.62 |   |
|                                               |   |           |   |                                    |   |          |   |
| **Weighted average  common shares outstanding**    |   | 3,595          |   | 3,595                                   |   | 3,595         |   |

 

12

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**Angeion Corporation and Subsidiaries**

 

**Pro Forma Consolidated Statement ofOperations**

**Nine Months Ended September 30, 2002**

**(unaudited, in thousands except per shareamounts)**

 
|                                             |   | **Historical** |   | **Fresh Start  Reporting  Adjustments** |   | **Pro Forma** |   |
|--------------------------------------------------|--------|----------------|--------|-----------------------------------------|--------|---------------|--------|
| **Revenues**                                     |   |           |   |                                    |   |          |   |
| Equipment and supply sales                       |   | $              | 10,237 |                                    |   |          | $      | 10,237 |   |
| Service revenue                                  |   | 2,303          |   |                                    |   | 2,303         |   |
|                                             |   | 12,540         |   | —                                  |   | 12,540        |   |
| **Cost of goods sold**                           |   |           |   |                                    |   |          |   |
| Cost of equipment and supplies                   |   | 7,062          |   |                                    |   | 7,062         |   |
| Cost of  service revenue                         |   | 417            |   |                                    |   | 417           |   |
|                                             |   | 7,479          |   | —                                  |   | 7,479         |   |
|                                             |   |           |   |                                    |   |          |   |
| **Gross margin**                                 |   | 5,061          |   | —                                  |   | 5,061         |   |
|                                             |   |           |   |                                    |   |          |   |
| **Operating expenses:**                          |   |           |   |                                    |   |          |   |
| Selling and  marketing                           |   | 3,705          |   |                                    |   | 3,705         |   |
| General and  administrative                      |   | 1,839          |   |                                    |   | 1,839         |   |
| Research and  development                        |   | 927            |   |                                    |   | 927           |   |
| Amortization  of intangibles                     |   | 567            |   |                                    |   | 567           |   |
| Impairment  loss on intangible assets            |   | 1,085          |   |                                    |   | 1,085         |   |
| Reorganization items                             |   | 96             |   | (96                                     | )(h)   | —        |   |
|                                             |   | 8,219          |   | (96                                     | )      |          |   |
|                                             |   |           |   |                                    |   |          |   |
| **Operating loss**                               |   | (3,158         | )      | 96                                      |   | (3,062        | )      |
|                                             |   |           |   |                                    |   |          |   |
| **Other income  (expense):**                     |   |           |   |                                    |   |          |   |
| Licensing revenue, net                           |   | 2,900          |   |                                    |   | 2,900         |   |
| Interest income                                  |   | 9              |   |                                    |   | 9             |   |
| Interest expense                                 |   | (877           | )      | 877                                     | (i)    | —        |   |
|                                             |   |           |   |                                    |   |          |   |
| **Loss before taxes**                            |   | (1,126         | )      | 973                                     |   | (153          | )      |
|                                             |   |           |   |                                    |   |          |   |
| Provision (benefit) for taxes                    |   | (92            | )      |                                    |   | (92           | )      |
|                                             |   |           |   |                                    |   |          |   |
| **Net loss**                                     |   | $              | (1,034 | )                                       | $      | 973           |   | $ | (61 | ) |
|                                             |   |           |   |                                    |   |          |   |
| **Net loss per share  – basic and diluted** |   | $              | (0.29  | )                                       | $      | 0.27          |   | $ | (0.02 | ) |
|                                             |   |           |   |                                    |   |          |   |
| **Weighted average  common shares outstanding**  |   | 3,595          |   | 3,595                                   |   | 3,595         |   |

 

13

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Explanations for the Fresh Start Reporting Adjustments and OtherAdjustments are keyed to the following paragraphs:

 

###### **Balance Sheet Adjustment*s***

a)                                      Cashand cash equivalents have been adjusted to reflect the amount of cash that wasreceived on October 18, 2002 for licensing revenue, net of related transactionexpenses.  Such amount was reflected inaccounts receivable as of September 30, 2002.

b)                                     Goodwillhas been eliminated in accordance with fresh start reporting.  A like amount has been reflected asreorganization value in excess of identifiable assets.

c)                                      Reorganizationvalue in excess of amounts allocable to identifiable assets was established inaccordance with fresh start reporting. This amount is treated like goodwill and will not be amortized butrather evaluated for impairment on a periodic basis.

d)                                     Thisidentifies current liabilities subject to compromise including the Company’s 71/2% Senior Convertible Notes due April 2003, unpaid interest on the Notes andcertain other unsecured liabilities. The Noteholders and holders of certain other unsecured claims receivedreplacement common stock in accordance with the Plan.

e)                                      Commonstock has been increased by $323,000 to reflect the change in par value from$0.01 to $0.10.

f)                                        Additionalpaid in capital has been adjusted to reflect: (i) an increase of $21,266,000 toreflect the conversion from debt to equity of the Notes, interest and otherunsecured debt in exchange for the issuance of 95% of the Replacement CommonStock to the Company’s creditors in accordance with the Plan, (ii) a$124,647,000 reduction of paid-in capital in connection with the relatedelimination of accumulated deficit in accordance with fresh start accountingand (iii) a decrease of $323,000 to reflect a change in par value from $0.01 to$0.10.

g)                                     Theaccumulated deficit has been eliminated as required by fresh start reporting.

 

**Statement ofOperations Adjustments**

h)                                     Reorganizationitems have been eliminated.  Thereorganization items include professional fees, write-down of equipment heldfor sale, costs of mailing to shareholders and noteholders and a gain fromreduction of future rental obligations.

i)                                         Interestexpense has been eliminated to reflect the assumed conversion of the Notes toequity as of January 1, 2002.

 

**8.****             Intangible Assets**

 

On January 1, 2002, new accounting rules for business combinations andaccounting for goodwill and other intangibles (SFAS 141 and 142) becameeffective for the Company.  Accordingly,goodwill is no longer being amortized against earnings and goodwill balancesare subject to an impairment review on an annual basis or sooner if indicatorsof potential impairment exist.  Inaddition, the new rules further defined the classes of intangible assets, whichcaused the Company to reclassify the $1,448,000 unamortized balance of anintangible asset represented by the estimated value of assembled workforce togoodwill as of January 1, 2002.  Thevalue of assembled workforce at December 31, 2001 was also reclassified inthese financial statements for comparative purposes.  The Company has completed a goodwill impairment review for theMedical Graphics Corporation acquisition, which represents the Company’s onlygoodwill, and found no impairment as of January 1, 2002.

 

The Company has purchased a perpetual license agreement for existingINTERXVENT technology to be revised in the form of a self-helpprogram.  Since completion of theself-help program has been delayed and therefore not been introduced to themarket, the Company evaluated the recoverability of its investment anddetermined that it was impaired.  TheCompany reduced the value of 

 

14

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its current investment by $1,085,000 to $325,000 at June 30, 2002.  During the third quarter 2002, the Companycommenced amortizing the remaining value of $325,000 over three years.

 

The impairment review was based on a discounted cash flow approach thatuses estimates for revenues and expenses as well as an appropriate discountrate.  The estimates used for the revieware consistent with the plans and estimates being used to manage the underlyingbusiness.  If the business fails toachieve the revenue and expense levels forecasted or if market conditions forthe Company’s products deteriorate, the Company may incur charges for theimpairment of goodwill and or intangible assets.

 

Intangible assets as of September 30, 2002 consisted of the following:

 
| **(In thousands)**           |   | **Gross  Carrying  Amount** |   | **Accumulated  Amortization** |   |
|------------------------------|--------|-----------------------------|--------|-------------------------------|--------|
| Amortized intangible assets: |   |                        |   |                          |   |
| Proprietary software         |   | $                           | 3,592  |                          | $      | 1,120 |   |
| Patents                      |   | 2,342                       |   | 536                           |   |
| Perpetual license            |   | 325                         |   | 27                            |   |
| Purchased technology         |   | 293                         |   | 73                            |   |
|                         |   | 6,552                       |   | 1,756                         |   |
|                         |   |                        |   |                          |   |
| Unamortized trade name       |   | $                           | 5,302  |                          |   |   |
|                              |        |                             |        |                               |        |  |  |

 
|                   |   |   | ** ** | **Net** | ** ** |
|------------------------|--------|--------|------------|---------|------------|
| Intangible assets, net |   |   |       | $       | 10,098     |   |
|                        |        |        |            |         |            |  |

 

The change in the carrying amount of goodwill is as follows:

 
| **(In thousands)**                                            |   | **Goodwill** |   |
|---------------------------------------------------------------|--------|--------------|--------|
| Balance as of December 31, 2001                               |   | $            | 487    |   |
| Reclassification of assembled workforce  pursuant to SFAS 142 |   | 1,448        |   |
| Balance as of September 30, 2002                              |   | $            | 1,935  |   |

 

The following table discloses reported net loss and the adjusted netloss that would have been reported assuming that SFAS 142 were to have beeneffective for all reported periods.

 
| **(In thousands, except forper share amounts)** |     | **Three  Months Ended  September 30,** |     | **Nine  Months Ended  September 30,** |     |
|-------------------------------------------------|----------|----------------------------------------|----------|---------------------------------------|----------|
|                                            | **2002** |                                   | **2001** |                                  | **2002** |   | **2001** |   |
| Net income  (loss), as reported                 |     | $                                      | 2,399    |                                  | $        | (1,776 | ) | $ | (1,034 | ) | $ | (4,363 | ) |
| Add back amortization:                          |     |                                   |     |                                  |     |   |   |   |   |
| Goodwill                                        |     | —                                 |     | 9                                     |     | — |   | 28 |   |
| Trade name                                      |     | —                                 |     | 75                                    |     | — |   | 225 |   |
| Assembled workforce                             |     | —                                 |     | 80                                    |     | — |   | 240 |   |
| Net income  (loss), as adjusted                 |     | $                                      | 2,399    |                                  | $        | (1,612 | ) | $ | (1,034 | ) | $ | (3,870 | ) |
|                                            |     |                                   |     |                                  |     |   |   |   |   |
| Earnings per share, basic and diluted:          |     |                                   |     |                                  |     |   |   |   |   |
| Net income  (loss) per share, as reported       |     | 0.67                                   |     | (0.50                                 | )        | (0.29 | ) | (1.25 | ) |
| Add back  amortization:                         |     |                                   |     |                                  |     |   |   |   |   |
| Goodwill                                        |     | —                                 |     | —                                |     | — |   | 0.01 |   |
| Trade name                                      |     | —                                 |     | 0.02                                  |     | — |   | 0.06 |   |
| Assembled workforce                             |     | —                                 |     | 0.02                                  |     | — |   | 0.07 |   |
| Net income  (loss) per share, as adjusted       |     | $                                      | 0.67     |                                  | $        | (0.46 | ) | $ | (0.29 | ) | $ | (1.11 | ) |

 

15

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Amortization expense for the three and nine months ended September 30,2002 was $207,000 and $567,000, respectively. Amortization expense was $1,191,000 for the year ended December 31,2001.  Estimated amortization expensefor the remainder of 2002 and for each of the succeeding years based on theintangible assets as of September 30, 2002 is as follows:

 
| **(In thousands)**                   |   | **Amortization** |   |
|--------------------------------------|--------|------------------|--------|
| Three months ended December 31, 2002 |   | $                | 203    |   |
| 2003                                 |   | 845              |   |
| 2004                                 |   | 845              |   |
| 2005                                 |   | 794              |   |
| 2006                                 |   | 735              |   |
| Thereafter                           |   | 1,374            |   |
|                                 |   | $                | 4,796  |   |

 

**9.****             Reclassifications**

 

Certain amounts in Angeion’s financial statements for the three andnine months ended September 30, 2001 have been reclassified to conform to the2002 presentation.  Thesereclassifications had no effect on net income (loss) or shareholders’ equity(deficit) as previously reported.

 

**10.****          NetIncome (Loss) Per Share**

 

Basic earnings per share are computed by dividing net earnings by theweighted average shares outstanding during the reporting period.  Diluted earnings per share are computedsimilar to basic earnings per share except that the weighted average sharesoutstanding are increased to include additional shares from the assumedexercise of stock options, warrants or convertible debt, if dilutive.  The number of additional shares iscalculated by assuming that outstanding stock options or warrants wereexercised and that the proceeds from such exercise were used to acquire sharesof common stock at the average market price during the reporting period.  If the Notes are dilutive, the associatedinterest expense and amortization of debt issuance costs, net of taxes, areremoved from operations and the shares issued are assumed to be outstanding forthe dilutive period. All potentially dilutive common shares were excluded fromthe calculation because they were anti-dilutive for the three and nine monthsended September 30, 2001.  There were nodilutive common shares outstanding for the three and nine months ended September30, 2002.

 

**11.****          RoyaltyAgreement**

 

On March 4, 2002, the Company completed a revision of its agreementwith INTERXVENTUSA, a Georgia corporation engaged in thebusiness of developing and delivering risk assessment and lifestyle managementmaterials and services to patients for improved cardio-vascular health.  The Company modified the agreement such thatthe previous payment of $1,340,000 together with an additional $75,000 nowrepresents payment for a perpetual license to use certain INTERXVENTUSAintellectual property as

 

16

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part of a custom developed private label product that is a web enabledself-help lifestyle management program. In addition, the Company agreed to make royalty payments of 15% on allamounts received for the program with a $5.00 per participant minimumapplicable to each consumer.   TheCompany plans to market this new product under the New Leaf brand and make itavailable to all New Leaf Personal Exercise System delivery sites.

 

**12.****          OtherInformation**

 

In June 2002, Company’sformer joint venture partner, ELA Medical, notified the Company that some of the ICD’s formerly manufactured byAngeion were experiencing premature battery depletion.  The Company advised the attending physiciansof the patients with these ICD’s of the problems and provided the physicianswith a recommended procedure to determine what action is required.  As part of the May 1999 agreement betweenthe Company and ELA in which the Company withdrew from a joint venture withELA, ELA is responsible for the warranty coverage, technical service, andregulatory compliance service for these ICDs. The Company remains responsible for third party claims relating to theseICDs made on behalf of a patient (i.e. product liability claims).  The Company believes that if any such claimsare made, it has adequate product liability insurance to cover them, subject todeductibles

 

**13.****          NewAccounting Pronouncements**

 

InJune 2002, the FASB issued SFAS No. 146, *Accounting for Costs Associated with Exit or DisposalActivities*.  SFAS No. 146addresses the financial accounting and reporting for costs associated with exitand disposal activities and nullifies Emerging Issues Task Force (EITF) IssueNo. 94-3, Liability Recognition for Certain Employee Termination Benefits andOther Costs to Exit and Activity (including Certain Costs Incurred in aRestructuring).  The provisions of SFASNo. 146 are effective for exit or disposal activities that are initiated afterDecember 31, 2002, with early application encouraged.  The Company will adopt the provisions of SFAS No. 146 on January1, 2003.  SFAS No. 146 will have animpact on the Company if there are any restructuring activities initiated afterDecember 31, 2002.

 

17

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**Item 2.    Management’s Discussion and Analysis or Planof Operation**

 

# **Forward-Looking Statements**

 

Statements included in this Quarterly Report on Form 10-QSB that arenot historical or current facts are “forward-looking statements” made pursuantto the safe harbor provisions of the Private Securities Litigation Reform Actof 1995.  The words “believe,” “expect,”“will,” “can,” “estimate,” “anticipate,” and similar expressions are intendedto identify forward-looking statements. Forward-looking statements are subject to certain risks anduncertainties that could cause actual results to differ materially includingthe following: (i) the Company’s ability to successfully increase revenue fromits new Leaf Product line, (ii) the Company’s ability to develop and protectits intellectual property, (iii) potential product liability claims related tothe Company’s medical products, (iv) dependence upon third party vendors and(v) the Company's ability to maintain a bid price of $1.00 per share for itscommon stock to remain eligible for continued inclusion on Nasdaq as well asother factors not now anticipated. Additional factors are set forth in the Section entitled “Certain RiskFactors” in Part I, Item 1, “Business” of the Company’s Form 10-KSB for theyear ended December 31, 2001.  Variousforward-looking statements have been made in this Quarterly Report on Form10-QSB and may also be made in other Angeion reports filed under the SecuritiesExchange Act of 1934, in its press releases and in other documents.  In addition, from time to time, the Companythrough its management may make oral forward-looking statements.  The Company undertakes no obligation toupdate any forward-looking statement.

 

# **Overview**

 

Angeion, through its Medical Graphics Corporation subsidiary, develops,manufactures and markets non–invasive cardiorespiratory diagnosticsystems and related software for the management and improvement ofcardiorespiratory health under the MedGraphics trade name.  The primary MedGraphics products includepulmonary function and cardiopulmonary exercise testing systems.  The Company also develops, manufactures andmarkets health and fitness products and services designed to assist consumerswith weight management, fitness improvement and cardiac rehabilitation.  These new products and services are soldunder the New Leaf brand name to consumers through various delivery sites suchas health and fitness clubs, weight management and cardiac rehabilitationcenters.

 

***Reorganization UnderChapter 11.*** On June 17, 2002, Angeion Corporation, the parent company, filed avoluntary petition for reorganization under chapter 11 of the federalbankruptcy laws (“Chapter 11” or “Bankruptcy Case”) in the United StatesBankruptcy Court for the District of Minnesota under case number 02-32260.  The Joint Modified Plan of Reorganization(“Plan”) was filed jointly with the holders of the Company’s 7-1⁄2% SeniorConvertible Notes (“Notes”) due April 2003. During the bankruptcy period, the Company continued to operate as debtor-in-possession.  As debtor–in–possession, theCompany operated as an ongoing business, but could not engage in transactionsoutside the ordinary course of business without approval of the BankruptcyCourt.

 

The Company’s subsidiary, Medical Graphics Corporation, was not part ofthe Chapter 11 filing and continued to do business as usual during thebankruptcy period.  The reorganizationdid not have an adverse impact upon the day–to–day operations,customers or suppliers of its Medical Graphics operations.  A description of the Company’s emergencefrom bankruptcy is set forth in Note 2 of Notes to Financial Statements in thisForm 10-QSB.

 

***Operating Matters.***  The Company continues to focus a significantportion of its resources on new products that target middle-aged adults thatare concerned about their health or fitness. These new products are a logical extension of the Company’s corecardiorespiratory diagnostic systems business and will add a much largerconsumer focused market to the Company’s business.  Management is committed to this new strategy, which builds uponour existing business and core competencies and expands the 

 

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business model from one based on one-timesales of capital equipment to one that includes providing products and servicesto each customer.

 

The Company’s first product being marketed under the New Leaf brand isthe New Leaf Personal Exercise System. The system provides delivery sites, such as health clubs, wellnesscenters and cardiac rehabilitation facilities, with the tools to developindividualized weight management, fitness and athletic training programs fortheir clients.  At September 30, 2002,there were 39 delivery sites for the New Leaf Personal Exercise System.  Revenue from these new products was $40,000and $120,000 for the three and nine months ended September 30, 2002.

 

The second New Leaf health and fitness product that the Company will beoffering is a result of its joint marketing alliance with INTERXVENT,which began in 2001.  INTERXVENTdevelops and markets lifestyle management programs for comprehensivecardiovascular disease risk reduction that involve a combination of printedmaterials, audio CDs and one-on-one personal mentoring or counseling sessionsthat has been shown to be both clinically and economically effective on over20,000 participants.  The Company haspurchased a perpetual license agreement for the INTERXVENTtechnology in the form of a self-directed lifestyle enhancement program,without requiring mentoring, that can be marketed to healthy consumers throughthe Internet, at fitness clubs and other retail outlets.  The program can be purchased as amulti-subject 12-month program or the consumer can select individual 12-weekmodules of interest such as nutrition or smoking cessation.  The customized INTERXVENT productis planned to be marketed under the New Leaf brand and will be made availableto be marketed by all New Leaf Personal Exercise System delivery sites.  The Company expects to begin testing initialversions of the new product by the end of 2002.  

 

***Defense of ICDPatents.*** In addition to the products discussed above, the Company remains theowner of several patents related to its cardiac stimulation technology fromwhich it has generated significant licensing revenue in recent years.  Despite the decision to exit the business ofmanufacturing ICDs in 2000, the Company is continuing to defend its patents andexpects to generate additional revenue through new license agreements for its patentedcardiac stimulation technology.  OnSeptember 19, 2002, the Company entered into a Settlement Agreement withBiotronik, Inc. in which the Company granted Biotronik a perpetual,non-exclusive license to use the Company’s cardiac stimulation technology.  In return, Biotronik agreed to make aone-time cash payment of $4,000,000 within 30 days of execution of thecontract.  As a result, the Companyrecorded license revenue of $2,900,000, which is net of the related contingenttransaction expenses of $1,100,000.  Thepayment was received on October 18, 2002.

 

**Results of Operations**

 

Angeion Corporation recorded net income of $2,399,000 for the threemonths ended September 30, 2002 compared to a net loss of $1,776,000 for thesame period in 2001.  For the ninemonths ended September 30, the Company recorded net losses of $1,034,000 and$4,363,000 for 2002 and 2001, respectively. Operating results for both the three and nine months ended September 30,2002 included $2,900,000 that represents net revenue generated from thegranting of a perpetual, non-exclusive license to use the Company’s cardiacstimulation technology.  The net lossfor 2001 included a loss of $29,000 from discontinued operations.

 

**Revenues**

 

Revenues consist of product sales and service revenues.  Product sales reflect sales of MedicalGraphic’s non-invasive cardiorespiratory diagnostic systems and relatedsoftware, sales of New Leaf health and fitness products and services, andaftermarket sales of peripherals and supplies. Service

 

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revenues reflect contract revenues from extended service contracts,non-warranty service visits and training.

 

Total revenue increased by $223,000 or 5.6% to $4,231,000 from$4,008,000 for the three months ended September 30, 2002 and 2001, respectively.  Domestic product revenue increased by$366,000 or 14.1% to $2,953,000 in 2002 compared to $2,587,000 in 2001.  International product revenue decreased by$276,000 or 36.2% to $486,000 in 2002 from $762,000 in 2001.  Service revenue increased by $133,000 or20.2% to $792,000 in 2002 from $659,000 in 2001.

 

Total revenue for the nine months ended September 30 increased by$247,000 or 2.0% to $12,540,000 in 2002 from $12,293,000 in 2001.  Domestic product revenue increased by$447,000 or 5.9% to $8,070,000 in 2002 compared to $7,623,000 in 2001.  International product revenue decreased by$578,000 or 21.1% to $2,167,000 in 2002 from $2,745,000 in 2001.  Service revenue increased by $378,000 or19.6% to $2,303,000 in 2002 from $1,925,000 in 2001.

 

Domestic product revenue rebounded from a negative 7.2% first quarterperformance to positive performances of 10.1% and 14.1% in the second and thirdquarters, respectively, thus yielding a 5.9% increase for the first ninemonths.  The third quarter increase ismeasured against last year’s quarter, which reflected a delay of customerorders caused by the September 11, 2001 events.  Although customer interest in placing new system orders hasimproved, the Company believes that domestic customers are continuing to exercisecaution in making capital expenditures due to the overall uncertainty of theUnited States economy.

 

First quarter international product revenue was even with the prioryear while second and third quarter revenue decreased by 29.1% and 36.2%leaving year to date performance off by over 21%.  There are two reasons driving the decline in internationalrevenue.  The European economy is actingmuch like that of the United States where customers are delaying capitalexpenses unless there is a clear immediate need, while Latin America continuesto suffer from very weak economies and devaluating currencies.

 

The service revenue increase for the three and nine month periods isprimarily due to an increase in service contract revenue and non-warrantyservice calls.  Both periods reflect anincrease in service contracts being written due to continued emphasis on thesale of extended service contracts.  Inaddition, the increase in non-warranty service call income reflects bothincreased fees and improved efficiencies in field service.

 

**Gross Margin**

 

For the three months ended September 30, gross margin percentagedecreased slightly to 41.1% of revenue in 2002 from 41.7% in 2001.  For the nine months ended September 30,gross margin percentage decreased to 40.4% of revenue in 2002 from 42.3% in2001.  Gross margins decreases are dueto labor costs associated with revising certain product specifications.  These additional labor costs were generallyincurred during the first and second quarters. Margins have improved with each quarter in 2002 and management believesthat margins for the fourth quarter of 2002 should approximate the levelachieved for 2001.

** **

**Selling and Marketing**

 

Selling and marketing expenses increased $7,000 or 0.5% to $1,291,000for the three months ended September 30, 2002 compared to $1,284,000 in2001.  For the nine months endedSeptember 30, selling and marketing expenses decreased $61,000 or 1.6% to$3,705,000 in 2002 from $3,766,000 in 2001. Increases in expenses associated with the Company’s focus on selling andmarketing its New Leaf

 

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personal exercise system of $117,000 and $389,000 for the three andnine months ended September 30, 2002, respectively, have been generally offsetby lower travel, product demonstration and other selling and marketing expensesassociated with core products.

** **

**General andAdministrative**

 

General and administrative expenses decreased $352,000 or 36.4% to$614,000 for the three months ended September 30, 2002 compared to $966,000 in2001.  For the nine months endedSeptember 30, general and administrative expenses decreased $424,000 or 18.7%to $1,839,000 in 2002 from $2,263,000 in 2001. Both thequarter and nine-month period for 2001 included $300,000 paid as part of asettlement agreement that resolved the on-going litigation with U.S.Bank National Association, as Trustee for the holders of the Company’s 7-1/2%Senior Convertible Notes.  Both periodsfor 2002 also include reduced professional fees and personnel costs.

 

**Research andDevelopment**

 

Research and development expenses for the three months ended September30 decreased $135,000 or 30.6% to $306,000 in 2002 from $441,000 in 2001.  For the nine months ended September 30,research and development expenses decreased $277,000 or 23.0% to $927,000 in2002 from $1,204,000 in 2001.  TheCompany’s previous focus on the conversion and consolidation of softwareplatforms is now complete, resulting in the decrease in research anddevelopment expenses for both the three and nine months ended September 30,2002.  Research and development expensesthat have been capitalized as part of the Company’s proprietary software were$94,000 and $104,000 for the three months ended September 30, 2001 and $301,000and $404,000 for the nine months ended September 30, 2002.

 

**Amortization ofIntangibles**

 

Amortization of intangibles for the three months ended September 30decreased $69,000 or 25.0% to $207,000 in 2002 from $276,000 in 2001.  For the nine months ended September 30,amortization of intangibles decreased $357,000 or 38.6% to $567,000 in 2002from $924,000 in 2001.  The decreasereflects the Company’s adoption of SFAS Statement No. 142, *Goodwill and Other Intangible Assets*.  See Note 8, “Intangible Assets,” Notes toConsolidated Financial Statements in this Form 10-QSB.

 

**Impairment Loss on Intangible Assets**

 

The Company has purchased a perpetual license agreement for existingINTERXVENT technology to be revised in the form of a self-helpprogram.  Since completion of the self-helpprogram has been delayed and therefore not been introduced to the market, theCompany evaluated the recoverability of its investment and determined that itwas impaired.  The Company reduced thevalue of its current investment by $1,085,000 to $325,000 at June 30,2002.  During the third quarter 2002,the Company commenced amortizing the remaining value of $325,000 over threeyears.  See Note 8, “Intangible Assets,”Notes to consolidated Financial Statements in this Form 10-QSB.

 

**Other Income(Expense)**

 

License revenue, net of $2,900,000 for the three months ended September30, 2002 represents a cash payment for a Settlement Agreement in which theCompany granted Biotronik a perpetual, non-exclusive license to use its cardiacstimulation technology.  See Note 2,“Reorganization and Recent

 

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Events, *License for ProprietaryTechnology*,” Notes to Consolidated Financial Statements in this Form10-QSB.

 

Interest income for the three months ended September 30 decreased by$27,000 to $2,000 in 2002 from $29,000 in 2001.  For the nine months ended September 30, interest income decreasedby $151,000 to $9,000 in 2002 from $160,000 in 2001.  The decrease in interest income reflects lower excess cashbalances available for short-term investment as well as lower interest rates.

 

There was no interest expense for the three months ended September 30,2002 compared to $511,000 for 2001.  Forthe nine months ended September 30, interest expense decreased $654,000 to $877,000in 2002 from $1,531,000 in 2001. Historically, interest expense included $132,000 of amortization of debtissuance costs on a quarterly basis. The debt issuance costs became fully amortized in April 2002.  In addition, the Company discontinued accruingfor interest expense on June 17, 2002, the date the Company filed the JointPlan of Reorganization.  The amount ofstated contractual interest that was not charged to operations for the 13 daysended June 30, 2002 was approximately $54,000 and the amount of statedcontractual interest that was not charged to operations for the three monthsended September 30, 2002 was $379,000. Under the Joint Plan of Reorganization, all unpaid interest expense,$1,017,000 at June 17, 2002, was converted into common stock of the Companyupon emergence from bankruptcy.

 

# **Benefit for income taxes**

 

During the first quarter of 2002, the Company recorded a refund of$92,000 for federal income taxes that were previously paid for 1999.  The refund became available due to a tax lawrevision enacted into law during the first quarter of 2002.

 

**Liquidity and CapitalResources**

 

The Company has financed its liquidity needs over the last severalyears through revenue generated by the operations of its wholly ownedsubsidiary, Medical Graphics Corporation, through revenue from licenseagreements for patented ICD technology and through the use of cash balances.

 

Although the Company had cash and cash equivalents of $1,771,000 atMarch 31, 2002, the Company, after consultation with the Noteholders, did notmake the $757,000 interest payment on the indebtedness that was due on April15, 2002, pending continuing discussions and negotiations regardingrestructuring of the indebtedness.  OnJune 17, 2002, the Company announced an agreement with the Noteholders underwhich the $20,198,000 in outstanding notes plus accrued interest of $1,017,000would be converted into common stock of the Company through a Chapter 11Bankruptcy proceeding and a Plan of Reorganization filed jointly between the Companyand its Noteholders.  On October 24,2002, the Court entered an order confirming the Plan, which became effective onOctober 25, 2002, the first business day after the date of confirmation.  Upon the effectiveness of the Plan, alloutstanding Notes plus accrued interest were converted to equity.  See Note 2, “Reorganization and RecentEvents,” Notes to Consolidated Financial Statements in this Form 10-QSB.

 

The Company had cash of $1,707,000 and negative working capital of$13,576,000, including $20,198,000 in principal amount of Notes due April 2003,as of September 30, 2002.  On a proforma basis, the Company had cash of $4,607,000 and positive working capital of$7,690,000 resulting from the receipt of cash and conversion of debt toequity.  See Note 7, “Fresh StartReporting,” Notes to Consolidated Financial Statements in this Form 10-QSB.

 

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During the nine months ended September 30, 2002, the Company generated$1,012,000 in cash from continuing operations. Cash was generated by decreases of $1,104,000 and $306,000 ininventories and prepaid expenses and other assets, respectively, as well as anincrease of $709,000 in other liabilities and accrued expenses.  The reduction in inventories included $335,000for disposition of the remaining discontinued sleep diagnostic productinventories.  The increase in accountsreceivable of $2,201,000 reflected $2,900,000 due from the granting of aperpetual, non-exclusive license to use the Company’s cardiac stimulationtechnology offset by a reduction in trade accounts balances of $699,000.  The $2,900,000 was received on October 18,2002.  In addition, the Company used$262,000 in cash for discontinued operations, which represented real estatecommissions and rental of the facility formerly used for the Company’s ICDproducts.

 

During the nine months ended September 30, 2002, the Company used$404,000 in cash for investing activities. Cash was used to increase the Company’s investment in proprietarysoftware by $301,000, to invest $70,000 in the INTERVENT perpetual license andto purchase $46,000 of equipment and fixtures.

 

The Company has no material commitments for capital expenditures forfourth quarter of 2002 or for 2003.

 

As a result of the Company’s October 25, 2002 emergence from bankruptcyand the resulting conversion of debt to equity, the Company believes that itsliquidity and capital resource needs for the foreseeable future will be metthrough its current cash and cash equivalents, cash flows from operations andworking capital.  There can be noassurance, however, that the Company’s business will continue to generate cashflows at or above current rates of cash flow.

 

### **Other Commitments.**

 

The Company has made various financial commitments in the ordinarycourse of conducting its business operations. Since the Company’s Senior Convertible Notes due April 2003 wereconverted into equity under the Plan, they have not been included in thefollowing table, which summarizes all remaining significant commitments:

 
| **(Amounts in thousands)  Description**                   |   | **Three  months  ended  December 31,  2002** |   | **2003** |   | **2004** |   | **2005** |   | **2006 &  Thereafter** |   |
|-----------------------------------------------------------|--------|----------------------------------------------|--------|----------|--------|----------|--------|----------|--------|----------------------------|--------|
| Continuing operations:                                    |   |                                         |   |     |   |     |   |     |   |                       |   |
| Minimum lease payments                                    |   | $                                            | 82     |     | $      | 324      |   | $        | 160    |                       | $      | 5 |   | $ | 4 |   |
| Minimum royalty payments for sales of AeroSport  products |   | 100                                          |   | 100      |   | 100      |   | 100      |   | 100                        |   |
| Discontinued operations:                                  |   |                                         |   |     |   |     |   |     |   |                       |   |
| Minimum lease payments                                    |   | 52                                           |   | 113      |   | —   |   | —   |   | —                     |   |
| Sublease income                                           |   | (11                                          | )      | (64      | )      | —   |   | —   |   | —                     |   |
|                                                      |   | $                                            | 223    |     | $      | 473      |   | $        | 260    |                       | $      | 105 |   | $ | 104 |   |

 

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### **Item 3. Controls and Procedures**

 

**Evaluationof Disclosure Controls and Procedures**

 

The Company’s Chief ExecutiveOfficer, Richard E. Jahnke, and Chief Financial Officer, Dale H. Johnson, haveevaluated the effectiveness of the Company’s disclosure controls and procedureswithin 90 days prior to the filing of this report.  Based upon this review, these officers believe that the Company’sdisclosure controls and procedures are effective in ensuring that materialinformation related to the Company is made known to them by others within theCompany.

 

**Changes inInternal Controls**

 

There were no significant changes in the Company’s internal controls orin other factors that could significantly affect these controls during thequarter covered by this report or from the end of the reporting period to thedate of this Form 10-QSB.

 

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**PARTII - OTHER INFORMATION**

 

**Item 1.  Legal Proceedings**

 

On June 17, 2002, Angeion Corporation, the parent company, filed avoluntary petition for reorganization under Chapter 11 of the federalbankruptcy laws.  On October 24, 2002,the Court entered an order confirming the Plan, which became effective onOctober 25, 2002, the first business day after the date of confirmation.  See Note 2, “Reorganization and RecentEvents,” Notes to Consolidated Financial Statements in this Form 10-QSB.

 

The Company is subject to certain claims and lawsuits that have beenfiled in the ordinary course of business. Management is of the opinion that ultimate settlement of these matterswill not have a material impact on its financial statements.

 

**Item 2.  Changes in Securities**

 

**Recent Sales of Unregistered Securities**

 

As of June 17, 2002, the date the Chapter 11 petition was filed with theUnited States Bankruptcy Court, District of Minnesota, Third Division (the“Court”), there were 3,594,627 shares of the Company’s common stock issued andoutstanding (the “Old common stock”).

 

Inconnection with the Company’s Joint Modified Plan of Reorganizationdated September 4, 2002 (the “Plan”), as confirmed by an order of the Court onOctober 24, 2002, all 3,954,627 shares of the Company’s Old Common Stock werecanceled as of the effective date of the Plan, October 25, 2002.  On October 25, 2002 in replacement of thisOld Common Stock, the Company issued 3,594,627 shares of its common stock, $.10par value (the “Replacement Common Stock”) and warrants expiring on October 31,2007 for the purchase of an aggregate of 179,731 shares of Replacement CommonStock (the “Warrants”).

 

Under the Plan, each holder of the Company’s Notes and each holder ofcertain other unsecured claims received such holder’s pro rata share of 95% ofthe Replacement Common Stock.  Eachholder of the Company’s Old Common Stock received a pro rata share of 5% of theReplacement Common Stock and one Warrant to purchase a like number of shares ofReplacement Common Stock

 

The issuance of the Shares, the Warrants and the shares of ReplacementCommon Stock issuable upon exercise of the Warrants, is exempt fromregistration under the Securities Act of 1933 by virtue of Section 1145 ofTitle I of the Bankruptcy Reform Act of 1978, as amended, set forth in Title11, Sections 101 et seq of the United States Code.  Adescription of the Shares and the Warrants is incorporated by reference to Item1 of the Company’s Registration Statement on Form 8-A filed on October 28,2002.

 

**Item 3.  Defaults Upon Senior Securities**

 

Under the terms of the Indenture covering the Company’s SeniorConvertible Notes, the Company was required to make interest payments of$757,000 on April 15 and October 15 of each year.  Although the Company had cash and cash equivalents of $1,771,000at March 31, 2002, the Company, after consultation with the Noteholders, did notmake the $757,000 interest payment on the indebtedness that was due on April15, 2002, pending continuing discussions and negotiations regardingrestructuring of the indebtedness.  OnMay 15, 2002, the Company entered into a Forbearance Agreement with U.S. Bankas Trustee under the Indenture, under which the Bank agreed it would notdeclare a Default under

 

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the Indenture for failure to make the April15, 2002 interest payment.  On June 17,2002, the Company filed a voluntary petition for reorganization under Chapter11 of the federal bankruptcy laws in the United States Bankruptcy Court for theDistrict of Minnesota and together with the Noteholders filed a Joint Plan ofReorganization under which the Notes would be converted into common stock ofthe Company.  On October 24, 2002 theBankruptcy Court confirmed the Company’s Joint Plan of Reorganization to beeffective on October 25, 2002.  See Note2, “Reorganization and Recent Events,” Notes to Consolidated FinancialStatements in this Form 10-QSB.

 

**Item 4.  Submission of Matters to a Vote of SecurityHolders**

 

None

 

**Item 5.  Other Information**

 

**ICD Product Development**

 

In June 2002, Company’s formerjoint venture partner, ELA Medical, notified the Company that some of the ICD’s formerly manufactured byAngeion were experiencing premature battery depletion.  The Company advised the attending physiciansof the patients with these ICD’s of the problems and provided the physicianswith a recommended procedure to determine what action is required.  As part of the May 1999 agreement betweenthe Company and ELA in which the Company withdrew from a joint venture withELA, ELA is responsible for the warranty coverage, technical service, andregulatory compliance service for these ICDs. The Company remains responsible for third party claims relating to theseICDs made on behalf of a patient (i.e. product liability claims).  The Company believes that if any such claimsare made, it has adequate product liability insurance to cover them, subject todeductibles.

 

**Change in Fiscal Year**

 

On November 13, 2002, the Company's Board ofDirectors agreed to change its fiscal year from December 31 to October 31.  The Company will file a Form 10-KSB for theten-month transition period ending October 31, 2002 on or prior to January 29,2003.

 

The Company is changing its fiscal year tocoincide with the buying patterns of the Medical Graphic's medical equipmentbusiness as well as the New Leaf health and fitness product business.  The change will also enable the Company toreports its results in the future on a comparable basis as a result of thefresh start reporting described in Note 7, Noted to Consolidated FinancialStatements, associated with the Company's emergence from Chapter 11 bankruptcy.

 

**Item 6.  Exhibits and Reports on Form 8-K**

 

(a)           ExhibitsList

 

99.1         Certificate pursuantto 18 U.S.C. § 1350

 

(b)           Reportson Form 8-K

 

No reports on Form 8-K were filed during the three months endedSeptember 30, 2002.

 

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**SIGNATURES**

 

In accordance with the requirements of theExchange Act, the registrant caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.

 

 
|                    | Angeion Corporation                                                  |   |
|-------------------------|----------------------------------------------------------------------|--------|
|                    | (Registrant)                                                         |   |
|                    |                                                                 |   |
|                    |                                                                 |   |
| Date: November 13, 2002 | /s/ Richard E. Jahnke                                                |   |
|                    | Richard E. Jahnke                                                    |   |
|                    | President and Chief Executive Officer  (Principal Executive Officer) |
|                    |                                                                 |   |
|                    |                                                                 |   |
| Date: November 13, 2002 | /s/ Dale H. Johnson                                                  |   |
|                    | Dale H. Johnson                                                      |   |
|                    | Chief Financial Officer  (Chief Accounting Officer)                  |   |
|                         |                                                                      |        |  |

 

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**CERTIFICATIONS**

 

I,Richard E. Jahnke, certify that:

 

1.                                       I havereviewed this quarterly report on Form 10-QSB of Angeion Corporation;

 

2.                                       Based on myknowledge, this quarterly report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this quarterly report;

 

3.                                       Based on myknowledge, the financial statements, and other financial information includedin this quarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this quarterly report;

 

4.                                       Theregistrant’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

 

a)                                      designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this quarterly report is being prepared;

 

b)                                     evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

c)                                      presented inthis quarterly report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

5.                                       Theregistrant’s other certifying officers and I have disclosed, based on our most recentevaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunction):

 

a)                                      allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b)                                     any fraud,whether or not material, that involves management or other employees who have asignificant role in the registrant’s internal controls; and

 

6.                                       Theregistrant’s other certifying officers and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 

 
| Date: November 13, 2002 | /s/ Richard E. Jahnke                 |   |
|-------------------------|---------------------------------------|--------|
|                    | Richard E. Jahnke                     |   |
|                    | President and Chief Executive Officer |

 

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I,Dale H. Johnson, certify that:

 

1.                                       I havereviewed this quarterly report on Form 10-QSB of Angeion Corporation;

 

2.                                       Based on my knowledge,this quarterly report does not contain any untrue statement of a material factor omit to state a material fact necessary to make the statements made, inlight of the circumstances under which such statements were made, notmisleading with respect to the period covered by this quarterly report;

 

3.                                       Based on myknowledge, the financial statements, and other financial information includedin this quarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this quarterly report;

 

4.                                       Theregistrant’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

 

a)                                      designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this quarterly report is being prepared;

 

b)                                     evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

c)                                      presented inthis quarterly report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

5.                                       Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunction):

 

a)                                      allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b)                                     any fraud,whether or not material, that involves management or other employees who have asignificant role in the registrant’s internal controls; and

 

6.                                       The registrant’s other certifying officers and I haveindicated in this quarterly report whether or not there were significantchanges in internal controls or in other factors that could significantlyaffect internal controls subsequent to the date of our most recent evaluation,including any corrective actions with regard to significant deficiencies andmaterial weaknesses.

 

 
| Date: November 13, 2002 | /s/ Dale H. Johnson     |   |
|-------------------------|-------------------------|--------|
|                    | Dale H. Johnson         |   |
|                    | Chief Financial Officer |

 

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