**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

#### **Washington, D.C.  20549**

#### ** **

**FORM 10-Q**

** **

| **x**      | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                    |
|------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                                                                                                                      |
|       |       | **for the quarterly period ended January 31,  2008.**                                                                                                                                                                                                |
|       |       |                                                                                                                                                                                                                                                      |
|       |       | **OR**                                                                                                                                                                                                                                                    |
|       |       |                                                                                                                                                                                                                                                      |
| **o**      | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                   |
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                |
| ** ** | ** ** | **for the transition period from                     to                     .** |

 

**CommissionFile Number  001-13543**

 

**ANGEIONCORPORATION**

(Exact name ofregistrant as specified in its charter)

 

| **Minnesota**                                                                                          | ** ** | **41-1579150**      |
|--------------------------------------------------------------------------------------------------------|------------|---------------------|
| (State or other jurisdiction of                                                                        |       | (IRS Employer       |
| incorporation or organization)                                                                         |       | Identification No.) |
|                                                                                                   |       |                |
| **350 Oak Grove Parkway, Saint Paul,  Minnesota 55127-8599**

(Address of principal executive offices) |
|                                                                                                   |       |                |
| Registrant’s telephone number, including area code: **(651) 484-4874**                            |

 

Indicate by checkmark whether the registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

| **Yes  **x | **No**o | ** ** |
|-----------------|---------|------------|

** **

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated fileror a non-accelerated filer.  Seedefinition of “accelerated filer” and “large accelerated filer” in Rule 12b-2of the Exchange Act:

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

 

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

| **Yes  **o | **No**x | ** ** |
|-----------------|---------|------------|

** **

As of March 10,2008, the Company had outstanding 4,089,803 shares of Common Stock, $0.10 parvalue.

 

 

----

 

**TABLE OF CONTENTS**

 
| ***PART I –  FINANCIAL INFORMATION*** |
|-------------------------------------------------|
| * *                                        | * * | * * |
| Item 1.                                         |   | Financial  Statements (unaudited) |
| Item 2.                                         |   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |
| Item 3.                                         |   | Quantitative  and Qualitative Disclosures about Market Risk |
| Item 4.                                         |   | Controls and  Procedures |
| Item 4T.                                        |   | Controls and  Procedures |
|                                            |   |   |
| **PART II  - OTHER INFORMATION**           |
|                                            |   |   |
| Item 1.                                         |   | Legal Proceedings |
| Item 1A.                                        |   | Risk Factors |
| Item 2.                                         |   | Unregistered  Sales of Equity Securities and Use of Proceeds |
| Item 3.                                         |   | Defaults  Upon Senior Securities |
| Item 4.                                         |   | Submission  of Matters to a Vote of Security Holders |
| Item 5.                                         |   | Other Information |
| Item 6.                                         |   | Exhibits |
|                                            |   |   |
| **SIGNATURES**                                  |
|                                                 |  |  |  |

 

2

----

 

**PART I – FINANCIAL INFORMATION**

 

**Item 1. Financial Statements.**

** **

**ANGEION CORPORATION AND SUBSIDIARIES**

**Consolidated Balance Sheets**

**January 31, 2008 and October 31, 2007**

(unaudited, in thousands except share and per share data)

 
| ** **                                                                                                                                   | ** ** | **January 31,** | ** ** | **October 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------|------------|----------------------|------------|
| ** **                                                                                                                                   | ** ** | **2008**             | ** ** | **2007**             | ** ** |
| ** **                                                                                                                                   | ** ** | ** **           | ** ** | ** **           | ** ** |
| **Assets**                                                                                                                                   |       |                 |       |                 |       |
| **Current assets:**                                                                                                                          |       |                 |       |                 |       |
| Cash and cash equivalents                                                                                                                    |       | $                    | 6,471      |                 | $          | 6,908 |   |
| Accounts receivable, net of allowance for  doubtful accounts of $77 and $85, respectively                                                    |       | 6,252                |       | 7,950                |       |
| Inventories                                                                                                                                  |       | 5,745                |       | 5,310                |       |
| Prepaid expenses and other current assets                                                                                                    |       | 261                  |       | 347                  |       |
| **Total current assets**                                                                                                                     |       | 18,729               |       | 20,515               |       |
|                                                                                                                                         |       |                 |       |                 |       |
| Property and equipment, net of accumulated  depreciation of $2,577 and $2,453, respectively                                                  |       | 1,286                |       | 1,302                |       |
| Intangible assets, net                                                                                                                       |       | 2,534                |       | 2,716                |       |
| **Total Assets**                                                                                                                             | ** ** | **$**                | **22,549** | ** **           | **$**      | **24,533** | ** ** |
| ** **                                                                                                                                   | ** ** | ** **           | ** ** | ** **           | ** ** |
| **Liabilities  and Shareholders’ Equity**                                                                                               | ** ** | ** **           | ** ** | ** **           | ** ** |
| **Current liabilities:**                                                                                                                     | ** ** | ** **           | ** ** | ** **           | ** ** |
| Accounts payable                                                                                                                             | ** ** | $                    | 1,293      | ** **           | $          | 1,858 | ** ** |
| Employee compensation                                                                                                                        | ** ** | 1,350                | ** ** | 2,041                | ** ** |
| Deferred income                                                                                                                              | ** ** | 1,727                | ** ** | 1,839                | ** ** |
| Warranty reserve                                                                                                                             | ** ** | 206                  | ** ** | 253                  | ** ** |
| Other current liabilities and accrued  expenses                                                                                              | ** ** | 374                  | ** ** | 370                  | ** ** |
| **Total current liabilities**                                                                                                                | ** ** | 4,950                | ** ** | 6,361                | ** ** |
|                                                                                                                                         | ** ** |                 | ** ** |                 | ** ** |
| **Long-term liabilities:**                                                                                                                   | ** ** |                 | ** ** |                 | ** ** |
| Long-term deferred income                                                                                                                    | ** ** | 723                  | ** ** | 743                  | ** ** |
| **Total Liabilities**                                                                                                                        | ** ** | 5,673                | ** ** | 7,104                | ** ** |
|                                                                                                                                         | ** ** |                 | ** ** |                 | ** ** |
| **Shareholders’ equity:**                                                                                                               | ** ** |                 | ** ** |                 | ** ** |
| Common stock, $0.10 par value, authorized  25,000,000 shares, issued and outstanding, 4,089,803 shares in 2008 and  4,088,445 shares in 2007 | ** ** | 409                  | ** ** | 409                  | ** ** |
| Additional paid-in capital                                                                                                                   | ** ** | 20,545               |       | 20,423               |       |
| Accumulated deficit                                                                                                                          | ** ** | (4,078               | )          | (3,403               | )          |
| **Total shareholders’ equity**                                                                                                          | ** ** | 16,876               |       | 17,429               |       |
| **Total Liabilities and Shareholders’ Equity**                                                                                          | ** ** | **$**                | **22,549** | ** **           | **$**      | **24,533** | ** ** |

 

See accompanying notes to consolidatedfinancial statements.

 

3

----

 

**ANGEION CORPORATION AND SUBSIDIARIES**

**Consolidated Statements of Operations**

(unaudited, in thousands except per share amounts)

** **
| ** **                                      | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------------|------------|----------------------------------|------------|
| ** **                                      | ** ** | **January 31,**             | ** ** |
| ** **                                      | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| **Revenues:**                                   | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Equipment and supply sales                      |       | $                                | 6,632      |   | $ | 9,888 |   |
| Service revenue                                 |       | 877                              |       | 731 |   |
|                                            |       | 7,509                            |       | 10,619 |   |
| **Cost of goods sold:**                         |       |                             |       |   |   |
| Cost of equipment and supplies                  |       | 3,615                            |       | 5,220 |   |
| Cost of service revenue                         |       | 116                              |       | 112 |   |
|                                            |       | 3,731                            |       | 5,332 |   |
|                                            |       |                             |       |   |   |
| **Gross margin**                                |       | 3,778                            |       | 5,287 |   |
|                                            |       |                             |       |   |   |
| **Operating expenses:**                         |       |                             |       |   |   |
| Selling and marketing                           |       | 2,371                            |       | 2,475 |   |
| General and administrative                      |       | 1,318                            |       | 1,160 |   |
| Research and development                        |       | 618                              |       | 675 |   |
| Amortization of intangibles                     |       | 182                              |       | 195 |   |
|                                            |       | 4,489                            |       | 4,505 |   |
|                                            |       |                             |       |   |   |
| **Operating income (loss)**                     |       | (711                             | )          | 782 |   |
| Interest income                                 |       | 63                               |       | 36 |   |
|                                            |       |                             |       |   |   |
| **Income (loss) before income taxes**           |       | (648                             | )          | 818 |   |
| Provision for income taxes                      |       | 27                               |       | 329 |   |
|                                            |       |                             |       |   |   |
| **Net income (loss)**                           |       | $                                | (675       | ) | $ | 489 |   |
|                                            |       |                             |       |   |   |
| **Earnings (loss) per share - basic:**          |       |                             |       |   |   |
| Net income (loss) per share                     |       | $                                | (0.17      | ) | $ | 0.13 |   |
|                                            |       |                             |       |   |   |
| **Earnings (loss) per share - diluted:**        |       |                             |       |   |   |
| Net income (loss) per share                     |       | $                                | (0.17      | ) | $ | 0.12 |   |
|                                            |       |                             |       |   |   |
| **Weighted average common shares outstanding:** |       |                             |       |   |   |
| **Basic**                                       |       | 4,089                            |       | 3,838 |   |
| **Diluted**                                     |       | 4,089                            |       | 4,249 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

4

----

** **

**ANGEION CORPORATION AND SUBSIDIARIES**

**Consolidated Statements of Cash Flows**

(unaudited,in thousands)

 
| ** **                                                                                                                                                                                                                                                             | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                                                                                                                                                                                             | ** ** | **January 31,**             | ** ** |
| ** **                                                                                                                                                                                                                                                             | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| **Cash Flows From Operating Activities:**                                                                                                                                                                                                                              |       |                             |       |   |   |
| Net income (loss)                                                                                                                                                                                                                                                      |       | $                                | (675       | ) | $ | 489 |   |
| Adjustments to reconcile net income (loss)  to net cash provided by (used in) operating activities:                                                                                                                                                                    |       |                             |       |   |   |
| Depreciation and amortization                                                                                                                                                                                                                                          |       | 306                              |       | 276 |   |
| Stock-based compensation                                                                                                                                                                                                                                               |       | 111                              |       | 3 |   |
| Tax benefit from stock options exercised                                                                                                                                                                                                                               |       | —                           |       | (117 | ) |
| Deferred income taxes                                                                                                                                                                                                                                                  |       | —                           |       | 157 |   |
| Changes in operating assets and  liabilities:                                                                                                                                                                                                                          |       |                             |       |   |   |
| Accounts receivable                                                                                                                                                                                                                                                    |       | 1,698                            |       | (793 | ) |
| Inventories                                                                                                                                                                                                                                                            |       | (435                             | )          | 408 |   |
| Prepaid expenses and other current assets                                                                                                                                                                                                                              |       | 86                               |       | 4 |   |
| Accounts payable                                                                                                                                                                                                                                                       |       | (565                             | )          | (44 | ) |
| Employee compensation                                                                                                                                                                                                                                                  |       | (691                             | )          | (492 | ) |
| Deferred income                                                                                                                                                                                                                                                        |       | (132                             | )          | (290 | ) |
| Warranty reserve                                                                                                                                                                                                                                                       |       | (47                              | )          | 30 |   |
| Other current liabilities and accrued  expenses                                                                                                                                                                                                                        |       | 4                                |       | 264 |   |
| **Net cash used in operating activities**                                                                                                                                                                                                                              |       | (340                             | )          | (105 | ) |
|                                                                                                                                                                                                                                                                   |       |                             |       |   |   |
| **Cash Flows From Investing Activities:**                                                                                                                                                                                                                              |       |                             |       |   |   |
| Purchase of property and equipment                                                                                                                                                                                                                                     |       | (108                             | )          | (5 | ) |
| **Net cash used in investing activities**                                                                                                                                                                                                                              |       | (108                             | )          | (5 | ) |
|                                                                                                                                                                                                                                                                   |       |                             |       |   |   |
| **Cash Flows From Financing Activities:**                                                                                                                                                                                                                              |       |                             |       |   |   |
| Proceeds from issuance of common stock under  employee stock purchase plan                                                                                                                                                                                             |       | 11                               |       | 18 |   |
| Proceeds from the exercise of stock options                                                                                                                                                                                                                            |       | —                           |       | 377 |   |
| Proceeds from the exercise of warrants                                                                                                                                                                                                                                 |       | —                           |       | 200 |   |
| Tax benefit from stock options exercised                                                                                                                                                                                                                               |       | —                           |       | 117 |   |
| **Net cash provided by financing activities**                                                                                                                                                                                                                          |       | 11                               |       | 712 |   |
|                                                                                                                                                                                                                                                                   |       |                             |       |   |   |
| **Net increase (decrease) in cash and cash  equivalents**                                                                                                                                                                                                              |       | (437                             | )          | 602 |   |
|                                                                                                                                                                                                                                                                   |       |                             |       |   |   |
| **Cash and cash equivalents at beginning of  period**                                                                                                                                                                                                                  |       | 6,908                            |       | 4,069 |   |
|                                                                                                                                                                                                                                                                   |       |                             |       |   |   |
| **Cash and cash equivalents at end of period**                                                                                                                                                                                                                         | ** ** | **$**                            | **6,471**  | ** ** | **$** | **4,671** | ** ** |
| **Supplemental disclosure of non-cash  investing activities:**                                                                                                                                                                                                         | ** ** | ** **                       | ** ** | ** ** | ** ** |
| During the three months ended  January 31, 2007, the Company decreased intangible assets $157,000  with an offsetting decrease to the deferred tax valuation allowance of  $157,000 for the usage  of pre-emergence bankruptcy net operating loss carry forwards. |       |
|                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                   |

 

Seeaccompanying notes to consolidated financial statements.

 

5

----

 

**ANGEION CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**1.           Basis of Presentation and Descriptionof Business**

 

AngeionCorporation (the “Company”) through its Medical Graphics Corporation subsidiary, designs andmarkets non-invasive cardiorespiratory diagnostic systems that are sold underthe MedGraphics and New Leaf brand and trade names. These cardiorespiratorydiagnostic systems have a wide range of applications in healthcare, wellnessand health and fitness.

 

The consolidated balance sheet as ofJanuary 31, 2008, the consolidated statements of operations and cash flowsfor the three months ended January 31, 2008 and 2007, and the relatedinformation presented in these notes have been prepared by management inaccordance with U.S. generally accepted accounting principles for interimfinancial information and with the instructions to Form 10-Q andRule 10-01 of Regulation S-X, without audit. Accordingly, they do notinclude all of the information and notes required by U.S. generally acceptedaccounting principles for complete financial statements. In the opinion ofmanagement, all adjustments considered necessary for a fair presentation ofresults have been included. The consolidated balance sheet at October 31,2007 was derived from the audited consolidated financial statements as of thatdate. Operating results for the three months ended January 31, 2008 arenot necessarily indicative of the results that may be expected for the yearending October 31, 2008. For further information, refer to theconsolidated financial statements and notes thereto included in AngeionCorporation’s Annual Report on Form 10-K for the year endedOctober 31, 2007.

 

Comprehensive income (loss) is a measure ofall non-owner changes in shareholders’ equity and includes items such as netincome, certain foreign currency translation items, minimum pension liabilityadjustments and changes in the value of available-for-sale securities. For thethree months ended January 31, 2008 and 2007, comprehensive income (loss)for Angeion Corporation was equivalent to net income (loss) as reported.

 

Preparation of theconsolidated financial statements in conformity with U.S. generally acceptedaccounting principles requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities and disclosures ofcontingent assets and liabilities made in the consolidated financial statementsand accompanying notes. Actual results could differ from those estimates. Estimatesinclude accounts receivable, product warranty and inventory reserves, anddepreciable lives of property, equipment and intangible assets.

 

**2.**           **RevenueRecognition**

 

Inaccordance with the SEC’s Staff Accounting Bulletin No. 104, “*Revenue Recognition*,” the Company recognizes revenue whenpersuasive evidence of an arrangement exists, transfer of title has occurred orservices have been rendered, the selling price is fixed or determinable andcollectability is reasonably assured. The Company’s products are sold for cashor on credit terms requiring payment based on the shipment date. Credit termscan vary between customers due to many factors, but are generally 30-60 days. Revenue,net of discounts, is recognized upon shipment or delivery to customers inaccordance with written sales terms. Standard sales terms do not includecustomer acceptance conditions, future credits, rebates, price protection orgeneral rights of return. The terms of sales to both domestic customers andinternational distributors are identical. In instances when a customer orderspecifies final acceptance of the system, revenue is deferred until allcustomer acceptance criteria have been met. Estimated warranty obligations arerecorded upon shipment.

 

6

----

 

Service contract revenue isbased on a stated contractual rate and is deferred and recognized ratably overthe service period, which is typically from one to four years. In accordancewith paragraph 4 of the Emerging Issues Task Force abstract 00-21, “*Revenue Arrangements with Multiple Deliverables*,” theCompany applies Financial Accounting Standards Board (“FASB”) Technical Bulletin No. 90-1 to service contract revenue. Deferred income associated with servicecontracts and supplies was$2,016,000 and $2,120,000 at January 31, 2008 and October 31, 2007,respectively. Revenue from installation and training services providedto customers is deferred until the service has been performed. The amount ofdeferred installation and training revenue was $329,000 and $365,000 at January 31,2008 and October 31, 2007, respectively.

 

**When a sale involves multiple deliverables, such as equipment,installation services and training, the amount of the consideration from anarrangement is allocated to each respective element based on the residualmethod and recognized as revenue when revenue recognition criteria for eachelement is met. Consideration allocated to delivered equipment is equal to thetotal arrangement consideration less the fair value of installation andtraining. The fair value of installation and training services is based onspecific objective evidence, including third-party invoices.**

** **

**The Company has one customer that accounted for 23.8% of revenues forthe three months ended January 31, 2007.**

** **

***AdvancePayments from Customers***

 

The Company typically doesnot receive advance payments from its customers in connection with the sale ofits products. The Company occasionally enters into an arrangement under which acustomer agrees to purchase a large quantity of product that is to be deliveredover a period of time. Depending on the size of these arrangements, the Companymay negotiate an advance payment from these customers. Advance payments fromcustomers aggregated $105,000 and $97,000 as of January 31, 2008 andOctober 31, 2007, respectively, are included in deferred income on theconsolidated balance sheets. Revenue recognition for customer orders thatinclude advance payments is consistent with the Company’s revenue recognitionpolicy described above.

 

**3.           New Accounting Pronouncements**

 

In June 2006, the FASB issued FASBInterpretation No. 48, *Accounting for Uncertaintyin Income Taxes-an interpretation of FASB Statement 109* (“FIN 48”). FIN48 clarifies the accounting and reporting for income taxes recognized inaccordance with SFAS No. 109, *Accounting for IncomeTaxes*. FIN 48 prescribes a comprehensive model for the financialstatement recognition, measurement, presentation and disclosure of uncertaintax positions taken or expected to be taken on income tax returns. FIN 48 iseffective for fiscal years beginning after December 15, 2006. We adoptedFIN 48 effective November 1, 2007, as required. The adoption of FIN 48 didnot have a material effect on the Company’s financial statements.

 

InSeptember 2006, the FASB issued SFAS No. 157,*Fair Value Measurements*(“SFAS No. 157”), which is effective for fiscal years beginning afterNovember 15, 2007 and for interim periods within those years. Thisstatement defines fair value, establishes a framework for measuring fair valueand expands the related disclosure requirements. The Company is currentlyevaluating the impact of SFAS No. 157 on its consolidated financialstatements.

 

7

----

 

In February 2008, the FASB issued FASB Staff Position (FSP)Financial Accounting Standard (FAS) 157-1, *Applicationof FASB Statement No. 157 to FASB Statement No. 13 and Its RelatedInterpretive Accounting Pronouncements That Address Leasing Transactions*, and FSP FAS 157-2, *Effective Date of FASBStatement No. 157* . FSP FAS 157-1 removes leasing from thescope of SFAS No. 157, “Fair Value Measurements.” FSP FAS 157-2 delays theeffective date of SFAS No. 157 from 2008 to 2009 for all nonfinancialassets and nonfinancial liabilities, except those that are recognized ordisclosed at fair value in the financial statements on a recurring basis (atleast annually). See SFAS No. 157 discussion above.

 

In December 2007, the FASB issued SFAS No. 141 (revised 2007)*Business Combinations* (SFASNo. 141(R)). SFAS No. 141(R) retains the fundamentalrequirements of the original pronouncement requiring that the purchase methodbe used for all business combinations. SFAS No. 141(R) defines theacquirer as the entity that obtains control of one or more businesses in thebusiness combination, establishes the acquisition date as the date that theacquirer achieves control and requires the acquirer to recognize the assetsacquired, liabilities assumed and any noncontrolling interest at their fairvalues as of the acquisition date. SFAS No. 141(R) also requires thatacquisition-related costs be recognized separately from the acquisition. SFASNo. 141(R) is effective for fiscal years beginning on or afterDecember 15, 2008. The Company is currently assessing the impact of SFASNo. 141(R) on its consolidated financial statements.

 

In December 2007, the FASB issued Statement No. 160, *Noncontrolling Interests in Consolidated FinancialStatements*(SFASNo. 160). SFAS No. 160 clarifies that a noncontrollinginterest in a subsidiary should be reported as equity in the consolidatedfinancial statements. Consolidated net income should include the net income forboth the parent and the noncontrolling interest with disclosure of both amountson the consolidated statement of income. The calculation of earnings per sharewill continue to be based on income amounts attributable to the parent. SFASNo. 160 is effective for fiscal years beginning on or afterDecember 15, 2008. The Company is currently assessing the impact of SFASNo. 160 on its consolidated financial statements.

 

**4.           Share-Based Compensation and Stock Options**

 

EffectiveNovember 1, 2006, the Company adopted the provisions of FASB StatementNo. 123 (revised 2004), *Share-Based Payment*(“SFAS No. 123R”). Under the fair value recognition provisions of SFASNo. 123R, the Company measures stock-based compensation cost at the grantdate based on the fair value of the award and recognizes the compensationexpense over the requisite service period, which is generally the vestingperiod. The Company elected the modified-prospective method of adopting SFASNo. 123R, under which prior periods are not retroactively restated. Theprovisions of SFAS No. 123R apply to awards granted, modified or cancelledafter the November 1, 2006 effective date. There were no non-vested awardsoutstanding on the effective date for SFAS No. 123R. Total share-basedcompensation expense included in the Company’s statement of operations for thethree months ended January 31, 2008 and 2007 was $111,000 and $3,000,respectively.

 

***Stock Options***

 

Under theAngeion Corporation 2002 Stock Option Plan (the “2002 Plan”), the Company hadreserved 800,000 shares of its common stock for issuance upon exercise of stockoptions. As of January 31, 2008, options for 800,000 shares had been granted,426,850 shares had been issued upon exercise of options and options to purchase373,150 shares remained outstanding. In connection with our adoption of the2007 Stock Incentive Plan described below, the 2002 Plan was amended to providethat no new options could be granted under the 2002 Plan.

 

8

----

 

At aSpecial Meeting of Shareholders held on August 22, 2007, the shareholdersapproved the Angeion Corporation 2007 Stock Incentive Plan (the “2007 Plan”) andreserved 250,000 shares of its common stock for issuance upon exercise of stockoptions under the 2007 Plan. As of January 31, 2008, options for 227,970shares were outstanding and 10,030 shares were available for future grant.

 

The 2007Plan and 2002 Plan both provide that incentive stock options and nonqualifiedstock options to purchase shares of common stock may be granted at pricesdetermined by the Compensation Committee, except that the purchase price ofincentive stock options may not be less than the fair market value of the stockat date of grant. Under the 2007 Plan, all options expire no later than sevenyears from the grant date while under the 2002 Plan, all options expire nolater than ten years from the grant date. Options under both plans are subjectto various vesting schedules.

 
| ** **                         | ** ** | **For the quarter ended** | ** ** |
|------------------------------------|------------|------------------------------------------|------------|
| ** **                         | ** ** | **January 31, 2008**           | ** ** | **January 31, 2007** | ** ** |
| ** **                         | ** ** | **Shares**                               | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
| Outstanding at beginning of period |       | 611,120                                  |       | $ | 6.12 |   | 624,187 |   | $ | 5.03 |   |
| Granted                            |       | 2,000                                    |       | 7.81 |   | 1,536 |   | 11.62 |   |
| Exercised                          |       | —                                   |       | — |   | (54,787 | ) | 7.21 |   |
| Expired or cancelled               |       | (12,000                                  | )          | 7.86 |   | — |   | — |   |
| Outstanding at end of period       |       | 601,120                                  |       | $ | 6.09 |   | 570,936 |   | $ | 4.84 |   |

 

The following table summarizesinformation concerning stock options outstanding as of January 31, 2008:

 
| **Exercise  Prices** | ** ** | **Number  Outstanding** | ** ** | **Weighted  Average  Remaining  Contractual   Life** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Number  Subject to  Exercise** | ** ** |
|----------------------|------------|-------------------------|------------|-----------------------------------------------------------|------------|----------------------------------------|------------|----------------------------------|------------|
| $                    | 2.00       |                    | 11,650     |                                                      | 5.68       |                                   | $          | 2.00                             |       | 11,650 |   |
| 2.53                 |       | 97,000                  |       | 7.62                                                      |       | 2.53                                   |       | 97,000                           |       |
| 5.08                 |       | 84,000                  |       | 8.32                                                      |       | 5.08                                   |       | 84,000                           |       |
| 6.23                 |       | 84,500                  |       | 6.05                                                      |       | 6.23                                   |       | 84,500                           |       |
| 6.60                 |       | 79,200                  |       | 6.56                                                      |       | 6.60                                   |       | —                           |       |
| 7.79                 |       | 86,800                  |       | 5.68                                                      |       | 7.79                                   |       | 86,800                           |       |
| 7.81                 |       | 2,000                   |       | 6.76                                                      |       | 7.81                                   |       | —                           |       |
| 7.86                 |       | 155,970                 |       | 6.75                                                      |       | 7.86                                   |       | —                           |       |
|                 |       |                    |       |                                                      |       |                                   |       |                             |       |
| Total                |       | 601,120                 |       | 6.66                                                      |       | $                                      | 6.09       |                             | 363,950    |   |
|                      |            |                         |            |                                                           |            |                                        |            |                                  |            |  |  |

 

The totalintrinsic value of options exercised during the three months endedJanuary 31, 2008 was $0. The total intrinsic value of options outstandingand exercisable at January 31, 2008 was $1,044,000, which was calculatedusing the closing stock price as of January 31, 2008 less the option priceof in-the-money options. The Company issues new shares when stock options areexercised. There was no cash received from the exercise of stock options orrelated tax benefits recognized for the quarter ended January 31, 2008. Unrecognizedcompensation expense related to outstanding stock options as of January 

 

9

----

 

31, 2008 was$1,180,000 and is expected to be recognized over a weighted average period of2.63 years and will be adjusted for any future changes in estimatedforfeitures.

 

Thefollowing table presents the statement of operations classification of pre-taxshare-based compensation expense recognized for the three months endedJanuary 31, 2008:

 
| ** **                       | ** ** | **Three months ended January 31,** | ** ** |
|----------------------------------|------------|--------------------------------------------------------|------------|
| **(In thousands)**          | ** ** | **2008**                                               | ** ** | **2007** | ** ** |
| Cost of goods sold               |       | $                                                      | 31         |   | $ | — |   |
| Selling and marketing            |       | 6                                                      |       | 2 |   |
| General and administrative       |       | 68                                                     |       | 1 |   |
| Research and development         |       | 6                                                      |       | — |   |
| Share-based compensation expense |       | $                                                      | 111        |   | $ | 3 |   |

 

***Valuation Assumptions***

 

The Companyuses the Black-Scholes option-pricing model (“Black-Scholes model”) todetermine the fair value of stock options as of the grant date. The fair valueof stock options under the Black-Scholes model requires management to makeassumptions regarding projected employee stock option exercise behaviors,risk-free interest rates, volatility of the Company’s stock price and expecteddividends. 

 

***Employee Stock Purchase Plan***

 

The AngeionCorporation 2003 Employee Stock Purchase Plan (“Stock Plan”) allowsparticipating employees to purchase shares of the Company’s common stock at adiscount through payroll deductions. The Stock Plan is available to allemployees subject to certain eligibility requirements. Terms of the Stock Planprovide that participating employees may purchase the Company’s common stock ona voluntary after tax basis. Employees may purchase the Company’s common stockat a price that is no less than the lower of 85% of the fair market value ofone share of common stock at the beginning or end of each stock purchase periodor phase. The Company increased the price at which common stock may bepurchased to 95% of the market value effective January 1, 2007. The StockPlan is carried out in six-month phases, with phases beginning onJanuary 1 and July 1 of each calendar year. For the phase that endedon December 31, 2007, employees purchased 1,348 shares at a price of $7.81per share. As of January 31, 2008, the Company has withheld approximately$1,755 from employees participating in the phase that began on January 1,2008. At January 31, 2008, approximately 69,085 shares of common stockwere available for future purchase under the Stock Plan.

 

**5.****                                   Inventories**

 

Inventories consisted of thefollowing at January 31, 2008 and October 31, 2007:

 
| **(In thousands)** | ** ** | **2008** | ** ** | **2007** | ** ** |
|-------------------------|------------|----------|------------|----------|------------|
| Raw materials           |       | $        | 2,631      |     | $          | 2,380 |   |
| Work-in-Process         |       | 410      |       | 177      |       |
| Finished goods          |       | 2,704    |       | 2,753    |       |
|                    |       | $        | 5,745      |     | $          | 5,310 |   |

 

10

----

 

**6.****                                      IntangibleAssets and Goodwill**

 

**Intangible assetsconsisted of the following at January 31, 2008 and October 31, 2007:**

 
| **(In thousands)** | ** ** | **2008** | ** ** | **2007** | ** ** |
|-------------------------|------------|----------|------------|----------|------------|
| Intangible assets:      |       |     |       |     |       |
| Developed technology    |       | $        | 6,663      |     | $          | 6,663 |   |
| Amortization            |       | (4,129   | )          | (3,947   | )          |
|                    |       | $        | 2,534      |     | $          | 2,716 |   |

 

The intangibleassets are being amortized using the straight-line method over the estimateduseful lives of the assets that range from three to ten years. Amortizationexpense was $182,000 and $195,000 for the quarters ended January 31, 2008and 2007, respectively. If the Company continues to utilize pre-emergencebankruptcy net operating loss carry forwards, the Company will further reducethe carrying cost of its developed technology until the net carrying cost ofthese assets is zero. To the extent that utilization of these NOLs reduces thecost of developed technology, future amortization expense will be reduced. Estimatedamortization expense for each of the succeeding fiscal years based on theintangible assets as of January 31, 2008, which does not reflect thepossible reduction discussed above, is as follows:

 
| **(In thousands)**                  | ** ** | **Amortization** | ** ** |
|------------------------------------------|------------|------------------|------------|
| Nine months ending October 31, 2008 |       | $                | 545        |   |
| 2009                                     |       | 727              |       |
| 2010                                     |       | 421              |       |
| 2011                                     |       | 420              |       |
| 2012                                     |       | 421              |       |
|                                     |       | $                | 2,534      |   |

 

TheCompany did not realize any pre-bankruptcy benefits for the quarter endedJanuary 31, 2008, therefore, there were no changes in the cost ofintangible assets from October 31, 2007.

 

For the quarter endedJanuary 31, 2007, the following activity occurred:

 
| **(In thousands)**                                                                  | ** ** | **Goodwill** | ** ** | **Trade Name** | ** ** | **Developed  Technology** | ** ** |
|------------------------------------------------------------------------------------------|------------|--------------|------------|---------------------|------------|---------------------------|------------|
| Balance at October 31, 2006                                                         |       | $            | —     |                | $          | 81                        |       | $ | 6,900 |   |
| Reduction in balance due to utilization of  pre-emergence bankruptcy deferred tax assets |       | —       |       | (81                 | )          | (76                       | )          |
|                                                                                     |       |         |       |                |       |                      |       |
| Balance at January 31, 2007                                                         |       | $            | —     |                | $          | —                    |       | $ | 6,824 |   |

 

11

----

 

**7.****                                      WarrantyReserve**

 

Sales of the Company’sequipment are subject to a warranty obligation. Equipment warranties typicallyextend for a period of twelve months from the date of installation. Standardwarranty terms are included in customer contracts. Under the terms of thesewarranties, the Company is obligated to repair or replace any components orassemblies that it deems defective in workmanship or materials. The Companyreserves the right to reject warranty claims where it determines that failureis due to normal wear, customer modifications, improper maintenance or misuse. TheCompany maintains a warranty reserve that reflects the estimated expenses thatit will incur to honor the warranties on its products. The Company adjusts thewarranty reserve based on the number and type of equipment that is subject towarranty, adjusted for the remaining months of warranty coverage. The warrantyreserve adjustment reflects the Company’s historical warranty experience basedon type of equipment. Warranty provisions and claims for the three months endedJanuary 31, 2008 and 2007 were as follows:

 

 
| **(In thousands)**      | ** ** | **2008** | ** ** | **2007** | ** ** |
|------------------------------|------------|----------|------------|----------|------------|
| Balance, beginning of period |       | $        | 253        |     | $          | 335 |   |
| Warranty provisions          |       | 68       |       | 176      |       |
| Warranty claims              |       | (115     | )          | (146     | )          |
| Balance, end of period       |       | $        | 206        |     | $          | 365 |   |

 

**8.****                                     ****Net Earnings (Loss) per Share**

** **

**Basic income (loss)per share is computed by dividing net income (loss) by the weighted averageshares outstanding during the reporting period. Diluted income (loss) per shareis computed similarly to basic income (loss) per share except that in computingincome per share the weighted average shares outstanding are increased toinclude additional shares from the assumed exercise of stock options or warrants,if dilutive. The number of additional shares is calculated by assuming thatoutstanding stock options or warrants were exercised and that the proceeds fromthe exercise were used to acquire shares of common stock at the average marketprice during the reporting period.**

** **

**The Company had 150,174 warrants outstanding at January 31, 2007to purchase shares of its common stock. There were no warrants that remainedoutstanding at January 31, 2008 as all unexercised warrants expired bytheir terms on October 31, 2007. The Company also had options outstandingat January 31, 2008 and 2007 to purchase 601,120 and 570,936 shares,respectively, of its common stock. As a result of the net loss in first quarter2008, the outstanding stock options were considered antidilutive and,therefore, were excluded from diluted earnings per share.**

** **

Shares used in the income(loss) per share computations for the three months ended January 31, 2008and 2007 are as follows:

 
| ** **                                            | ** ** | **Three months ended January 31,** | ** ** |
|-------------------------------------------------------|------------|--------------------------------------------------------|------------|
| **(In thousands)**                                    | ** ** | **2008**                                               | ** ** | **2007** | ** ** |
| Weighted average common shares outstanding  - basic   |       | 4,089                                                  |       | 3,838 |   |
|                                                  |       |                                                   |       |   |   |
| Dilutive effect of stock options and  warrants        |       | —                                                 |       | 411 |   |
| Weighted average common shares outstanding  - diluted |       | 4,089                                                  |       | 4,249 |   |

 

12

----

 

**9.           IncomeTaxes**

** **

The Company has recorded a provision for taxes from continuingoperations of $27,000 and $329,000 for the three months ended January 31,2008 and 2007, respectively.  The Companyhas not recognized the tax benefit generated by the year-to-date loss in lightof the uncertainty surrounding the Company’s level of profitability for thebalance of fiscal 2008 given, among other things, the lower expectations ofclinical research revenue and the timing and success of new productintroductions.  For the quarter ended January 31,2007, the provision for taxes was calculated and presented in the statement ofoperations as if the Company’s earnings were fully taxable.  The amount of income taxespayable, if any, is determined after utilizing the Company’s NOLs, includingits pre-emergence bankruptcy NOLs.  Under American Institute ofCertified Public Accountants Statement of Position 90-7, *Financial Reporting by Entities in ReorganizationUnder the Bankruptcy Code* (“SOP 90-7”), the tax benefit for theutilization of these pre-emergence bankruptcy NOL carry forwardsmust be recognized as a reduction of intangibles rather than a reduction of theprovision for taxes in the statement of earnings.

 

The Company adopted the provisions of FIN 48 on November 1,2007.  There was no additional reservefor uncertain tax positions recognized as a result of adoption of FIN 48.  During the quarter ended January 31,2008, the Company recognized $27,000 of income tax expense related to theincrease in reserves for uncertain tax positions.  The total reserve as of January 31, 2008was $27,000.  The entire amount of thereserve related to uncertainties regarding income tax nexus with various statesin which the Company operates.  Includedin the reserve is $8,000 of estimated interest and penalties.  The total amount of the reserve has increasedthe Company’s effective tax rate, and would therefore decrease the effectivetax rate if removed.

 

Estimated interest and penaltiesrelated to potential underpayment of income taxes are classified as a componentof tax expense in the consolidated statement of operations.  The Company does expect that the amount ofreserves for uncertain tax positions may change significantly in the nexttwelve months.  The Company does notanticipate that the total reserve for uncertain tax positions willsignificantly change due to the settlement of audits and the expiration ofstatutes of limitations within the next twelve months.

 

The Company files a consolidatedfederal income tax return in the United States Federal jurisdiction and filesvarious combined and separate tax returns in several state and localjurisdictions. With limited exceptions, the Company is no longer subject toU.S. Federal, state and local tax examinations by tax authorities for fiscalyears ending prior to November 1, 2004. There is no statute of limitations for assessments related tojurisdictions where the Company may have nexus but has chosen not to file anincome tax return.

 

The Company had a federal net operating loss carry forward at October 31,2007 of approximately $20.9 million. This amount is the remaining utilizable carry forward following theapplication of a limit due to an ownership change under Internal Revenue Code Section 382that occurred during the fourth quarter of fiscal year 2006.  This carry forward is available to offset aportion of taxes payable in future years. If not used, this carry forward will expire in the years 2009 through2025.  Approximately $7.6 million of thiscarry forward will expire, if unused, during the next five years ending October 31,2012.  The Company also has $115,000 ofalternative minimum tax credit carry forwards that do not have expirationdates.  Even though the Company hassubstantial federal net operating loss carry forwards, any incomemay still be subject to U.S. and State alternative minimum taxes.

 

The Company has recorded a full valuation allowance against its netdeferred tax asset based on its belief that it was more likely than not thatthe asset would not be realized in the future. Although this determination was made in a prior fiscal year, it is stillapplicable as of January 31, 2008, and the Company will continue to assessthe need for a full valuation allowance in future quarters. Under SOP

 

13

----

 

 90-7, asubstantial portion of any future reversal of the valuation allowance willfirst reduce any intangible assets and then be credited directly to additionalpaid-in capital.  After the exhaustion ofpre- emergence bankruptcy NOLs, approximately $2.3 million of the valuationallowance is related to post-bankruptcy NOLs and would be available to reducethe provision for taxes in the statement of operations and, thereafter,$778,000 related to excess stock option tax deductions would be recognized asadditional paid-in capital when realized in the Company’s income tax return.

 

**10.         Litigation**

 

 The Company isalso subject to certain claims and lawsuits that have been filed in theordinary course of business.  From timeto time, the Company initiates lawsuits against others to enforce patents or toseek collection of debts in the ordinary course of business.  It is management’s opinion that thesettlement of all litigation arising in the ordinary course of business wouldnot have a material effect on the financial position, results of operations orliquidity of the Company.

 

**11.         Severance Costs**

 

**On January 31, 2008, the Company implemented aReduction-In-Force (RIF) that terminated the employment of eight employees toallow better management of operating expenses. On the same date, the Company’s Chief Financial Officer, Dale H. Johnson,retired.  As a result of these actions,the Company accrued a total of $194,000 in severance costs for the quarterended January 31, 2008.**

** **

**In connection with his retirement, the Companyagreed to continue Mr. Johnson’s salary through October 31, 2008, atotal of $112,000, agreed to pay Mr. Johnson an outplacement assistancepayment of $26,000, and agreed to pay the employer’s portion on Mr. Johnson’smedical benefits, estimated at a total of $9,500, until the earlier of (i) January 31,2009 or (ii) the date Mr. Johnson becomes eligible for medicalbenefits through another employer or entity. For the eight employees terminated as a result of the RIF, the Companyaccrued a total of $46,000 of severance and medical benefits in the quarterended January 31, 2008.**

** **

**14**

----

 

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

 

### **Overview**

### ** **

The Company, through its Medical GraphicsCorporation subsidiary, designs and markets non-invasive cardio-respiratorydiagnostic systems that are sold under the MedGraphics and New Leaf brand andtrade names.  These cardio-respiratorydiagnostic systems have a wide range of applications in healthcare, wellnessand health and fitness.  Revenues consistof equipment and supply sales as well as service revenues.  Equipment and supply sales reflect sales ofnon-invasive cardio-respiratory diagnostic equipment and aftermarket sales ofperipherals and supplies.  Servicerevenues consist of revenues from extended service contracts, non-warrantyservice visits and additional training.

 

The Company has developed and had planned to launch a new generationcardiorespiratory system in its hospital and physician office product line atthe end of the fourth quarter of fiscal 2007. This new system, the first significant introduction since 1998, hasseveral new features and technological advancements, and will enable Angeion toachieve new manufacturing synergies. Angeion delayed the product launch until the second or early thirdquarter of fiscal 2008 while it fine-tunes the technical performance andfinalizes regulatory certifications related to this system. This delayresulted in a reduction of anticipated orders by customers waiting for theintroduction of the new generation system. 

 

**Resultsof Operations**

 

The following table contains selected informationfrom the Company’s consolidated statements of operations, expressed as apercentage of revenues:

 
| ** **                          | ** ** | **Three months ended** | ** ** |
|-------------------------------------|------------|----------------------------------|------------|
| ** **                          | ** ** | **January 31,**             | ** ** |
| ** **                          | ** ** | **2008**                         | ** ** | **2007** | ** ** |
|                                |       |                             |       |   |   |
| Revenues                            |       | 100.0                            | %          | 100.0 | % |
| Cost of goods sold                  |       | 49.7                             |       | 50.2 |   |
| Gross margin                        |       | 50.3                             |       | 49.8 |   |
|                                |       |                             |       |   |   |
| Selling and marketing expenses      |       | 31.6                             |       | 23.3 |   |
| General and administrative expenses |       | 17.6                             |       | 10.9 |   |
| Research and development expenses   |       | 8.2                              |       | 6.4 |   |
| Amortization of intangibles         |       | 2.4                              |       | 1.8 |   |
| Total operating expenses            |       | 59.8                             |       | 42.4 |   |
| Operating income (loss)             |       | (9.5                             | )          | 7.4 |   |
| Interest income                     |       | 0.9                              |       | 0.3 |   |
| Provision for taxes                 |       | 0.4                              |       | 3.1 |   |
| Net income (loss)                   |       | (9.0                             | )%         | 4.6 | % |

 

Total revenue for the first quarter of 2008 was $7.5 million, adecrease of 29.3% from $10.6 million in 2007. Operating expenses for the first quarter of 2008 were $4.5 million, adecrease of 0.4% from 2007.  Net loss forthe three months ended January 31, 2008 was $675,000, or $0.17 per share,compared to net income of $489,000, or $0.12 per diluted share, for the sameperiod in 2007.

 

15

----

 

**Revenue**

 

**Total revenue for the three months ended January 31,2008, decreased by 29.3% compared to 2007. Domestic product revenue decreased 37.3%, international product revenuedecreased 15.7% and service revenue increased 20.0%. International revenuesdecreased as a result of the conclusion of the equipment installation phase forthe Company’s large clinical research customer. Excluding the clinical research business, international revenuesincreased 3.4% in the first quarter 2008 compared to the same quarter in2007.  Clinical research revenues are nowshifting to service requirements which are higher margin, but smaller in salesdollar volume.  Revenue from extendedservice contracts and non-warranty service visits both increased in 2008 comparedto 2007 as a result of a larger installed customer base from higher sales in2006 and 2007.**

** **

The Company sells its cardiorespiratorydiagnostic systems, mainly the Ultima PF, and services to its largeclinical research customer for use in conducting safety and efficacy clinicaltrials both in the United States and internationally.  This customer accounted for 6.7% of revenuefor the three months ended January 31, 2008, and 23.8% of revenuefor the three months ended January 31, 2007.  The Company expects revenue from thiscustomer to continue throughout fiscal 2008, but at a reduced level dueto this customer’s unanticipated early conclusion of its clinical trial.

 

Excluding sales to this customer, revenue for the three months ended January 31, 2008 decreasedby $1.1 million, or 13.4%, compared to the same period in 2007.  The decrease in core business is attributableto the delay in the launch of the next generation cardiorespiratory product.

 

**GrossMargin**

 

**Gross margin percentage for the three month periodended January 31, 2008 increased to 50.3% of revenue compared to 49.8% forthe same period in 2007.  Gross marginpercentage increased slightly as a result of higher margin service revenues asthe Company’s largest clinical research customer needs have now shifted toservice requirements instead of equipment placement.**

** **

**Sellingand Marketing**

 

Selling and marketing expenses for the three months ended January 31,2008 decreased by 4.2%, or $104,000, to $2.4 million compared to $2.5 millionfor the same period in 2007.

 

Commission expenses decreased by $189,000, or 39.7%, for the threemonths ended January 31, 2008 compared to the same period in 2007 due tothe decline in commissionable revenue.  Boththe corresponding sales and sales support payroll, as well as travel andcustomer support expenses also decreased by $123,000, or 8.5%, for the threemonths ended January 31, 2008 compared to the same period in 2007.  These expense savings were partially offsetby incremental costs of $116,000 from the establishment of a new representativebranch office in Milan, Italy for marketing and technical support to theCompany’s European distribution partners during fiscal 2007.  In addition, marketing expenses increased by$124,000, or 41.8%, as the Company added marketing personnel to support thepreparation and promotion of new product launches.

 

On January 31, 2008, the Company terminated eight employees,mostly in the sales and marketing function, to allow better management ofoperating expenses.  As a result of thisaction, the Company accrued $46,000 of severance and medical benefits for theseemployees at January 31, 2008. Headcount for the Company as of March 1, 2008 now stands at 133employees compared to 139 at the beginning of the fiscal year.  Savings in personnel costs are expected to be$450,000 over the remainder of the 2008 fiscal year.

 

16

----

 

**Generaland Administrative**

 

**General and administrative expenses for the threemonths ended January 31, 2008 increased by 13.6%, or $158,000, to $1.3million compared to $1.2 million for the same period in 2007.**

** **

On January 31, 2008, Dale Johnson, Chief Financial Officer ofAngeion, retired at the request of the Company. As a result of this event, costs of $148,000 were accrued in the firstquarter of 2008 for severance and medical benefits.  The cash severance will be paid out on abi-weekly payroll basis over 37 weeks.

 

Professional fees decreased by $82,000 for the three months ended January 31,2008 compared to the same period in 2007. The majority of the expenses incurred in the prior year were legal,audit and tax fees related to the restatement of the Company’s 2006 financialstatements.  No similar event occurred inthe first quarter of 2008.

 

Non-cash stock-based compensation expense of $68,000 was incurredduring the three months ended January 31, 2008 related to stock optiongrants in the fourth quarter of fiscal 2007. There was no related expense in the first quarter of 2007, since allpreviously outstanding options were fully vested as of October 31,2006.  In addition, a one-time paymentfor recruiting fees as well as higher depreciation expense caused an increaseof $65,000 in general and administrative costs compared to the prior year.

 

**Researchand Development**

 

**Research and development expenses for the threemonths ended January 31, 2008 decreased by 8.4%, or $57,000, to $618,000from $675,000 for the same period in 2007.**

** **

**Project expenses associated with new productsdecreased by $46,000, or 45.9%, for the three months ended January 31,2008 compared to the same period in 2007 due to early completion of certain newproject testing.  All other relatedpersonnel, travel and consulting costs did not change materially as compared tothe prior-year period.  The Company’scurrent new product development initiatives include products targeted forhospital intensive care units, cardiology, dietary, asthma, allergy and primarycare physicians, health and fitness club professionals, as well asinternational markets.  These newproducts are currently completing clinical evaluation and are planned forrelease during fiscal 2008.**

** **

**Amortizationof Intangibles**

 

Amortization of developed technology was $182,000 for the three monthsended January 31, 2008 compared to $195,000 for the same period in 2007.

 

 The decrease is attributable toreductions in the valuation of developed technology as the Company utilizes itspre-emergence bankruptcy net operating loss (“NOL”) carry forwards.

 

**Interest Income**

 

Interest income for the threemonths ended January 31, 2008 increasedto $63,000 from $36,000 for the same period in 2007.  Theincrease in interest income is principally due to higher market interest ratesand an increase in the balances of cash and cash equivalents.

 

17

----

 

**Provisionfor Income Taxes**

 

Under Generally Accepted Accounting Principles, theCompany is required to present the provision for taxes as if it were fullytaxable in accordance with SOP 90-7.  Withrespect to the actual payment of taxes, however, the Company has utilized itspre-emergence bankruptcy NOLs in the calculation of its income taxes payablebut is still required to pay U.S. and State alternative minimum taxes (“AMT”)in certain jurisdictions, even though it has substantial federal and state NOLcarry forwards.  During the quarter endedJanuary 31, 2008, the Company did not use any tax benefits related topre-emergence bankruptcy NOLs.  During2007, the Company used tax benefits of $318,000 related to pre-emergencebankruptcy NOLs.  These benefits havebeen recorded as a reduction of intangible assets.    See note 9 to the consolidated financialstatements, “Income Taxes,” in this Form 10-Q for additional discussion ofthe accounting for income taxes and the use of pre-emergence bankruptcy NOLs.

 

**Liquidityand Capital Resources**

 

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

 

The Company had cash and cash equivalents of $6.5million and working capital of $13.8 million as of January 31, 2008.  During the first quarter, the Company used$340,000 in cash from operating activities, primarily due to a net loss of$675,000 that included non-cash expenses of $306,000 for depreciation andamortization and $111,000 of stock-based compensation.  Cash was generated by a decrease of $1.7million in accounts receivable balances and a slight decrease of $86,000 inprepaid expense balances. The change in accounts receivables is due tocollections on the large sales volumes that occurred in the fourth quarter offiscal 2007.

 

Partially offsetting these cash inflows were anincrease in inventory levels of $435,000, a decrease in accounts payable balancesof $565,000 and a decrease in employee compensation payables of $691,000.  Inventory levels have steadily increased asthe Company prepares for new product launches during fiscal 2008.  The decrease in employee compensationannually changes as employee bonuses are paid out during the first quarter ofthe fiscal year.

 

During the first quarter, the Company used $108,000in cash for the purchase of property and equipment.  The Company has no material commitments forcapital expenditures for the remainder of fiscal year 2008.

 

The Company believes that its liquidity and capitalresource needs for fiscal year 2008 will be met through its current cash andcash equivalents as well as cash flows resulting from operations.  As a result of the termination of eightemployees, the Company expects to pay $450,000 less in salaries and otherpayroll expenditures for the remainder of the year.

 

**Item3.  Quantitative and QualitativeDisclosures About Market Risk**

 

None.

 

18

----

 

**Item4.  Controls and Procedures.**

 

*(a) Evaluation of Disclosure Controls and Procedures*

 

Management,with the participation of the Company’s chief executive officer, Rodney A.Young, and controller, Brian J. Smrdel, has evaluated the effectiveness of the designand operation of the disclosure controls and procedures, as defined in Rules 13a-15(e) underthe Securities Exchange Act of 1934, as of the end of the period covered bythis report.  Management has concludedthat the Company’s disclosure controls and procedures are effective to ensurethat information required to be disclosed in the reports that the Company filesunder the Exchange Act is recorded, processed, summarized and reported withinthe time periods specified in the rules and forms of the SEC and that thedisclosure controls are also effective to ensure that information required tobe disclosed in the Company’s Exchange Act reports is accumulated andcommunicated to management, including the chief executive officer and principalaccounting officer, to allow timely decisions regarding required disclosure.

 

(b) Changes in InternalControls.

 

Therehave been nosignificant changes in internal control over financial reporting that occurredduring the first fiscal quarter of 2008 that have materially affected, or arereasonably likely to materially affect, the registrant’s internal control overfinancial reporting.

 

**Item 4T.  Controls and Procedures.**

 

None.

 

19

----

 

**PART II– OTHER INFORMATION**

 

**Item 1.  Legal Proceedings.**

** **

**The Company is subject to certain claims andlawsuits that have been filed in the ordinary course of business.  From time to time, the Company brings suitagainst others to enforce patent rights or to collect debts in the ordinarycourse of business.  Management believesthat the settlement of all litigation would not have a material effect on theresults of operations or liquidity of the Company.**

** **

**Item 1A. Risk Factors**

** **

**None.**

** **

**Item 2.  Unregistered Sales of Equity Securities andUse of Proceeds.**

** **

**None.**

** **

**Item 3.  Defaults Upon Senior Securities.**

** **

**None.**

** **

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

** **

**None.**

** **

**Item 5.  Other Information.**

** **

**On January 31, 2008, the Company’s ChiefFinancial Officer, Dale H. Johnson, retired. In connection with his retirement, the Company agreed to continue Mr. Johnson’ssalary through October 31, 2008, the end of the fiscal year, agreed to payMr. Johnson an outplacement assistance payment of $26,000, and agreed topay the employer’s portion on Mr. Johnson’s medical benefits until theearlier of (i) January 31, 2009 or (ii) the date Mr. Johnsonbecomes eligible for medical benefits through another employer or entity.**

** **

**Item 6. ****Exhibits.**

 

31.                                 Certificationspursuant to Rules 13a-14 and 15d-14 of the Exchange Act.

 

32.                                 Certificationspursuant to 18 U.S.C. § 1350.

 

 

20

----

 

**SIGNATURES**

 

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

 

 
|                |   | ANGEION CORPORATION                   |
|---------------------|--------|---------------------------------------|
|                |   | (Registrant)                          |
|                |   |                                  |
|                |   |                                  |
| March 17, 2008 |   |                                  |
|                |   | By                                    | /s/ Rodney A. Young |
|                |   | Rodney A. Young                       |
|                |   | President and Chief Executive Officer |
|                |   |                                  |
|                |   |                                  |
| March 17, 2008 |   |                                  |
|                |   | By                                    | /s/ Brian J. Smrdel |
|                |   | Brian J. Smrdel                       |
|                |   | Controller                            |
|                |   | Principal Accounting Officer          |

 

21

----