**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

# **FORM 10-QSB**

**x****        Quarterlyreport under Section 13 or 15(d) of the Securities Exchange Act of 1934.**

**For the quarterly period ended April 30, 2007**

**OR**

**o****                                ****Transition report under Section13 or 15(d) of the Exchange Act.**

**For the transition period from                  to                   .**

## **Commissionfile number 001-13543**

## **Angeion Corporation**

(Exact name of small business issuer as specified inits charter)

| **Minnesota**                    |   | **41-1579150**       |
|----------------------------------|--------|----------------------|
| (State or other  jurisdiction of |   | (I.R.S. Employer     |
| incorporation or  organization)  |   | Identification  No.) |

 

# **350 OakGrove Parkway, Saint Paul, Minnesota 55127-8599**

(Address of principal executive offices)

**(651)484-4874**

(Issuer’s telephone number, including area code)

Check whether the issuer(1) filed all reports required to be filed by Section 13 or 15(d) of theExchange Act during the past 12 months (or for such shorter period that theissuer was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.
| Yes |   | x |   | No |   | o |
|-----|--------|---|--------|----|--------|---|

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).
| Yes |   | o |   | No |   | x |
|-----|--------|---|--------|----|--------|---|

 

Check whether theregistrant filed all documents and reports required to be filed by Section 12,13 or 15(d) of the Exchange Act of 1934 after distribution of securities undera plan confirmed by a court.
| Yes |   | x |   | No |   | o |
|-----|--------|---|--------|----|--------|---|

 

The Company had4,078,230 shares of common stock, $0.10 par value, outstanding as of May 31,2007.

 

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**PART I - FINANCIAL INFORMATION**

 

**Item 1.  FinancialStatements.**

 

**ANGEION CORPORATION AND SUBSIDIARIES**

**Consolidated Balance Sheets**

**April 30, 2007 and October 31, 2006**

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

 
| ** **                                                                                                                                   | ** ** | **April 30,** | ** ** | **October 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|----------------------|------------|
| ** **                                                                                                                                   | ** ** | **2007**           | ** ** | **2006**             | ** ** |
| **Assets**                                                                                                                                   |       |               |       |                 |       |
| **Current  assets:**                                                                                                                         |       |               |       |                 |       |
| Cash  and cash equivalents                                                                                                                   |       | $                  | 4,386      |                 | $          | 4,069 |   |
| Accounts  receivable, net of allowance for doubtful accounts of $57 and $133,  respectively                                                  |       | 8,922              |       | 6,799                |       |
| Inventories                                                                                                                                  |       | 5,532              |       | 5,737                |       |
| Prepaid  expenses and other current assets                                                                                                   |       | 333                |       | 285                  |       |
| Total  current assets                                                                                                                        |       | 19,173             |       | 16,890               |       |
|                                                                                                                                         |       |               |       |                 |       |
| Property and equipment,  net of accumulated depreciation of $2,051 and $1,883, respectively                                                  |       | 1,087              |       | 1,096                |       |
| Intangible assets, net                                                                                                                       |       | 2,915              |       | 3,767                |       |
| **Total  Assets**                                                                                                                            | ** ** | **$**              | **23,175** | ** **           | **$**      | **21,753** | ** ** |
|                                                                                                                                         |       |               |       |                 |       |
| **Liabilities and Shareholders’ Equity**                                                                                                |       |               |       |                 |       |
| **Current  liabilities:**                                                                                                                    |       |               |       |                 |       |
| Accounts  payable                                                                                                                            |       | $                  | 1,807      |                 | $          | 1,575 |   |
| Employee  compensation                                                                                                                       |       | 1,594              |       | 2,068                |       |
| Advance  payments from customers                                                                                                             |       | 285                |       | 1,234                |       |
| Deferred  income                                                                                                                             |       | 1,448              |       | 1,125                |       |
| Warranty  reserve                                                                                                                            |       | 310                |       | 335                  |       |
| Other  current liabilities and accrued expenses                                                                                              |       | 287                |       | 349                  |       |
| Total  current liabilities                                                                                                                   |       | 5,731              |       | 6,686                |       |
|                                                                                                                                         |       |               |       |                 |       |
| **Long-term  liabilities:**                                                                                                                  |       |               |       |                 |       |
| Long-term  deferred income                                                                                                                   |       | 647                |       | 757                  |       |
| **Total  Liabilities**                                                                                                                       |       | 6,378              |       | 7,443                |       |
|                                                                                                                                         |       |               |       |                 |       |
| **Shareholders’  equity:**                                                                                                              |       |               |       |                 |       |
| Common  stock, $0.10 par value, authorized 25,000,000 shares, issued and outstanding,  4,052,799 shares in 2007 and 3,792,306 shares in 2006 |       | 405                |       | 379                  |       |
| Additional  paid-in capital                                                                                                                  |       | 20,016             |       | 18,497               |       |
| Accumulated  deficit                                                                                                                         |       | (3,624             | )          | (4,566               | )          |
| Total  shareholders’ equity                                                                                                             |       | 16,797             |       | 14,310               |       |
| **Total  Liabilities and Shareholders’ Equity**                                                                                         | ** ** | **$**              | **23,175** | ** **           | **$**      | **21,753** | ** ** |

 

Seeaccompanying notes to consolidated financial statements.

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**ANGEION CORPORATION AND SUBSIDIARIES**

**Consolidated Statements of Earnings**

(unaudited, in thousands except per share amounts)

 
| ** **                                                   | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|--------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                   | ** ** | **April 30,**               | ** ** | **April 30,**             | ** ** |
| ** **                                                   | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| **Revenues**                                                 | ** ** | ** **                       | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Equipment and supply sales                                   |       | $                                | 9,147      |                           | $          | 6,564 |   | $ | 19,035 |   | $ | 12,811 |   |
| Service revenue                                              |       | 813                              |       | 648                            |       | 1,544 |   | 1,334 |   |
|                                                         |       | 9,960                            |       | 7,212                          |       | 20,579 |   | 14,145 |   |
| **Cost of goods sold**                                       |       |                             |       |                           |       |   |   |   |   |
| Cost of equipment and supplies                               |       | 4,811                            |       | 3,584                          |       | 10,031 |   | 6,865 |   |
| Cost of service revenue                                      |       | 123                              |       | 99                             |       | 235 |   | 222 |   |
|                                                         |       | 4,934                            |       | 3,683                          |       | 10,266 |   | 7,087 |   |
|                                                         |       |                             |       |                           |       |   |   |   |   |
| **Gross margin**                                             |       | 5,026                            |       | 3,529                          |       | 10,313 |   | 7,058 |   |
|                                                         |       |                             |       |                           |       |   |   |   |   |
| **Operating expenses:**                                      |       |                             |       |                           |       |   |   |   |   |
| Selling and marketing                                        |       | 2,536                            |       | 1,852                          |       | 5,011 |   | 3,805 |   |
| General and administrative                                   |       | 887                              |       | 806                            |       | 2,047 |   | 1,519 |   |
| Research and development                                     |       | 693                              |       | 571                            |       | 1,368 |   | 1,054 |   |
| Amortization of intangibles                                  |       | 190                              |       | 203                            |       | 385 |   | 406 |   |
|                                                         |       | 4,306                            |       | 3,432                          |       | 8,811 |   | 6,784 |   |
|                                                         |       |                             |       |                           |       |   |   |   |   |
| **Operating income**                                         |       | 720                              |       | 97                             |       | 1,502 |   | 274 |   |
| Interest income                                              |       | 47                               |       | 19                             |       | 83 |   | 28 |   |
|                                                         |       |                             |       |                           |       |   |   |   |   |
| **Income before taxes**                                      |       | 767                              |       | 116                            |       | 1,585 |   | 302 |   |
| Provision for taxes                                          |       | 314                              |       | 85                             |       | 643 |   | 185 |   |
|                                                         |       |                             |       |                           |       |   |   |   |   |
| **Income from continuing operations**                        |       | 453                              |       | 31                             |       | 942 |   | 117 |   |
| **Gain from discontinued operations, net of $103  of taxes** |       | —                           |       | 175                            |       | — |   | 171 |   |
| **Net income**                                               |       | $                                | 453        |                           | $          | 206 |   | $ | 942 |   | $ | 288 |   |
|                                                         |       |                             |       |                           |       |   |   |   |   |
| **Earnings per share - basic**                               |       |                             |       |                           |       |   |   |   |   |
| Continuing operations                                        |       | $                                | 0.11       |                           | $          | 0.01 |   | $ | 0.24 |   | $ | 0.03 |   |
| Discontinued operations                                      |       | —                           |       | 0.05                           |       | — |   | 0.05 |   |
| Net income per share                                         |       | $                                | 0.11       |                           | $          | 0.06 |   | $ | 0.24 |   | $ | 0.08 |   |
|                                                         |       |                             |       |                           |       |   |   |   |   |
| **Earnings per share - diluted**                             |       |                             |       |                           |       |   |   |   |   |
| Continuing operations                                        |       | $                                | 0.11       |                           | $          | 0.01 |   | $ | 0.22 |   | $ | 0.03 |   |
| Discontinued operations                                      |       | —                           |       | 0.04                           |       | — |   | 0.05 |   |
| Net income per share                                         |       | $                                | 0.11       |                           | $          | 0.05 |   | $ | 0.22 |   | $ | 0.08 |   |
|                                                         |       |                             |       |                           |       |   |   |   |   |
| **Weighted average common shares outstanding**               |       |                             |       |                           |       |   |   |   |   |
| **Basic**                                                    |       | 3,945                            |       | 3,619                          |       | 3,890 |   | 3,615 |   |
| **Diluted**                                                  |       | 4,310                            |       | 3,760                          |       | 4,279 |   | 3,714 |   |

 

Seeaccompanying notes to consolidated financial statements.

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**ANGEION CORPORATION AND SUBSIDIARIES**

**Consolidated Statements of Cash Flows**

(unaudited, in thousands)

 
| ** **                                                                                                                                                                                                                                                                                                                        | ** ** | **Six Months Ended** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                                        | ** ** | **April 30,**             | ** ** |
| ** **                                                                                                                                                                                                                                                                                                                        | ** ** | **2007**                       | ** ** | **2006** | ** ** |
| **Cash Flows From Operating Activities:**                                                                                                                                                                                                                                                                                         |       |                           |       |   |   |
| Net income                                                                                                                                                                                                                                                                                                                        |       | $                              | 942        |   | $ | 288 |   |
| Gain from discontinued operations                                                                                                                                                                                                                                                                                                 |       | —                         |       | (171 | ) |
| Adjustments to reconcile net income to net cash provided  by (used in) operating activities:                                                                                                                                                                                                                                      |       |                           |       |   |   |
| Depreciation and amortization                                                                                                                                                                                                                                                                                                     |       | 553                            |       | 532 |   |
| Stock-based compensation                                                                                                                                                                                                                                                                                                          |       | 7                              |       | 137 |   |
| Tax benefit from stock options exercised                                                                                                                                                                                                                                                                                          |       | (155                           | )          | — |   |
| Deferred income taxes                                                                                                                                                                                                                                                                                                             |       | 467                            |       | 279 |   |
| Changes in operating assets and liabilities:                                                                                                                                                                                                                                                                                      |       |                           |       |   |   |
| Accounts receivable                                                                                                                                                                                                                                                                                                               |       | (2,123                         | )          | (219 | ) |
| Inventories                                                                                                                                                                                                                                                                                                                       |       | 205                            |       | (1,385 | ) |
| Prepaid expenses and other current assets                                                                                                                                                                                                                                                                                         |       | (48                            | )          | 70 |   |
| Accounts payable                                                                                                                                                                                                                                                                                                                  |       | 232                            |       | 1,185 |   |
| Employee compensation                                                                                                                                                                                                                                                                                                             |       | (474                           | )          | 66 |   |
| Advance payments from customers                                                                                                                                                                                                                                                                                                   |       | (949                           | )          | 1,165 |   |
| Deferred income                                                                                                                                                                                                                                                                                                                   |       | 213                            |       | 236 |   |
| Warranty reserve                                                                                                                                                                                                                                                                                                                  |       | (25                            | )          | 38 |   |
| Other current liabilities and accrued expenses                                                                                                                                                                                                                                                                                    |       | 93                             |       | 45 |   |
| Net cash provided by (used in) continuing operations                                                                                                                                                                                                                                                                              |       | (1,062                         | )          | 2,266 |   |
|                                                                                                                                                                                                                                                                                                                              |       |                           |       |   |   |
| Cash used in operating activities of discontinued  operations                                                                                                                                                                                                                                                                     |       | —                         |       | (221 | ) |
| Net cash provided by (used in) operating activities                                                                                                                                                                                                                                                                               |       | (1,062                         | )          | 2,045 |   |
|                                                                                                                                                                                                                                                                                                                              |       |                           |       |   |   |
| **Cash Flows From Investing Activities:**                                                                                                                                                                                                                                                                                         |       |                           |       |   |   |
| Purchase of property and equipment                                                                                                                                                                                                                                                                                                |       | (159                           | )          | (196 | ) |
| Net cash used in investing activities                                                                                                                                                                                                                                                                                             |       | (159                           | )          | (196 | ) |
|                                                                                                                                                                                                                                                                                                                              |       |                           |       |   |   |
| **Cash Flows From Financing Activities:**                                                                                                                                                                                                                                                                                         |       |                           |       |   |   |
| Proceeds from issuance of common stock under  employee stock purchase plan                                                                                                                                                                                                                                                        |       | 18                             |       | 9 |   |
| Proceeds from the exercise of stock options                                                                                                                                                                                                                                                                                       |       | 1,108                          |       | 26 |   |
| Proceeds from the exercise of warrants                                                                                                                                                                                                                                                                                            |       | 257                            |       | — |   |
| Tax benefit from stock options exercised                                                                                                                                                                                                                                                                                          |       | 155                            |       | 1 |   |
| Net cash provided by financing activities of continuing  operations                                                                                                                                                                                                                                                               |       | 1,538                          |       | 36 |   |
| Cash provided by (used in) financing activities of discontinued  operations:                                                                                                                                                                                                                                                      |       |                           |       |   |   |
| Promissory note payment                                                                                                                                                                                                                                                                                                           |       | —                         |       | (200 | ) |
| Cash restricted for discontinued operations                                                                                                                                                                                                                                                                                       |       | —                         |       | 200 |   |
| Net cash provided by financing activities                                                                                                                                                                                                                                                                                         |       | 1,538                          |       | 36 |   |
|                                                                                                                                                                                                                                                                                                                              |       |                           |       |   |   |
| **Net increase in cash and cash equivalents**                                                                                                                                                                                                                                                                                     |       | 317                            |       | 1,885 |   |
|                                                                                                                                                                                                                                                                                                                              |       |                           |       |   |   |
| **Cash and cash equivalents at beginning of period**                                                                                                                                                                                                                                                                              |       | 4,069                          |       | 1,072 |   |
|                                                                                                                                                                                                                                                                                                                              |       |                           |       |   |   |
| **Cash and cash equivalents at end of period**                                                                                                                                                                                                                                                                                    | ** ** | **$**                          | **4,386**  | ** ** | **$** | **2,957** | ** ** |
| **Supplemental disclosure of non-cash investing  activities:**                                                                                                                                                                                                                                                                    | ** ** | ** **                     | ** ** | ** ** | ** ** |
| During the six months ended April 30, 2007 and 2006,  the Company decreased intangible assets by $467,000 and $405,000,  respectively, with an offsetting decrease to the deferred tax valuation  allowance of $467,000 and $405,000, respectively, for the usage of  pre-emergence bankruptcy net operating loss carry forwards. |       |                           |       |   |   |

 

Seeaccompanying notes to consolidated financial statements.

4

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**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

April 30, 2007

(Unaudited)

**1.****                                     ****Basis of Presentation**

The consolidated balance sheetas of April 30, 2007, the consolidated statements of earnings for thethree and six month ended April 30, 2007 and 2006, and cash flows for the six months ended April30, 2007 and 2006, 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-QSB and Rule 10-01of Regulation S-X, without audit. Accordingly, they do not include all of the information and notesrequired by U.S. generally accepted accounting principles for completefinancial statements.  In the opinion ofmanagement, all adjustments considered necessary for a fair presentation ofresults have been included.  Theconsolidated balance sheet at October 31, 2006 was derived from the auditedconsolidated financial statements as of that date.  Operating results for the three and sixmonths ended April 30, 2007 are notnecessarily indicative of the results that may be expected for the year endingOctober 31, 2007.  For furtherinformation, refer to the consolidated financial statements and notes theretoincluded in Angeion Corporation’s Annual Report on Form 10-KSB for the yearended October 31, 2006.

Comprehensive income is ameasure of all non-owner changes in shareholders’ equity and includes itemssuch as net income, certain foreign currency translation items, minimum pensionliability adjustments and changes in the value of available-for-salesecurities.  For the three and six monthsended April 30, 2007 and 2006, comprehensive income for AngeionCorporation was equivalent to net income as reported.

Preparation of the consolidated financial statementsin conformity with U.S. generally accepted accounting principles requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosures of contingent assets and liabilitiesmade in the consolidated financial statements and accompanying notes.  Actual results could differ from thoseestimates.  Estimates include theallowance for doubtful accounts, product warranty and inventory reserves, the provisionfor taxes, and depreciable lives of property, equipment and intangible assets.

**2.****                                     ****Revenue Recognition**

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 andcollectibility is reasonably assured. The Company’s products are sold for cash or on credit terms requiringpayment based on the shipment date. Credit terms can vary between customers due to many factors, but aregenerally 30-60 days.  Revenue, net ofdiscounts, is recognized upon shipment or delivery to customers in accordancewith written sales terms.  Standard salesterms do not include customer acceptance conditions, future credits, rebates,price protection or general rights of return. The terms of sales to both domestic customers and internationaldistributors are identical.  In instanceswhen a customer order specifies final acceptance of the system, revenue isdeferred until all customer acceptance criteria have been met.  Estimated warranty obligations are recordedupon shipment.

Servicecontract revenue is based on a stated contractual rate and is deferred andrecognized ratably over the service period, which is typically from one to fouryears.  In accordance with paragraph 4 ofthe Emerging Issues Task Force abstract 00-21, “*RevenueArrangements with Multiple Deliverables*,” the Company appliesFinancial Accounting Standards Board (“FASB”)Technical Bulletin No. 90-1 to service contract revenue.  The total amount of deferred servicecontract revenue was $1,754,000 and

5

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$1,520,000 at April 30, 2007 and October 31, 2006, respectively.  Revenuefrom installation and training services provided to customers is deferred untilthe service has been performed.  Theamount of deferred installation and training revenue was $341,000 and $362,000at April 30, 2007 and October 31, 2006, respectively.

When a sale involves multiple deliverables, such asequipment, installation services and training, the amount of the considerationfrom an arrangement is allocated to each respective element based on theresidual method and recognized as revenue when revenue recognition criteria foreach element is met.  Consideration allocatedto delivered equipment is equal to the total arrangement consideration less thefair value of installation and training. The fair value of installation and training services is based onspecific objective evidence, including third-party invoices.

TheCompany has one customer that accounted for 23.8% of revenues for both the three and six months ended April30, 2007 and 12.6% and 6.4% of revenue for the three and six monthsended April 30, 2006, respectively.

***AdvancePayments from Customers***

The Company typically does not receive advance paymentsfrom its customers in connection with the sale of its products.  The Company occasionally enters into anarrangement under which a customer agrees to purchase a large quantity ofproduct that is to be delivered over a period of time.  Depending on the size of these arrangements,the Company may negotiate an advance payment from these customers.  At April 30, 2007, advance payments fromcustomers aggregated $285,000, of which $252,000 was from a single customer forproducts to be shipped during fiscal year 2007. Advance payments from customers at October 31, 2006 aggregated$1,234,000, of which $1,144,000 was from a single customer.  Revenue recognition for customer orders thatinclude advance payments is consistent with the Company’s revenue recognitionpolicy described above.

**3.****                                     ****New AccountingPronouncements**

In June 2006, the FASBissued FASB Interpretation No. 48, “*Accounting for Uncertaintyin Income Taxes – an interpretation of FASB Statement No.109*” (“FIN48”).  FIN 48 prescribes a comprehensive modelfor the financial statement recognition, measurement, presentation anddisclosure of uncertain tax positions taken or expected to be taken on incometax returns.  FIN 48 is effective forfiscal years beginning after December 15, 2006. The Company is currently evaluating the impact of adopting FIN 48 on itsconsolidated financial statements.  TheCompany will adopt FIN 48 on November 1, 2007.

In June 2005, the FASB issued SFAS No. 154, “*Accounting Changes and Error Corrections*,” (“SFAS No. 154”)a replacement of APB Opinion No. 20 and FASB Statement No. 3.  The statement applies to all voluntarychanges in accounting principle, and changes the requirements of accounting forand reporting a change in accounting principle. SFAS No. 154 requires retrospective application to prior periods’financial statements of a voluntary change in accounting principle unless it isimpractical.  SFAS No. 154 is effectivefor accounting changes and corrections of errors made in fiscal years beginningafter December 15, 2005.  Earlierapplication is permitted for accounting changes and corrections of errorsoccurring in fiscal years beginning after June 1, 2005.  The statement does not change the transitionprovisions of any existing accounting pronouncements, including those that arein a transition phase as of the effective date of the statement.  The Company has adopted SFAS No. 154 and didnot realize a material impact on its financial position or results ofoperations.

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In September 2006, theStaff of the SEC issued Staff Accounting Bulletin (“SAB”) No. 108, *Considering the Effects of Prior Year Misstatementswhen Quantifying Misstatements in Current Year Financial Statements*(“SAB No. 108”).  SAB No. 108 providesguidance on the consideration of the effects of prior year misstatements inquantifying current year misstatements for the purpose of determining whetherthe current year’s financial statements are materially misstated.  SAB No. 108 is effective for fiscal yearsending after November 15, 2006.  TheCompany is reviewing the impact of SAB No. 108 and plans to adopt it in thefourth quarter of 2007.

**4.****                                     ****Stock Based Compensation**

Effective November 1, 2006, the Company adopted theprovisions of FASB Statement No. 123 (revised 2004), *“Share-BasedPayment”* (“SFAS No. 123(R)”) which replaced SFAS No. 123, *“Accounting for Stock-Based Compensation”* (“SFAS No. 123”)and supersedes Accounting Principles Board (“APB”) Opinion No. 25, *“Accounting for Stock Issued to Employees”* (“APB Opinion No. 25”).  Under the fair value recognition provisionsof SFAS No. 123(R), the Company measures stock-based compensation cost at thegrant date based on the fair value of the award and recognizes the compensationexpense over the requisite service period, which is generally the vesting period.  The Company elected the modified-prospectivemethod of adopting SFAS No. 123(R), under which prior periods are notretroactively restated.  The provisionsof SFAS No. 123(R) apply to awards granted, modified or cancelled after theNovember 1, 2006 effective date. Stock-based compensation expense for non-vested awards granted prior tothe effective date is being recognized over the remaining service period usingthe fair-value based compensation cost estimated for SFAS No. 123 pro formadisclosures.  Total stock-basedcompensation expense included in our statement of earnings for the three andsix months ended April 30, 2007 was $4,000 and $7,000, respectively.

***StockOptions***

Under the Angeion Corporation 2002 Stock Option Plan (“2002Stock Option Plan”), the Company had reserved 800,000 shares of its commonstock for issuance upon exercise of stock options of which 9,200 shares remainavailable for future grants as of April 30, 2007.  As of April 30, 2007, options for 790,800shares had been granted and 394,050 shares had been issued upon exercise ofoptions.  The Company has no outstandingstock options outside of the 2002 Stock Option Plan.

The 2002 Stock Option Plan provides that incentive stockoptions and nonqualified stock options to purchase shares of common stock maybe granted at prices determined by the Compensation Committee, except that thepurchase price of incentive stock options may not be less than 100% of the fairmarket value of the stock at date of grant. All options expire no later than ten years from date of grant and aresubject to various vesting schedules.

***EmployeeStock Purchase Plan***

The Angeion Corporation 2003 Employee Stock Purchase Plan (“StockPlan”) allows participating employees to purchase shares of the Company’scommon stock at a discount through payroll deductions.  The Stock Plan is available to all employeessubject to certain eligibility requirements. Terms of the Stock Plan provide that participating employees maypurchase the Company’s common stock on a voluntary after tax basis.  Employees may purchase the Company’s commonstock at a price that is no less than the lower of 85% of the fair market valueof one share of common stock at the beginning or end of each stock purchaseperiod or phase.  The Company increasedthe price at which options are issued to 95% of the market value effectiveJanuary 1, 2007.  The Plan is carried outin six-month phases, with phases beginning on January 1 and July 1 of eachcalendar year.  For the phase that endedon December 31, 2006, employees purchased 4,462 shares at a price of $4.08 pershare.  As of

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April 30,2007, the Company has withheld approximately $11,000 from employeesparticipating in the phase that began on January 1, 2007.  At April 30, 2007, approximately 72,351shares of common stock were available for future purchase under the Stock Plan.

***Valuation Assumptions***

The Company uses the Black-Scholes option-pricing model (“Black-Scholesmodel”) to determine the fair value of stock options as of the grant date.  The fair value of stock options under theBlack-Scholes model requires management to make assumptions regarding projectedemployee stock option exercise behaviors, risk-free interest rates, volatilityof the Company’s stock price and expected dividends.

The expense recognized for shares purchased under the StockPlan is equal to the fair value of stock options as of the grant date.

The following table provides the weighted average fair valueof options granted to employees and the related assumptions used in theBlack-Scholes model:
|                                                | ** ** | **Six Months  Ended April  30, 2007** | ** ** |
|------------------------------------------------|------------|------------------------------------------------------|------------|
| Weighted average fair value of options granted |       | $                                                    | 5.18       |   |
|                                           |       |                                                 |       |
| Assumptions used:                              |       |                                                 |       |
| Expected life (years) (a)                      |       | 0.5                                                  |       |
| Risk-free interest rate (b)                    |       | 4.97                                                 | %          |
| Volatility (c)                                 |       | 135.66                                               | %          |
| Dividend yield (d)                             |       | 0                                                    | %          |
|                                                |            |                                                      |            |  |

 

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(a)          *Expected life*: The Company analyzes historical employeeexercise and termination data to estimate the expected life assumption. TheCompany believes that historical data currently represents the best estimate ofthe expected life of a new employee option.

(b)         *Risk-free interest rate*: The rate is based on the U.S. Treasuryzero-coupon yield curve on the grant date for a maturity similar to theexpected life of the options.

(c)          *Volatility:* The expectedvolatility of the Company’s common stock is calculated by using the historicaldaily volatility of the Company’s stock price calculated over a period of timerepresentative of the expected life of the options.

(d)         *Dividend yield*: The dividend yield rate is not considered inthe model, as the Company has not established a dividend policy for the stock.

***Stock-BasedCompensation Expense***

Prior to adopting SFAS No. 123(R), the Company accounted forstock options under APB Opinion No. 25 using the intrinsic value method and theimpact based on the fair value method on the Company’s net earnings wasdisclosed on a pro forma basis in the footnotes to the consolidated financialstatements.  In these pro formadisclosures, the Company recognized stock option compensation expense based onthe stated vesting period.  There was nostock-based compensation expense capitalized into ending inventory as it wasdeemed immaterial.

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Applying SFAS No. 123(R), the amount of stock-basedcompensation expense recognized during a period is based on the portion of theawards that are ultimately expected to vest. The Company estimates pre-vesting forfeitures at the time of grant byanalyzing historical data and revises those estimates in subsequent periods ifactual forfeitures differ from those estimates. Ultimately, the total expense recognized over the vesting period willequal the awards that actually vest.

The following table presents the statement of earningsclassification of pre-tax stock-based compensation expense, for options andrestricted stock awards, recognized for the three and six months ended April30, 2007:
| (In thousands)        | ** ** | **Three Months  Ended  April 30, 2007** | ** ** | **Six Months  Ended  April 30, 2007** | ** ** |
|----------------------------|------------|--------------------------------------------------------|------------|------------------------------------------------------|------------|
| Cost of goods sold         |       | $                                                      | —     |                                                 | $          | — |   |
| Selling and marketing      |       | 2                                                      |       | 4                                                    |       |
| General and administrative |       | 1                                                      |       | 2                                                    |       |
| Research and development   |       | 1                                                      |       | 1                                                    |       |
|                       |       | $                                                      | 4          |                                                 | $          | 7 |   |

 

The following table illustrates the effect on net income andnet income per share for the three and six months ended April 30, 2006, if theCompany had applied the fair value recognition provisions of SFAS No. 123(R) toits stock-based employee compensation:
| (In thousands, except per share amounts)                                    | ** ** | **Three Months  Ended  April 30, 2006** | ** ** | **Six Months  Ended  April 30, 2006** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|------------------------------------------------------|------------|
| Net income, as reported                                                                              |       | $                                                      | 206        |                                                 | $          | 288 |   |
| Add: Stock-based compensation  expense included in net income under intrinsic value method (a)       |       | 51                                                     |       | 86                                                   |       |
| Less: Stock-based  compensation expense determined under fair value based method for all awards  (a) |       | (25                                                    | )          | (28                                                  | )          |
| Pro forma net income                                                                                 |       | $                                                      | 232        |                                                 | $          | 346 |   |
|                                                                                                 |       |                                                   |       |                                                 |       |
| Net income per share – basic                                                                    |       |                                                   |       |                                                 |       |
| As reported                                                                                          |       | $                                                      | 0.06       |                                                 | $          | 0.08 |   |
| Pro forma                                                                                            |       | 0.06                                                   |       | 0.10                                                 |       |
|                                                                                                 |       |                                                   |       |                                                 |       |
| Net income per share – diluted                                                                  |       |                                                   |       |                                                 |       |
| As reported                                                                                          |       | 0.05                                                   |       | 0.08                                                 |       |
| Pro forma                                                                                            |       | 0.06                                                   |       | 0.09                                                 |       |

 

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(a)          Compensationexpense is net of related tax effects.

***TaxImpacts of Stock-Based Compensation***

Prior to the adoption of SFAS No. 123(R), benefits of taxdeductions in excess of recognized share-based compensation expense werereported on the consolidated statement of cash flows as operating cashflows.  Under SFAS No. 123(R), theseexcess tax benefits are reported as financing cash

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flows.  Although total cash flows under SFAS No.123(R) remain unchanged from what would have been reported under prioraccounting standards, net operating cash flows are reduced and net financingcash flows are increased due to the adoption of SFAS No. 123(R).  For the six months ended April 30, 2007,there were excess tax benefits of $155,000, which are classified as financingcash flows.

***StockOptions***

The following table summarizes stock option activity during thesix months ended April 30, 2007:
|                                 | ** ** | **Options** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
|---------------------------------|------------|-------------|------------|----------------------------------------|------------|
| Outstanding at October 31, 2006 |       | 624,187     |       | $                                      | 5.03       |   |
| Granted                         |       | 1,536       |       | 11.62                                  |       |
| Exercised                       |       | (227,437    | )          | 4.95                                   |       |
| Canceled / forfeited            |       | —      |       | —                                 |       |
| Outstanding at April 30, 2007   |       | 398,286     |       | $                                      | 5.10       |   |

 

The following table summarizes information concerning stockoptions outstanding as of April 30, 2007:
| **Options Outstanding**                                                                    | ** ** | **Options Exercisable** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|------------------------------|------------|
| **Range of  Exercise Prices**                                                         | ** ** | **Number  Outstanding**      | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Weighted  Average  Remaining  Contractual  Life (years)** | ** ** | **Number  Subject to  Exercise** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
|                                                                                            |       |                         |       |   |   |   |   |   |   |   |   |
| $               2.00 |       | 22,150                       |       | $ | 2.00 |   | 6.44 |   | 22,150 |   | $ | 2.00 |   |
| 2.53                                                                                            |       | 112,000                      |       | 2.53 |   | 8.38 |   | 112,000 |   | 2.53 |   |
| 5.08                                                                                            |       | 84,000                       |       | 5.08 |   | 9.08 |   | 84,000 |   | 5.08 |   |
| 6.23                                                                                            |       | 84,500                       |       | 6.23 |   | 6.80 |   | 84,500 |   | 6.23 |   |
| 7.79                                                                                            |       | 94,100                       |       | 7.79 |   | 6.44 |   | 94,100 |   | 7.79 |   |
| 11.62                                                                                           |       | 1,536                        |       | 11.62 |   | 0.17 |   | — |   | — |   |
|                                                                                            |       |                         |       |   |   |   |   |   |   |   |   |
| Total                                                                                           |       | 398,286                      |       | $ | 5.10 |   | 7.71 |   | 396,750 |   | $ | 5.08 |   |

 

The total intrinsic value of options exercised during thethree and six months ended April 30, 2007 was $1.7 million and $2.1 million,respectively.  The total intrinsic valueof options outstanding and exercisable at April 30, 2007 was $3.4 million,which was calculated using the closing stock price at the end of the fiscalquarter less the option price of in the money options.  The Company issues new shares when stockoptions are exercised.  Cash receivedfrom the exercise of stock options for the three and six months ended April 30,2007 was $730,000 and $1.1 million, respectively.  The related tax benefit for the three and sixmonths ended April 30, 2007 was $38,000 and $155,000, respectively.  Unrecognized compensation expense related tooutstanding stock options as of April 30, 2007 was $3,000 and is expected to berecognized over a weighted average period of two months and will be adjustedfor any future changes in estimated forfeitures.

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**5.****                                      Inventories**

Inventories consisted of the following at April 30, 2007 and October 31, 2006:
| (In thousands) | ** ** | **2007** | ** ** | **2006** | ** ** |
|---------------------|------------|----------|------------|----------|------------|
| Raw materials       |       | $        | 2,031      |     | $          | 2,239 |   |
| Work-in-progress    |       | 464      |       | 294      |       |
| Finished goods      |       | 3,037    |       | 3,204    |       |
|                |       | $        | 5,532      |     | $          | 5,737 |   |

 

**6.****                                      Intangible Assets and Goodwill**

Intangibleassets consisted of the following at April 30, 2007 and October 31, 2006:
| (In thousands)                 | ** ** | **2007** | ** ** | **2006** | ** ** |
|-------------------------------------|------------|----------|------------|----------|------------|
| Intangible assets:                  |       |     |       |     |       |
| Developed technology                |       | $        | 6,514      |     | $          | 6,900 |   |
| Trade name (unamortized)            |       | —   |       | 81       |       |
|                                |       | 6,514    |       | 6,981    |       |
|                                |       |     |       |     |       |
| Amortization - developed technology |       | (3,599   | )          | (3,214   | )          |
|                                |       | $        | 2,915      |     | $          | 3,767 |   |

 

Amortizationexpense was $385,000 and $406,000 for the six months ended April 30, 2007 and 2006, respectively.

Intangibleassets are being amortized using the straight-line method over the estimateduseful lives of the assets, which range from seven to ten years.  The Company utilizes pre-emergence bankruptcynet operating loss carry forwards (“NOLs”) to reduce trade name and developedtechnology as required by SOP 90-7.  Tothe extent that utilization of these NOLs reduces the cost of developed technology,future amortization expense will be reduced. Estimated amortization expense for the remainder of fiscal year 2007 andfor each of the succeeding years based on the intangible assets as of April 30, 2007, which does not reflectthe possible future reductions from the use of pre-emergence bankruptcy NOLsdiscussed above, is as follows:
| (In thousands)                | ** ** | **Amortization** | ** ** |
|------------------------------------|------------|------------------|------------|
| Six months ending October 31, 2007 |       | $                | 344        |   |
| 2008                               |       | 689              |       |
| 2009                               |       | 688              |       |
| 2010                               |       | 398              |       |
| 2011                               |       | 398              |       |
| 2012                               |       | 398              |       |
|                               |       | $                | 2,915      |   |

 

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Developed technology and trade name consisted of thefollowing at April 30,2007 and October 31, 2006:
| (In thousands)                                                      | ** ** | **Developed  Technology** | ** ** | **Trade Name** | ** ** |
|--------------------------------------------------------------------------|------------|---------------------------|------------|---------------------|------------|
| Balance at October 31, 2006                                              |       | $                         | 6,900      |                | $          | 81 |   |
| Reduction in balance due to utilization of pre-emergence bankruptcy NOLs |       | (386                      | )          | (81                 | )          |
| Balance at April 30, 2007                                                |       | $                         | 6,514      |                | $          | — |   |

 

**7.****                                      Warranty Reserve**

Sales of the Company’s equipment are subject to awarranty obligation.  Equipmentwarranties typically extend for a period of twelve months from the date ofinstallation.  Standard warranty termsare included in customer contracts. Under the terms of these warranties, the Company is obligated to repairor replace any components or assemblies that it deems defective in workmanship ormaterials.  The Company reserves theright to reject warranty claims where it determines that failure is due tonormal wear, customer modifications, improper maintenance or misuse.  The Company maintains a warranty reserve thatreflects the estimated expenses that it will incur to honor the warranties onits 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 warranty reserve adjustment reflects theCompany’s historical warranty experience based on type of equipment.  Warranty activity for the six months ended April 30, 2007 and 2006 was as follows:
| (In thousands)          | ** ** | **2007** | ** ** | **2006** | ** ** |
|------------------------------|------------|----------|------------|----------|------------|
| Balance, beginning of period |       | $        | 335        |     | $          | 175 |   |
| Warranty provisions          |       | 311      |       | 198      |       |
| Warranty claims              |       | (336     | )          | (160     | )          |
| Balance, end of period       |       | $        | 310        |     | $          | 213 |   |

 

**8.****                                      NetEarnings per Share**

Basicearnings per share is computed by dividing net income by the weighted averageshares outstanding during the reporting period. Diluted earnings per share is computed similarly to basic earnings pershare except that the weighted average shares outstanding are increased toinclude additional shares from the assumed exercise of stock options andwarrants, if dilutive, using the treasury stock method.  The number of additional shares is calculatedby assuming that outstanding stock options or warrants were exercised and thatthe proceeds from the exercise were used to acquire shares of common stock atthe average market price during the reporting period.

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Sharesused in the earnings per share computations for the three and six months ended April 30, 2007 and 2006 are as follows:
|                                                           | ** ** | **Three Months EndedApril 30,** | ** ** | **Six Months EndedApril 30,** | ** ** |
|-----------------------------------------------------------|------------|------------------------------------------------|------------|----------------------------------------------|------------|
| **(In thousands)**                                   | ** ** | **2007**                                       | ** ** | **2006**                                     | ** ** | **2007** | ** ** | **2006** | ** ** |
| Weighted average common shares outstanding – basic   |       | 3,945                                          |       | 3,619                                        |       | 3,890 |   | 3,615 |   |
| Dilutive effect of stock options                          |       | 365                                            |       | 141                                          |       | 389 |   | 99 |   |
| Weighted average common shares outstanding – diluted |       | 4,310                                          |       | 3,760                                        |       | 4,279 |   | 3,714 |   |

 

Thedilutive effect of stock options in the above table excludes all options forwhich the exercise price was higher than the average market price for theperiod.  All stock options outstanding atApril 30, 2007 were considered dilutive and therefore included in the abovecalculation while the number of stock options excluded from the calculation was362,800 for the three and six months ended April 30, 2006.

TheCompany had warrants outstanding at April 30, 2007 and 2006 to purchase 142,870and 179,481 shares, respectively, of its common stock.  All of the outstanding warrants have anexercise price of $7.79 per share and, unless exercised, will expire on October31, 2007.  The warrants outstanding atApril 30, 2007 were considered dilutive and, therefore, included in the abovecalculation.  The warrants outstanding atApril 30, 2006 were considered antidilutive and, therefore, not considered tohave been exercised.

**9.****                                      IncomeTaxes**

The Company has recordeda provision for taxes from continuing operations of $314,000 and $643,000 forthe three and six months ended April 30, 2007, respectively.  The provision for taxes has been calculatedand presented in the statement of earnings as if the Company’s earnings werefully taxable.  The amount of income taxes payable isdetermined after utilizing the Company’s NOLs, including its pre-emergencebankruptcy NOLs.  Under American Institute of Certified PublicAccountants Statement of Position 90-7, *FinancialReporting by Entities in Reorganization Under the Bankruptcy Code* (“SOP90-7”), the tax benefit for the utilization of these pre-emergence bankruptcy NOL carry forwards must berecognized as a reduction of intangibles rather than a reduction of theprovision for taxes in the statement of earnings.

The Company had a federalnet operating loss carry forward at October 31, 2006 of approximately $26.9million.  This amount is the remainingutilizable carry forward following the application of a limit due to anownership change under Internal Revenue Code Section 382 that occurred duringthe fourth quarter of fiscal year 2006. This carry forward is available to offset a portion of taxes payable infuture years.  If not used, this carry forwardwill expire in years 2007 through 2025. Approximately $10.3 million of this carry forward will expire over thenext five years.  The Company also has$116,000 of alternative minimum tax credit carry forwards that do not haveexpiration dates.  Even though the Company has substantial federalnet operating loss carry forwards, anyincome may still be subject to U.S. and State alternative minimum taxes.

Priorto October 31, 2006, the Company had recorded a full valuation allowanceagainst its net deferred tax asset based on its belief that it was more likelythan not that the asset would not be realized in the future.  Although this determination was made in aprior fiscal year and is still applicable as of April 30, 2007, the Company will continue to assessthe need for a full valuation allowance in future quarters.

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UnderSOP 90-7, a substantial portion of any future reversal of the valuationallowance will first reduce intangible assets arising from the Company’s 2002emergence from bankruptcy and then be credited directly to additional paid-incapital.  After the exhaustion of pre-emergence bankruptcy NOLs, approximately $2.3 million of the valuationallowance that is related to post-bankruptcy NOLs will be available to reducethe provision for taxes in the statement of earnings and, thereafter, $902,000related to excess stock option tax deductions would be recognized as additionalpaid-in capital when realized in the Company’s income tax return.

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**Item 2.  Management’sDiscussion and Analysis.**

# **Forward-LookingStatements and Risk Factors**

Thediscussion below contains forward-looking statements within the meaning of thePrivate Securities Litigation Reform Act of 1995.  These statements by their nature involvesubstantial risks and uncertainties.  Ouractual results may differ materially depending on a variety of factorsincluding: (i) our ability to successfully operate our business including ourability to develop, improve, and update our cardiorespiratory diagnosticproducts, (ii) our ability to achieve constant margins for products andconsistent and predictable operating expenses in light of fluctuating revenuesfrom our clinical research customers, (iii) our ability to effectivelymanufacture and ship products in required quantities to meet customer demands,(iv) our ability to successfully defend ourselves from product liability claimsrelated to our cardiorespiratory diagnostic products and claims associated withour prior cardiac stimulation products, (v) our ability to protect ourintellectual property, (vi) our ability to develop and maintain an effectivesystem of internal controls and procedures and disclosure controls andprocedures, and (vii) our dependence on third-party vendors.

Additionalinformation with respect to the risks and uncertainties faced by the Companymay be found in, and the following discussion is qualified in its entirety by,the other risk factors that are described from time to time in the Company’sSecurities and Exchange Commission reports, including but not limited to theAnnual Report on Form 10-KSB for the year ended October 31, 2006, and subsequentlyfiled reports.

# **Overview**

The Company, through its Medical GraphicsCorporation subsidiary, designs and markets non-invasive cardiorespiratorydiagnostic systems that are sold under the MedGraphics and New Leaf brand andtrade names.  These cardiorespiratorydiagnostic systems have a wide range of applications in healthcare, wellness,disease prevention as well as health and fitness improvement.

Healthcare professionals use these cardiorespiratorydiagnostic systems products to diagnose shortness of breath and lung diseasessuch as asthma and emphysema, and manage related treatment.  Throughbreath-by-breath analysis, some of the Company’s cardiorespiratory diagnosticsystems measure fitness or conditioning levels to help physicians diagnoseheart diseases such as heart failure and coronary disease.  Other health and fitness professionals usecardiorespiratory diagnostic systems to measure functional capacity and toprescribe safe and effective exercise in rehabilitation, weight management,general fitness, and athletic performance. All of these applications are accomplished by measuring air flow and theconcentrations of inhaled and exhaled gases such as oxygen and carbon dioxidewhile a person is at rest, or exercising on a bike or treadmill.  Professionals use this same assessment ofexhaled gases and air flow to determine nutritional requirements of criticallyill patients in a hospital or to design a weight loss program for members in ahealth club setting who wish to assess the number of calories they shouldconsume and burn daily.  The Company’sproducts are also used by pharmaceutical and medical device companiesconducting safety and efficacy clinical trials.

Revenuesconsist of equipment and supply sales and service revenues.  Equipment and supply sales reflect sales ofnon-invasive cardiorespiratory diagnostic equipment and aftermarket sales ofperipherals and supplies.  Servicerevenues reflect revenues from extended service contracts, non-warranty servicevisits and additional training.

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**Resultsof Operations**

Thefollowing table sets forth certain items from the Company’s ConsolidatedStatements of Earnings expressed as a percentage of revenues for the periodsindicated:
|                                    | ** ** | **Three Months Ended  April 30,** | ** ** | **Six Months Ended  April 30,** | ** ** |
|------------------------------------|------------|--------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                         | ** ** | **2007**                                         | ** ** | **2006**                                       | ** ** | **2007** | ** ** | **2006** | ** ** |
|                               |       |                                             |       |                                           |       |   |   |   |   |
| Revenues                           |       | 100.0                                            | %          | 100.0                                          | %          | 100.0 | % | 100.0 | % |
| Cost of goods  sold                |       | 49.5                                             |       | 51.1                                           |       | 49.8 |   | 50.1 |   |
| Gross margin                       |       | 50.5                                             |       | 48.9                                           |       | 50.2 |   | 49.9 |   |
|                               |       |                                             |       |                                           |       |   |   |   |   |
| Operating  expenses:               |       |                                             |       |                                           |       |   |   |   |   |
| Selling and marketing              |       | 25.5                                             |       | 25.7                                           |       | 24.4 |   | 26.9 |   |
| General and administrative         |       | 8.9                                              |       | 11.2                                           |       | 9.9 |   | 10.7 |   |
| Research and development           |       | 7.0                                              |       | 7.9                                            |       | 6.6 |   | 7.5 |   |
| Amortization of intangibles        |       | 1.9                                              |       | 2.8                                            |       | 1.9 |   | 2.9 |   |
|                               |       | 43.3                                             |       | 47.6                                           |       | 42.8 |   | 48.0 |   |
| Operating income                   |       | 7.2                                              |       | 1.3                                            |       | 7.4 |   | 1.9 |   |
| Interest income                    |       | 0.5                                              |       | 0.3                                            |       | 0.4 |   | 0.2 |   |
| Income before  taxes               |       | 7.7                                              |       | 1.6                                            |       | 7.8 |   | 2.1 |   |
| Provision for taxes                |       | 3.2                                              |       | 1.2                                            |       | 3.1 |   | 1.3 |   |
| Income from  continuing operations |       | 4.5                                              |       | 0.4                                            |       | 4.7 |   | 0.8 |   |
| Gain from discontinued operations  |       | —                                           |       | 2.4                                            |       | — |   | 1.2 |   |
| Net income                         |       | 4.5                                              | %          | 2.8                                            | %          | 4.7 | % | 2.0 | % |

 

TheCompany reported product revenues of $33.7 million for the year ended October31, 2006.  Domestic product sales andservice revenues accounted for 70.3% of revenue for the year ended October 31,2006 while international product sales accounted for the remaining 29.7%.

Totalrevenue for the second quarter of 2007 was $10.0 million, an increase of 38.1%from $7.2 million in 2006.  Operatingexpenses for the second quarter of 2007 were $4.3 million, an increase of 25.5%from $3.4 million in 2006.  Net incomefor the three months ended April 30, 2007 was $453,000, or $0.11 per dilutedshare, compared to net income of $206,000, or $0.05 per diluted share, for thesame period in 2006.  Net income for the three months ended April30, 2006 included a $175,000 gain fromdiscontinued operations that was net of $103,000 for income taxes.

Forthe six months ended April 30, 2007, total revenue was $20.6 million, anincrease of 45.5% from $14.1 million in 2006. Year-to-date operating expenses for 2007 were $8.8 million, an increaseof 29.9% from $6.8 million for the same period of 2006.  Net income for the six months ended April 30,2007 was $942,000, or$0.22 per diluted share, compared to net income of $288,000, or $0.08 perdiluted share, for the same period in 2006. Net income for the six months ended April 30, 2006 included a $171,000 gain from discontinuedoperations that was net of $103,000 for income taxes.

For the balance of fiscal 2007, we expect strongyear-end contributions from all areas of our business, with solid revenue fromour MedGraphics hospital and physician office customers, our clinical researchcustomers, and our New Leaf customers. As noted below under “Revenue,” we expect revenue from our largestclinical research customer will continue in fiscal 2007, but at a reduced leveldue to the wind down of the systems installation phase of its current clinicalstudies.  This will affect our overall

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third and fourth quarter 2007 revenues and our profitability ascompared with the same periods in 2006. We expect to remain profitable in the second half of the year, however,and to report double-digit revenue growth for the year as whole.  We further expect to report increasedyear-over-year revenues in the second half of 2007 from both our MedGraphicshospital and physician office customers and our New Leaf customers.  In addition, we continue to pursue a numberof additional opportunities with our clinical research study customers toexpand our future growth outside of sales to our traditional customers.

TheCompany continues to apply SOP 90-7 in its financial reporting related toincome taxes, which requires the Company to present the provision for taxes onits statement of earnings as if it were fully taxed.  Therefore, the provision for taxes for allperiods has been calculated and presented in the statement of earnings as ifthe Company’s earnings were fully taxable. The actual amount of income taxes payable by the Company differssubstantially from the Company’s provision for taxes, as it is determined afterutilizing the Company’s pre-emergence bankruptcy NOLs.  The components of the Company’s provision fortaxes for the three and six months ended April 30, 2007 are summarized asfollows:

·                  Established aprovision for taxes of $314,000 and $643,000 for the three and six months endedApril 30, 2007 in the statement of earnings,

·                  Decreased tradename carrying value on the balance sheet by $81,000 as of April 30, 2007 fromthe utilization of pre-emergence bankruptcy NOLs,

·                  Decreaseddeveloped technology carrying value on the balance sheet by $386,000 as ofApril 30, 2007 from the utilization of pre-emergence bankruptcy NOLs,

·                  Increasedadditional paid-in capital by $155,000 as of April 30, 2007 related to taxbenefits realized from stock option exercises, and

·                  Establishedincome taxes payable of $21,000 as of April 30, 2007, which is the net of theitems listed above.

The$21,000 of income taxes payable is the Company’s estimate of its cash paymentsfor the first two quarters of 2007 earnings. See Note 9 to the Consolidated Financial Statements, “Income Taxes,” inthis Form 10-QSB for additional discussion of the accounting for income taxesand the use of pre-emergence bankruptcy NOLs.

**Revenue**

Forthe three months ended April30, 2007, year-over-year total revenue increased by 38.1%.  Domestic product revenue increased 13.3%,international product revenue increased 139.7% and service revenue increased25.5%.  For the six months ended April30, 2007, year-over-year total revenue increased by 45.5%.  Domestic product revenue increased 34.5%,international product revenue increased 105.3% and service revenue increased15.7%.

Salesof the Ultima PF cardiorespiratory diagnostic system are contributingsignificantly to both domestic and international revenue growth.  First and second quarter revenue grew as a result of new equipment andservice sales, including the Ultima PF, to one of our clinical researchcustomers.  The Company sells its cardiorespiratorydiagnostic systems and services to thiscustomer for use in conducting safety and efficacy clinical trials both in theUnited States and internationally.  Thiscustomer accounted for 23.8% of revenue for both the three and six months endedApril 30, 2007 and 12.6% and 6.4% of revenue for the three and sixmonths ended April 30, 2006, respectively.  The Company expects revenue from thiscustomer to continue in fiscal 2007, but at a reduced level due to thewind down of the systems installation phase of its current clinical studies.

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Excluding sales tothis customer, revenue for the three and six months ended April 30, 2007 increased by $1.3million and $2.5 million, or 20.5% and 18.5%, respectively, compared to thesame periods in 2006.

Revenuefrom extended service contracts and non-warranty service visits both increasedin 2007 compared to 2006, reversing a trend experienced during the lastfew years.  These increases are due to alarger installed customer base generated from increased sales in 2005 and 2006,as well as non-warranty service visits for clinical research customers.

**Gross Margin**

Gross margin percentagefor the three month period ended April 30, 2007 increased to 50.5% of revenuecompared to 48.9% for the same period in 2006. For the six months ended April 30, 2007, gross margin percentageincreased to 50.1% of revenue compared to 49.9% for the same period in2006.  The Company has realized manufacturing efficiencies associatedwith increased manufacturing volumes and general process improvementinitiatives, but they have been in part offset by price discounts required byour largest clinical research customer.

**Selling and Marketing**

Selling andmarketing expenses for the three months ended April 30, 2007 increased by 36.9%to $2.5 million compared to $1.9 million for the same period in 2006.  For the six months ended April 30, 2007,selling and marketing expenses increased by 31.7% or $1.2 million to $5.0million from $3.8 million for the same period in 2006.

Selling andmarketing expenses related to new sales and sales support personnel, travel andcustomer support expenses increased by 31% and 34%, or $388,000 and $823,000for the three and six months ended April 30, 2007, respectively, compared tothe same periods in 2006.  The Companyhas increased the number of personnel to support its world-wide salesinitiatives and to support a larger installed customer base resulting fromsales increases during the past year. The Company incurred increases of $31,000 and $61,000 for the three andsix months ended April 30, 2007, respectively, compared to the same periods in2006 for continued development of our international distributors.  In addition, the Company incurred costs of$60,000 during the three and six months ended April 30, 2007 associated withestablishing a new representative office in Milan, Italy for marketing andtechnical support to its European distributors. Finally, commission expenses increased by $88,000 and $184,000 for thethree and six months ended April 30, 2007 compared to the same periods in 2006due to higher commissionable revenue.

**General and Administrative**

General andadministrative expenses for the three months ended April 30, 2007 increased by10.0% or $81,000 to $887,000 compared to $806,000 for the same period in2006.  For the six months ended April 30,2007, general and administrative expenses increased by $528,000 to $2.0 millionfrom $1.5 million for the same period in 2006.

Personnel relatedexpenses, including consulting expenses, increased by $74,000 and $317,000 forthe three and six months ended April 30, 2007 compared to the same periods in2006 due to compensation increases and increased use of outsideconsultants.  This was partially offsetby non-cash stock-based compensation expenses of $4,000 and $7,000 for thethree and six months ended April 30, 2007 as compared to $80,000 and $137,000for the same periods in 2006.  Thenon-cash stock-based

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compensation expenseincurred in 2006 resulted from options subject to variable accounting that werefully vested during the third quarter of 2006. The Company has no unvested options at April 30, 2007.

Professional feesincreased by $19,000 and $252,000 for the three and six months ended April 30,2007 compared to the same periods in 2006. The year-to-date increase in professional fees is principally due to theone-time cost of restating the Company’s Forms 10-QSB for the first threequarters of 2006.

In addition, therewas a $27,000 increase in general and administrative expenses during the secondquarter of 2007 as compared to the second quarter of 2006 and an $11,000decrease in general and administrative expenses for the six months ended April30, 2007 as compared to the same period in 2006 due to changes in the allowancefor doubtful accounts.  This overalldecrease of the allowance for doubtful accounts reflects improved cashcollections of past due customer accounts. Future changes to the provision for doubtful accounts will be directlyrelated to payment patterns and outstanding balances of a few customerstogether with variations in the total balance of outstanding receivables.

General andadministrative expenses also included $16,000 in consulting expenses associatedwith Sarbanes-Oxley compliance for the second quarter of 2007 compared to$19,000 for the same period in 2006.  Forthe six months ended April 30, general and administrative expenses included$44,000 for Sarbanes-Oxley compliance costs in 2007 compared to $34,000 for thesame period in 2006.

**Research and Development**

Research and developmentexpenses for the three months ended April 30, 2007 increased by 21.4% or$122,000 to $693,000 from $571,000 for the same period in 2006.  For the six months ended April 30, 2007,research and development expenses increased by 29.8% or $314,000 to $1.4million from $1.1 million for the same period in 2006.

Costs related to newpersonnel contributed to increases of $74,000 and $228,000 in personnel relatedexpenses for the three and six months ended April 30, 2007, respectively,compared to the same periods in 2006.  Inaddition, project expenses associated with new products increased by $59,000and $82,000 for the three and six months ended April 30, 2007, respectively,compared to the same periods in 2006. The Company’s current new product development initiatives includeproducts targeted for asthma, allergy and primary care physicians, health andfitness club professionals, as well as international markets.  These new products are currently completingclinical evaluation and are planned for release in fiscal 2007.  In addition, the Company is also developingnew functionality and new technologies for use in existing products.

**Amortization of Intangibles**

Amortization ofdeveloped technology was $190,000 for the three months ended April 30, 2007compared to $203,000 for the same period in 2006.  For the six months ended April 30, 2007,amortization of developed technology was $385,000 compared to $406,000 for thesame period in 2006.  The decreases areattributed to a technology license that became fully amortized in 2006 and toreductions in developed technology associated with the use of pre-emergencebankruptcy NOL carry forwards.

As furtherdescribed in Note 9 to the Consolidated Financial Statements, “Income Taxes,”in this Form 10-QSB, as the Company utilizes pre-emergence bankruptcy NOL carryforwards, the Company will reduce the value of developed technology until thenet carrying value is zero.  To theextent that utilization of these NOLs reduces the value of developedtechnology, future amortization expense will be reduced.

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**Interest Income**

Interest income for the three months ended April 30, 2007 increased to $47,000 from $19,000 for thesame period in 2006.  For the sixmonths ended April 30, 2007, interest income increased to $83,000 compared to$28,000 for the same period in 2006.  The increase in interest income isprincipally due to an increase in interest rates and an increase in cash andcash equivalents.

**Provision for Taxes**

The Company isrequired to present the provision for taxes as if it were fully taxable inaccordance with SOP 90-7.  The Companyhas utilized its pre-emergencebankruptcy NOLs in the calculation of its income taxes payable but is required to pay only U.S. andState alternative minimum taxes (“AMT”) because it has substantial federaland state NOL carry forwards.  During the three and six months ended April30, 2007, the Company used tax benefitsof $310,000 and $467,000, respectively, related to using pre-emergencebankruptcy NOLs, which has been recorded as a reduction of intangibleassets.  For the three and six monthsended April 30, 2006, the Company used tax benefits of $189,000 and $405,000,respectively, related to using pre-emergence bankruptcy NOLs, which wererecorded as a reduction of intangible assets. See Note 9 to the Consolidated Financial Statements, “Income Taxes,” in this Form 10-QSB foradditional discussion of the accounting for income taxes and the use of pre-emergence bankruptcy NOLs.

**DiscontinuedOperations**

The net gain fromdiscontinued operations of $171,000 for the six months ended April 30, 2006reflects the net difference after recording the agreed upon insurance recoveryand the associated legal fees that were contingent upon the recovery togetherwith other additionalconsulting fees and miscellaneous litigation expenses.  The Company has allocated $103,000 of theprovision for taxes to discontinued operations for the three and six-monthperiods ended April 30, 2006.  On April 12, 2006, the Company and MedmarcCasualty Insurance Company agreed to a settlement that resolved all matterswith respect to the pending lawsuit between the parties related to the recoveryof insurance proceeds for a claim associated with the Company’s former ICDbusiness.

**Liquidity and Capital Resources**

The Company hasfinanced its liquidity needs over the past several years through revenuegenerated by the operations of its wholly owned subsidiary, Medical GraphicsCorporation, and through the use of cash balances.

TheCompany had cash and cash equivalents of $4.4 million and working capital of$13.4 million as of April 30, 2007. During the six months ended April 30, 2007, the Company used $1.1million of cash for continuing operations, primarily as a result of an increasein accounts receivable resulting from a higher level of sales in the first twoquarters of 2007.

Cashwas generated from net income of $942,000 that included non-cash expenses of$553,000 for depreciation and amortization and $467,000 of deferred incometaxes.  Cash was also generated by adecrease of $205,000 in inventories and an increase of $232,000 in accountspayable.  The changes in both inventoriesand accounts payable are due to timing of inventory receipts and payments tovendors.

Cashwas used for an increase of $2.1 million in accounts receivable and decreasesof $474,000 and $949,000 in employee compensation and advance payments fromcustomers, respectively.  The increase inaccounts receivable balances reflects two consecutive record revenuequarters.  The decrease

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in employee compensationoccurred as the Company paid annual bonuses for 2006 during the first quarterof 2007 and those bonus payments exceeded prior year bonuses by $870,000.  Advance payments from customers vary with thetiming of orders and the related customer delivery requirements.  The decrease in advance payments fromcustomers reflects a reduction in these payments associated with the Company’sone large customer as deliveries are completed against their orders.  Accounts receivable balances naturally varywith the timing of large payments and shipment of large customer orders.

During the sixmonths ended April 30, 2007, the Company used $159,000 in cash for the purchaseof property and equipment.  The Companyhas no material commitments for capital expenditures for fiscal year 2007.

Cash of $1.5million was generated from financing activities that included the exercise ofoptions and warrants to purchase the Company’s common stock and issuance ofcommon stock under the Employee Stock Purchase Plan.  In addition, the Company realized $155,000 intax benefits from stock options exercised during the six months ended April 30,2007.

The Company believes thatits liquidity and capital resource needs for the next 12 months will be metthrough its current cash and cash equivalents and cash flows from operations.

### **Item3.  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 chief financial officer, Dale H. Johnson, has evaluated theeffectiveness of the design and operation of the disclosure controls andprocedures, as defined in Rules 13a-15(e) under the Securities Exchange Act of1934, as of the end of the period covered by this report.

In prior periods, a material weakness in internal control overfinancial reporting related to the Company’s accounting for income taxes wasidentified.  Specifically, the Companydid not have, and through its engagement of third-party outside advisers didnot acquire, adequate technical expertise to effectively oversee and review theCompany’s accounting for the utilization of pre-emergence bankruptcy NOL carryforwards in accordance with AICPA Statement of Position 90-7, *Financial Reporting by Entities in Reorganization under the BankruptcyCode*.  As a result, the Companyrestated the financial information included in the first three quarters of theyear ended October 31, 2006, to correct a material error in accounting forincome taxes.  As a result of thismaterial weakness, the Company concluded that its disclosure controls andprocedures were not effective as of October 31, 2006 and January 31, 2007.

Subsequent to January 31, 2007, the Company implemented new procedures,including improved documentation and analysis regarding the accounting forincome taxes.  The Company has concludedthat these new procedures remediate the above noted material weakness at April30, 2007.

Accordingly, in connection with this Form 10-QSB, under the directionof our Chief Executive Officer and Chief Financial Officer, the Company has evaluatedits disclosure controls and procedures currently in effect as of April 30,2007, including the remedial actions discussed above, and has concluded that,as of such date, its disclosure controls and procedures are effective.

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*(b)**Changesin Internal Control over Financial Reporting*

Other than the aboveimplemented new procedures regarding the accounting for income taxes, therehave been no significant changes in internal control over financial reportingthat occurred during the fiscal quarter covered by this report that havematerially affected, or are reasonably likely to affect materially the Company’sinternal control over financial reporting.

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

# ***Recent Sales of UnregisteredSecurities***

In the three months ended April 30, 2007, we issued 7,304 shares of ourcommon stock pursuant to exercise of Warrants that were issued to formerAngeion shareholders in connection with our emergence from bankruptcy onOctober 25, 2002.  We received proceedsof approximately $57,000 from these sales and used the proceeds for generalcorporate purposes.  The sales are exemptfrom registration pursuant to Section 1145(a) of the Bankruptcy Code (Title 11,United States Code).

##### ***Small Business Issuer Purchases of Equity Securities***

The Company didnot purchase any equity securities during the three months ended April 30,2007.

### **Item3.  Defaults Upon Senior Securities.**

None

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

None

**Item 5.  Other Information.**

None

**Item 6.  Exhibits.**

(a)           The following exhibits are includedherein:

31                                   Certificationspursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and15d-14 of the Exchange Act).

32                                   Certificationspursuant Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350).99.1

99.1                        Press releasedated June 5, 2007 reporting Angeion Corporation results of operations for thethree and six months ended April 30, 2007.

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**SIGNATURES**

In accordance withthe requirements of the Exchange Act, the registrant caused this report to besigned on its behalf by the undersigned, thereunto duly authorized.
|   |         | Angeion Corporation                    |
|--------|--------------|----------------------------------------|
|   |         | (Registrant)                           |
|   |         |                                   |
|   |         |                                   |
| Date:  | June 5, 2007 |                                   |   | /s/ Rodney A. Young |   |
|   |         | Rodney A. Young                        |
|   |         | President and  Chief Executive Officer |
|   |         | (Principal  Executive Officer)         |
|   |         |                                   |
|   |         |                                   |
| Date:  | June 5, 2007 |                                   |   | /s/ Dale H. Johnson |   |
|   |         | Dale H. Johnson                        |
|   |         | Chief Financial  Officer               |
|   |         | (Chief  Accounting Officer)            |

 

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