**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

# **FORM10-QSB**

# ** **

| **ý**                                                                                                                                                                                                                                                     | ** ** | **Quarterly report under Section 13 or 15(d) of  the Securities Exchange Act of 1934.** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                           |       |                                                                                    |
| **For the quarterly period ended January 31, 2006**                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                           |       |                                                                                    |
| **OR**                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                           |       |                                                                                    |
| **o**                                                                                                                                                                                                                                                          | ** ** | **Transition report under Section 13 or 15(d) of  the Exchange Act.**                   |
|                                                                                                                                                                                                                                                           |       |                                                                                    |
| **For the transition period  from                  to                  .** |

 

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

## ** **

## **Angeion Corporation**

(Exact name of small business issuer asspecified in its charter)

 

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

 

# **350 Oak GroveParkway, Saint Paul, Minnesota 55127-8599**

(Address of principal executive offices)

 

**(651) 484-4874**

(Issuer’s telephone number, including areacode)

 

Check whether the issuer (1) filed all reports required to be filed bySection 13 or 15(d) of the Exchange Act during the past 12 months (or for suchshorter period that the issuer was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.
| Yes | ý |   | No | o |   |
|-----|--------|--------|----|---|--------|

 

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Exchange Act).
| Yes | o |   | No | ý |   |
|-----|---|--------|----|--------|--------|

 

Check whether the registrant filed alldocuments and reports required to be filed by Section 12, 13 or 15(d) of theExchange Act of 1934 after distribution of securities under a plan confirmed bya court.
| Yes | ý |   | No | o |   |
|-----|--------|--------|----|---|--------|

 

The Company had 3,613,352 shares of common stock, $0.10 par value,outstanding as of March 1, 2006.

 

 

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**PART I - FINANCIAL INFORMATION**

 

**Item 1.  Financial Statements.**

 

**ANGEION CORPORATION AND SUBSIDIARIES**

 

**Consolidated Balance Sheets**

**January 31, 2006 and October 31, 2005**

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

 
| ** **                                                                                                                                   | ** ** | **January 31,  2006** | ** ** | **October 31,  2005** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| **Assets**                                                                                                                                   |       |                       |       |                       |       |
| **Current assets:**                                                                                                                          |       |                       |       |                       |       |
| Cash and cash equivalents                                                                                                                    |       | $                          | 1,160      |                       | $          | 1,072 |   |
| Cash restricted for discontinued operations                                                                                                  |       | 200                        |       | 400                        |       |
| Accounts receivable, net of allowance for  doubtful accounts of $225 and $210, respectively                                                  |       | 4,383                      |       | 4,100                      |       |
| Inventories                                                                                                                                  |       | 3,846                      |       | 3,455                      |       |
| Prepaid expenses and other current assets                                                                                                    |       | 113                        |       | 280                        |       |
| Current assets of discontinued operations                                                                                                    |       | 696                        |       | 700                        |       |
| Total current assets                                                                                                                         |       | 10,398                     |       | 10,007                     |       |
|                                                                                                                                         |       |                       |       |                       |       |
| Property and equipment, net of accumulated depreciation  of $1,661 and $1,598, respectively                                                  |       | 1,007                      |       | 1,035                      |       |
| Intangible assets, net                                                                                                                       |       | 5,295                      |       | 5,498                      |       |
| Goodwill                                                                                                                                     |       | 328                        |       | 328                        |       |
| **Total Assets**                                                                                                                             | ** ** | **$**                      | **17,028** | ** **                 | **$**      | **16,868** | ** ** |
|                                                                                                                                         |       |                       |       |                       |       |
| **Liabilities  and Shareholders’ Equity**                                                                                               |       |                       |       |                       |       |
| **Current liabilities:**                                                                                                                     |       |                       |       |                       |       |
| Accounts payable                                                                                                                             |       | $                          | 1,359      |                       | $          | 1,184 |   |
| Employee compensation                                                                                                                        |       | 1,200                      |       | 1,166                      |       |
| Deferred income                                                                                                                              |       | 784                        |       | 871                        |       |
| Warranty reserve                                                                                                                             |       | 183                        |       | 175                        |       |
| Other current liabilities and accrued  expenses                                                                                              |       | 349                        |       | 366                        |       |
| Current liabilities of discontinued  operations                                                                                              |       | 213                        |       | 517                        |       |
| Total current liabilities                                                                                                                    |       | 4,088                      |       | 4,279                      |       |
|                                                                                                                                         |       |                       |       |                       |       |
| **Long-term liabilities:**                                                                                                                   |       |                       |       |                       |       |
| Long-term deferred income                                                                                                                    |       | 428                        |       | 319                        |       |
| Deferred income taxes                                                                                                                        |       | 338                        |       | 337                        |       |
| Total long-term liabilities                                                                                                                  |       | 766                        |       | 656                        |       |
| **Total liabilities**                                                                                                                        |       | 4,854                      |       | 4,935                      |       |
|                                                                                                                                         |       |                       |       |                       |       |
| **Shareholders’ equity:**                                                                                                               |       |                       |       |                       |       |
| Common stock, $0.10 par value, authorized  25,000,000 shares, issued and outstanding, 3,613,352 shares in 2006 and  3,609,325 shares in 2005 |       | 361                        |       | 361                        |       |
| Additional paid-in capital                                                                                                                   |       | 17,752                     |       | 17,589                     |       |
| Deferred compensation                                                                                                                        |       | (112                       | )          | (14                        | )          |
| Accumulated deficit                                                                                                                          |       | (5,827                     | )          | (6,003                     | )          |
| Total shareholders’ equity                                                                                                              |       | 12,174                     |       | 11,933                     |       |
| **Total Liabilities and Shareholders’ Equity**                                                                                          | ** ** | **$**                      | **17,028** | ** **                 | **$**      | **16,868** | ** ** |

 

See accompanying notes to consolidatedfinancial statements.

 

2

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**ANGEION CORPORATION AND SUBSIDIARIES**

** **

**Consolidated Statements of Operations**

(unaudited, in thousands except per share amounts)

 
| ** **                                              | ** ** | **Three Months Ended  January 31,** | ** ** |
|---------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                              | ** ** | **2006**                                           | ** ** | **2005** | ** ** |
| **Revenues**                                            | ** ** | ** **                                         | ** ** | ** ** | ** ** |
| Equipment and supply sales                              |       | $                                                  | 6,247      |   | $ | 4,285 |   |
| Service revenue                                         |       | 686                                                |       | 745 |   |
|                                                    |       | 6,933                                              |       | 5,030 |   |
| **Cost of goods sold**                                  |       |                                               |       |   |   |
| Cost of equipment and supplies                          |       | 3,262                                              |       | 2,596 |   |
| Cost of service revenue                                 |       | 123                                                |       | 101 |   |
|                                                    |       | 3,385                                              |       | 2,697 |   |
|                                                    |       |                                               |       |   |   |
| **Gross margin**                                        |       | 3,548                                              |       | 2,333 |   |
|                                                    |       |                                               |       |   |   |
| **Operating expenses:**                                 |       |                                               |       |   |   |
| Selling and marketing                                   |       | 1,923                                              |       | 1,707 |   |
| General and administrative                              |       | 773                                                |       | 664 |   |
| Research and development                                |       | 472                                                |       | 478 |   |
| Amortization of intangibles                             |       | 203                                                |       | 203 |   |
|                                                    |       | 3,371                                              |       | 3,052 |   |
|                                                    |       |                                               |       |   |   |
| **Operating income (loss)**                             |       | 177                                                |       | (719 | ) |
|                                                    |       |                                               |       |   |   |
| Interest income                                         |       | 9                                                  |       | 8 |   |
|                                                    |       |                                               |       |   |   |
| **Income (loss) before taxes**                          |       | 186                                                |       | (711 | ) |
|                                                    |       |                                               |       |   |   |
| Provision for taxes                                     |       | 6                                                  |       | — |   |
|                                                    |       |                                               |       |   |   |
| **Income (loss) from continuing operations**            |       | 180                                                |       | (711 | ) |
| **Loss from discontinued operations, net of  $0 taxes** |       | (4                                                 | )          | — |   |
| **Net income (loss)**                                   |       | $                                                  | 176        |   | $ | (711 | ) |
|                                                    |       |                                               |       |   |   |
| **Earnings (loss) per share - basic**                   |       |                                               |       |   |   |
| Continuing operations                                   |       | $                                                  | 0.05       |   | $ | (0.20 | ) |
| Discontinued operations                                 |       | $                                                  | —     |   | $ | — |   |
| Net income (loss)                                       |       | $                                                  | 0.05       |   | $ | (0.20 | ) |
|                                                    |       |                                               |       |   |   |
| **Earnings (loss) per share - diluted**                 |       |                                               |       |   |   |
| Continuing operations                                   |       | $                                                  | 0.05       |   | $ | (0.20 | ) |
| Discontinued operations                                 |       | $                                                  | —     |   | $ | — |   |
| Net income (loss)                                       |       | $                                                  | 0.05       |   | $ | (0.20 | ) |
|                                                    |       |                                               |       |   |   |
| **Weighted average common shares outstanding**          |       |                                               |       |   |   |
| **Basic**                                               |       | 3,611                                              |       | 3,603 |   |
| **Diluted**                                             |       | 3,635                                              |       | 3,603 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

3

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**ANGEIONCORPORATION AND SUBSIDIARIES**

 

**ConsolidatedStatements of Cash Flows**

(unaudited, in thousands)

 
| ** **                                                                                          | ** ** | **Three Months Ended  January 31,** | ** **       |
|-----------------------------------------------------------------------------------------------------|------------|----------------------------------------------------|------------------|
| ** **                                                                                          | ** ** | **2006**                                           | ** **       | **2005** | ** ** |
| **Cash Flows From Operating Activities:**                                                           |       |                                               |             |   |   |
| Net income (loss)                                                                                   |       | $                                                  |  176        |   | $ |  (711 | ) |
| Loss from discontinued operations                                                                   |       | 4                                                  |             | — |   |
| Adjustments to reconcile net income (loss)  to net cash provided by (used in) operating activities: |       |                                               |             |   |   |
| Depreciation and amortization                                                                       |       | 266                                                |             | 323 |   |
| Stock-based compensation                                                                            |       | 56                                                 |             | — |   |
| Deferred income taxes                                                                               |       | 1                                                  |             | — |   |
| Changes in operating assets and  liabilities:                                                       |       |                                               |             |   |   |
| Accounts receivable                                                                                 |       | (283                                               | )                | 709 |   |
| Inventories                                                                                         |       | (391                                               | )                | (44 | ) |
| Prepaid expenses and other current assets                                                           |       | 167                                                |             | 90 |   |
| Accounts payable                                                                                    |       | 175                                                |             | (415 | ) |
| Employee compensation                                                                               |       | 34                                                 |             | 6 |   |
| Deferred income                                                                                     |       | 22                                                 |             | (93 | ) |
| Warranty reserve                                                                                    |       | 8                                                  |             | 2 |   |
| Other current liabilities and accrued  expenses                                                     |       | (17                                                | )                | 76 |   |
| Net cash provided by (used in) continuing  operations                                               |       | 218                                                |             | (57 | ) |
| Restricted cash released for discontinued  operations                                               |       | 200                                                |             | — |   |
| Cash used in discontinued operations                                                                |       | (304                                               | )                | (22 | ) |
| Net cash provided by (used in) operating  activities                                                |       | 114                                                |             | (79 | ) |
|                                                                                                |       |                                               |             |   |   |
| **Cash Flows From Investing Activities:**                                                           |       |                                               |             |   |   |
| Purchase of property and equipment                                                                  |       | (35                                                | )                | (49 | ) |
| Net cash used in investing activities                                                               |       | (35                                                | )                | (49 | ) |
|                                                                                                |       |                                               |             |   |   |
| **Cash Flows From Financing Activities:**                                                           |       |                                               |             |   |   |
| Proceeds from issuance of common stock                                                              |       | 9                                                  |             | 7 |   |
| Net cash provided by financing activities                                                           |       | 9                                                  |             | 7 |   |
|                                                                                                |       |                                               |             |   |   |
| **Net increase (decrease) in cash and cash equivalents**                                            |       | 88                                                 |             | (121 | ) |
|                                                                                                |       |                                               |             |   |   |
| **Cash and cash equivalents at beginning of  period**                                               |       | 1,072                                              |             | 2,390 |   |
|                                                                                                |       |                                               |             |   |   |
| **Cash and cash equivalents at end of period**                                                      | ** ** | **$**                                              | **  1,160** | ** ** | **$** | **  2,269** | ** ** |

 

See accompanying notes to consolidated financial statements.

 

4

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**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

January 31, 2006

(Unaudited)

 

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

 

Theconsolidated balance sheet as of January 31, 2006, the consolidated statementsof operations and cash flows for the three months ended January 31, 2006 and2005, and the related information presented in these notes have been preparedby management in accordance with U.S. generally accepted accounting principlesfor interim financial information and with the instructions to Form 10-QSB andRule 10-01 of Regulation S-X, without audit. Accordingly, they do not includeall of the information and notes required by U.S. generally accepted accountingprinciples for complete financial statements. In the opinion of management, alladjustments considered necessary for a fair presentation of results have beenincluded. The consolidated balance sheet at October 31, 2005 was derived fromthe audited consolidated financial statements as of that date. Operatingresults for the three months ended January 31, 2006 are not necessarilyindicative of the results that may be expected for the year ending October 31,2006. For further information, refer to the consolidated financial statementsand notes thereto included in Angeion Corporation’s Annual Report on Form10-KSB for the year ended October 31, 2005.

 

Comprehensiveincome is a measure of all non-owner changes in shareholders’ equity andincludes items such as net income (loss), certain foreign currency translationitems, minimum pension liability adjustments and changes in the value ofavailable-for-sale securities. For the three months ended January 31, 2006 and2005, comprehensive income (loss) for Angeion Corporation was equivalent to netincome (loss) as reported.

 

Preparation of the consolidated financial statements in conformity withU.S. generally accepted accounting principles requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosures of contingent assets and liabilities made in theconsolidated financial statements and accompanying notes. Actual results coulddiffer from those estimates. Estimates include accounts receivable, productwarranty and inventory reserves, and depreciable lives of property, equipment andintangible assets.

 

Certain amounts in the Company’s consolidated financial statements asof October 31, 2005 have been reclassified to conform to the 2006 presentation.These reclassifications had no effect on net income (loss) or shareholders’equity.

 

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

 

In accordance with the SEC’sStaff Accounting Bulletin No. 104, “*Revenue Recognition,*”the Company recognizes revenue when persuasive evidence of an arrangementexists, transfer of title has occurred or services have been rendered, theselling price is fixed or determinable and collectibility is reasonably assured.The Company’s products are sold for cash or on credit terms requiring paymentbased on the shipment date. Credit terms can vary between customers due to manyfactors, but are generally 30-60 days. Revenue, net of discounts, is recognizedupon shipment or delivery to customers in accordance with written sales terms. Standardsales terms do not include customer acceptance conditions, future credits,rebates, price protection or general rights of return. The terms of sales toboth domestic customers and international distributors are identical. Ininstances when a customer order specifies final acceptance of the system,revenue is deferred until all customer acceptance criteria have been met. Estimatedwarranty obligations are recorded upon shipment.

 

5

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Service contract revenue isbased on a stated contractual rate and is deferred and recognized ratably overthe service period, which is typically from one to four years. In accordancewith paragraph 4, of the Emerging Issues Task Force abstract 00-21, “*Revenue Arrangements with Multiple Deliverables,*” theCompany applies Financial Accounting Standards Board (“FASB”) Technical Bulletin No. 90-1 for service contract revenue. Theamount of deferred service contract revenue was $1,025,000 and $942,000 atJanuary 31, 2006 and October 31, 2005, respectively. Revenue from installationand training services provided to domestic customers is deferred until theservice has been performed. The amount of deferred installation and trainingrevenue was $187,000 and $248,000 at January 31, 2006 and October 31, 2005,respectively.

 

Whena sale involves multiple deliverables, such as equipment, installation servicesand training, the amount of the consideration from an arrangement is allocatedto each respective element based on the residual method and recognized asrevenue when revenue recognition criteria for each element is met. Considerationallocated to delivered equipment is equal to the total arrangementconsideration less the fair value of installation and training. The fair valueof installation and training services is based on specific objective evidence,including third-party invoices.

 

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

 

InNovember 2004, the FASB issued Statement of Financial Accounting Standards No.151, “*Inventory Costs, an amendment of ARB No. 43,Chapter 4*,” (“SFAS No. 151”) which clarifies the types of costs thatshould be expensed rather than capitalized as inventory. This statement alsoclarifies the circumstances under which fixed overhead costs associated withoperating facilities involved in inventory processing should be capitalized. Theprovisions of SFAS No. 151 are effective for fiscal years beginning after June15, 2005 and the Company adopted this standard as of November 1, 2006. Theadoption of this statement did not have a material impact on the Company’sconsolidated financial position or results of operations.

 

TheFASB issued SFAS No. 123 (Revised 2004), “*Share-Based Payment*,”(“SFAS No. 123R”) in December 2004. SFAS No. 123R is a revision of FASBStatement 123, “*Accounting for Stock-Based Compensation*”and supersedes APB No. 25 and its related implementation guidance. TheStatement focuses primarily on accounting for transactions in which an entityobtains employee services through share-based payment transactions. SFAS No.123R requires a public entity to measure the cost of employee services receivedin exchange for an award of equity instruments based on the grant-date fairvalue of the award (with limited exceptions). That cost will be recognized overthe period during which an employee is required to provide service in exchangefor the award. The Company will adopt the standard for fiscal 2007 using themodified prospective method. While the Company cannot precisely determine theimpact on net earnings as a result of the adoption of SFAS No. 123R, estimatedcompensation expense related to prior periods can be found in “Stock BasedCompensation” below. The ultimate amount of increased compensation expense willdepend on the number of option shares granted, their timing and vesting periodand the method used to calculate the fair value of the awards, among otherfactors. We have yet to determine the impact of SFAS No. 123R on the Company’sconsolidated financial statements.

 

InJune 2005, the FASB issued SFAS No. 154, “*Accounting Changes andError Corrections*,” (“SFAS No. 154”) a replacement of APB OpinionNo. 20 and FASB Statement No. 3. The statement applies to all voluntary changesin accounting principle, and changes the requirements of accounting for andreporting a change in accounting principle. SFAS No. 154 requires retrospectiveapplication to prior periods’ financial statements of a voluntary change inaccounting principle unless it is impractical. SFAS No. 154 is effective foraccounting changes and corrections of errors made in fiscal years beginningafter December 15, 2005. Earlier application is permitted for accountingchanges and corrections of errors

 

6

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occurringin fiscal years beginning after June 1, 2005. The statement does not change thetransition provisions of any existing accounting pronouncements, includingthose that are in a transition phase as of the effective date of the statement.The adoption of SFAS No. 154 did not have a material effect on the Company’sconsolidated financial statements.

 

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

 

TheCompany applies the intrinsic-value method prescribed under AccountingPrinciples Board Opinion No. 25, *“Accounting for StockIssued to Employees,”* (“APB No. 25”) and related interpretations toaccount for the issuance of stock incentives to employees and directors. Accordingly,no compensation expense related to employees’ and directors’ stock incentiveshas been recognized in the consolidated financial statements. In accordancewith the provisions of SFAS No. 123, “*Accounting for Stock-BasedCompensation*,” the Company is required to present pro formainformation reflecting compensation cost for such issuances. Had the Companydetermined compensation costs based on the fair value at the date of grant foroptions granted, the Company’s net income (loss) would have been increased to thepro forma amounts indicated in the following table:

 
| ** **                                                                                                                                    | ** ** | **Three Months Ended January 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|
| **(In thousands, except for per share amounts)**                                                                | ** ** | **2006**                                               | ** ** | **2005** | ** ** |
| Net income (loss):                                                                                                                            |       |                                                   |       |   |   |
| As reported                                                                                                                                   |       | $                                                      |  176  |   | $ |  (711 | ) |
| Add: Stock-based employee compensation  expense included in reported net income (loss), net of related tax effects                            |       | 55                                                     |       | — |   |
| Deduct: Total stock-based employee  compensation expense determined under fair value based method for all awards,  net of related tax effects |       | (5                                                     | )          | (21 | ) |
| Pro forma                                                                                                                                     |       | $                                                      |  226  |   | $ |  (732 | ) |
| Net income (loss) per share – basic and  diluted                                                                                         |       |                                                   |       |   |   |
| As reported                                                                                                                                   |       | $                                                      |  0.05 |   | $ |  (0.20 | ) |
| Pro forma                                                                                                                                     |       | $                                                      |  0.06 |   | $ |  (0.20 | ) |

 

***Variable Stock Option Grants***

 

The Company has granted to its employees 78,000options with an exercise price of $2.00 that vest at increasing rates as theCompany’s common stock trades for increasing prices for 20 of 30 consecutivedays. Notwithstanding the performance vesting schedule, these options may beexercised in full beginning October 1, 2009. The options will become exercisableearlier if the Company’s stock trades at the following prices for 20 of 30consecutive trading days.

 

| **Closing Price** | ** ** | **Percent of  Options  Exercisable** | ** ** |
|-------------------|------------|--------------------------------------|------------|
| $                 | 4.00       |                                 | 15         | % |
| 4.50              |       | 40                                   |       |
| 5.00              |       | 60                                   |       |
| 5.50              |       | 80                                   |       |
| 6.00              |       | 100                                  |       |
|                   |            |                                      |            |  |

 

Because the vesting for these grants isdependent on achieving these common stock price milestones, the Company hasaccounted for these option grants using variable accounting in accordance withAPB No.

 

7

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25. Accordingly, the Company estimates the value of variable optiongrants at each balance sheet date and records the changes in intrinsic value asdeferred compensation. Although no options vest until October 1, 2009 or until theCompany’s stock trades at $4.00 per share for 20 of 30 consecutive days, andthen only 15% would vest, these outstanding options are nevertheless deemed tohave intrinsic value because the closing price of the Company’s stock at January 31, 2006 was $4.23 per share. Stockbased compensation associated with these variable options for the three monthsended January 31, 2006 was $56,000.This amount is equal to the intrinsic value of the options at January 31, 2006 pro-rated from theirgrant date to the time-based vesting date of October 1, 2009. As of January 31, 2006, the Company hasrecorded deferred compensation of $112,000 relating to these variable stockoptions.

 

**5.****             Inventories**

 

Inventories consisted of the following atJanuary 31, 2006 and October 31, 2005:

 
| **(In thousands)** | ** ** | **2006** | ** ** | **2005** | ** ** |
|-------------------------|------------|----------|------------|----------|------------|
| Raw materials           |       | $        | 1,766      |     | $          | 1,304 |   |
| Work-in-progress        |       | 454      |       | 186      |       |
| Finished goods          |       | 1,626    |       | 1,965    |       |
|                    |       | $        | 3,846      |     | $          | 3,455 |   |

 

**6.****             IntangibleAssets**

 

Intangible assets consisted of the following at January 31, 2006 andOctober 31, 2005:

 
| **(In thousands)**             | ** ** | **2006** | ** ** | **2005** | ** ** |
|-------------------------------------|------------|----------|------------|----------|------------|
| Intangible assets:                  |       |     |       |     |       |
| Developed technology                |       | $        | 6,900      |     | $          | 6,900 |   |
| Trade name (unamortized)            |       | 1,000    |       | 1,000    |       |
|                                |       | 7,900    |       | 7,900    |       |
|                                |       |     |       |     |       |
| Amortization - developed technology |       | (2,605   | )          | (2,402   | )          |
|                                |       | $        | 5,295      |     | $          | 5,498 |   |

 

Amortization expense was $203,000 for each of the three month periodsended January 31, 2006 and 2005.

 

Intangible assets are being amortized using the straight-line methodover the estimated useful lives of the assets that range from three to tenyears. Estimated amortization expense for the remainder of fiscal year 2006 andfor each of the succeeding years based on the intangible assets as of January31, 2006 is as follows:

 
| **(In thousands)**             | ** ** | **Amortization** | ** **  |
|-------------------------------------|------------|------------------|-------------|
| Nine months ending October 31, 2006 |       | $                |  609   |   |
| 2007                                |       | 779              |        |
| 2008                                |       | 779              |        |
| 2009                                |       | 778              |        |
| 2010                                |       | 450              |        |
| Thereafter                          |       | 900              |        |
|                                |       | $                |  4,295 |   |

 

8

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**7.****             WarrantyReserve**

 

Sales of the Company’s equipment are subject to a warranty. Equipmentwarranties typically extend for a period of twelve months from the date ofinstallation. Standard warranty terms are included in customer contracts. Underthe terms of these warranties, the Company is obligated to repair or replaceany components or assemblies that it deems defective in workmanship ormaterials. The Company reserves the right to reject warranty claims where itdetermines that failure is due to normal wear, customer modifications, impropermaintenance or misuse. The Company maintains a warranty reserve that reflectsthe estimated expenses that it will incur to honor the warranties on itsproducts. The Company adjusts the warranty reserve based on the number and typeof equipment that is subject to warranty, adjusted for the remaining months ofwarranty coverage. The warranty reserve adjustment reflects the Company’shistorical warranty experience based on type of equipment. Warranty activityfor the three months ended January 31, 2006 and 2005 was as follows:

 
| **(In thousands)**      | ** ** | **2006** | ** ** | **2005** | ** ** |
|------------------------------|------------|----------|------------|----------|------------|
| Balance, beginning of period |       | $        | 175        |     | $          | 155 |   |
| Warranty provisions          |       | 86       |       | 66       |       |
| Warranty claims              |       | (78      | )          | (64      | )          |
| Balance, end of period       |       | $        | 183        |     | $          | 157 |   |

 

**8.****             Net Income (Loss) perShare**

 

Basic income (loss) per share is computed by dividing net income (loss)by the weighted average shares outstanding during the reporting period. Dilutedincome (loss) per share is computed similarly to basic loss per share exceptthat the weighted average shares outstanding are increased to includeadditional shares from the assumed exercise of stock options and warrants, ifdilutive. The number of additional shares is calculated by assuming thatoutstanding stock options or warrants were exercised and that the proceeds fromthe exercise were used to acquire shares of common stock at the average marketprice during the reporting period. As a result of the net loss, there were nodilutive common shares outstanding for the three months ended January 31, 2005.

 

Shares used in the earnings per share computations for the three monthsended January 31, 2006 and 2005 are as follows:

 
| **(In thousands)**                               | ** ** | **2006** | ** ** | **2005** | ** ** |
|-------------------------------------------------------|------------|----------|------------|----------|------------|
| Weighted average common shares outstanding  - basic   |       | 3,611    |       | 3,603    |       |
| Dilutive effect of stock options                      |       | 24       |       | —   |       |
| Weighted average common shares outstanding  - diluted |       | 3,635    |       | 3,603    |       |

 

The dilutive effect of stock options in the above table excludes alloptions for which the exercise price was higher than the closing market priceof $4.23 per share as of January 31, 2006. The number of option shares excludedfrom the calculation was 362,800 and 482,800 for the three months ended January31, 2006 and 2005, respectively.

 

The Company had warrants outstanding at January 31, 2006 and 2005 topurchase 179,481 shares of its common stock that were considered antidilutiveand therefore not considered to have been exercised.

 

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**9.****             DiscontinuedOperations and Related Litigation**

 

OnJune 30, 2005, the Company entered into settlement agreements with ELA Medical,Inc. and ELA Medical S.A.S. (together “ELA”) that ended the legal dispute andlawsuit by ELA against the Company and resolved all issues between the Companyand ELA related to a recall of the Company’s implantable cardioverterdefibrillators (“ICDs”) sold to ELA prior to March 2000. The Company accountsfor the ICD business as a discontinued operation and amounts in the financialstatements and related notes for all periods shown reflect discontinuedoperations accounting.

 

Underthe terms of a settlement agreement and release regarding LYRA ICDs, ELA agreedto settle its $2,047,000 cross-claim against the Company in return for an Offerof Judgment on the cross-claim in favor of ELA and against the Company in theamount of $1,400,000. In full satisfaction of the Judgment, the Company agreedto pay ELA the $1,400,000 judgment amount as follows:

 

1.               The Company paid ELA $400,000 on June 30,2005.

 

2.               The Company executed a $400,000 promissorynote in favor of ELA that is secured by an irrevocable letter of credit. Termsof the promissory note included equal payments of $200,000 due on December 31,2005 and June 30, 2006.

 

3.               The Company assigned to ELA certain of theCompany’s intellectual property exclusively related to the Company’sdiscontinued ICD products, including patents and related technology that ELAand the Company agreed have a fair market value of at least $600,000.

 

TheCompany entered into a second agreement on June 30, 2005 under which it paid anadditional $40,000 for resolution of ICD issues not related to the lawsuit. Thesecond settlement agreement resolved a matter with respect to Sentinel ICDsformerly manufactured by the Company and amended a 1999 withdrawal agreementunder which the Company withdrew from a joint venture with ELA. In connectionwith the Sentinel settlement agreement, ELA agreed that it would be responsiblefor any warranty coverage, technical service and regulatory compliance servicewith respect to any “recalled” ICDs in the future. Prior to entering thissettlement agreement, ELA already was responsible for warranty coverage,technical service and regulatory compliance service for all ICDs except for allcosts and expenses that were “recall costs.”

 

Aspreviously disclosed in the Company’s Annual Report on Form 10-KSB for the yearended October 31, 2005, the Company is seeking recovery for the ELA settlementplus related professional fees from Medmarc Casualty Insurance Company. OnJanuary 20, 2006, the Company and Medmarc argued summary judgment motions inUnited States District Court on issues related to Medmarc’s responsibility toreimburse the Company for its $1.4 million settlement with ELA and its legalfees paid in defending the lawsuit. In an order dated February 17, 2006, theCourt granted, in part, theCompany’s motion for summary judgment.

 

Insummary, the Court ruled:

 

1.               The June 2005 settlement between Angeion andELA Medical under which Angeion agreed to pay ELA $1.4 million to settle theclaims of ELA arising out of the recall of Angeion’s ICDs was reasonable,non-collusive and made in good faith;

 

2.               Medmarc has a duty to indemnify Angeion forthe $1.4 million settlement, plus interest from June 30, 2005;

 

3.               The Court stated that 32 of the 160 ICDs thatwere explanted did not meet specified voltage levels to warrant recall andtherefore the “device costs” and “ELA expenses” associated with these 32 ICDswere not covered by the policy. The Court stated it could not make a specificdetermination with respect to that portion, if any, of the $1.4 millionsettlement that pertains to

 

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devicecosts and ELA expenses with respect to these 32 ICDs. This matter, therefore,remains subject to future determination by the Court or resolution by Angeionand Medmarc.

 

4.               Angeion is entitled to recover from Medmarccosts and fees in the amount of $49,000 incurred in defending ELA’s claims.

 

The Company intends to vigorously pursue the recovery of its settlementcosts and expenses against Medmarc. The ultimate amount of recovery from theinsurer is subject to future development, including negotiations between theparties and other legal proceedings.

 

During the first quarter of 2006, the Companydetermined that there were no changes in facts or circumstances that wouldrequire adjustment to the $696,000 of current assets of discontinued operationsas of January 31, 2006.

 

During the quarter ended January 31, 2006,the Company incurred additional expenses of $4,000 related to the Medmarcmatter. Since thefirst $200,000 payment due under the promissory note was made in December 2005,the current liability of discontinued operations is $213,000 at January 31,2006 and now includes the $4,000 of additional expenses as well as theremaining $200,000 due to ELA on June 30, 2006 under the promissory note.

 

**10.****                               IncomeTaxes**

 

The Company has a federal net operating losscarry forward at October 31, 2005 of approximately $130.6 million, which isavailable to reduce income taxes payable in future years. If not used, thiscarry forward will expire in years 2006 through 2025. Approximately $72.5million of this carry forward will expire over the next five years. In addition,the Company has a general business tax credit carry forward of approximately$989,000 that is available to reduce future Federal income taxes, if any. Ifnot used, these general business tax credits will expire in years 2006 through2014. Approximately $515,000 of the general business tax carry forward willexpire over the next five years. The Company also has $90,000 of alternativeminimum tax credit carry forwards that do not have expiration dates. Under theTax Reform Act of 1986, the utilization of these tax loss and tax credit carryforwards may be limited as a result of significant changes in ownership. Even though the Company has substantial federalnet operating loss carry forwards, anyincome is still subject to U.S. and State Alternative Minimum Taxes and FAS 109taxes related to prior asset based acquisitions.

 

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**Item 2.****    Management’sDiscussion and Analysis or Plan of Operation.**

 

# **Forward-Looking Statements and Risk Factors**

# ** **

Statements included in this Quarterly Report on Form 10-QSB that arenot historical or current facts are “forward-looking statements” made pursuantto the safe harbor provisions of the Private Securities Litigation Reform Actof 1995. The words “believe,” “expect,” “will,” “can,” “estimate,” “anticipate,”and similar expressions are intended to identify forward-looking statements. Forward-lookingstatements are subject to certain risks and uncertainties that could causeactual results to differ materially including the following: (i) the Company’s ability to successfullyoperate its Medical Graphics business including its ability to develop, improveand update its cardiorespiratory diagnostic products, (ii) the Company’sability to successfully sell its New Leaf health & fitness products, (iii)the Company’s ability to successfully defend itself from product liabilityclaims related to its Medical Graphics and New Leaf products and claimsassociated with its prior cardiac stimulation products, (iv) the Company’sability to successfully resolve all issues in connection with the litigationwith its former insurer in connection with the lawsuit regarding its ICD productliability insurance coverage; (v) the Company’s ability to protect itsintellectual property, and (vi) the Company’s dependence on third-partyvendors.

 

From time to time, the Company through its management may make oralforward-looking statements. The Company undertakes no obligation to update anyforward-looking statement. Additional information with respect to the risks anduncertainties faced by the Company may be found in, and the prior discussion isqualified in its entirety by, the other risk factors that are described fromtime to time in the Company’s Securities and Exchange Commission reports,including but not limited to the Annual Report on Form 10-KSB for the year endedOctober 31, 2005, and subsequently filed reports.

 

# **Overview**

# ** **

The Company is a medical products company with reported revenue of$23.8 million for the year ended October 31, 2005. Domestic product sales andservice revenues accounted for 83.5% of revenue for the year ended October 31,2005 while international product sales accounted for the remaining 16.5%.

 

The Company, through its Medical Graphics Corporation subsidiary,designs non-invasive diagnostic systems under the MedGraphics trade name thatassist health care professionals in the prevention, early detection andcost-effective treatment of heart and lung disease. It also markets a versionof some of these products under the New Leaf brand to health and fitness clubsand personal trainers to assist them in developing exercise programs to helptheir clients meet their personal goals. Revenues consist of equipment andsupply sales and service revenues. Equipment and supply sales reflect sales ofMedical Graphics’ non-invasive cardiorespiratory diagnostic equipment, sales ofNew Leaf health and fitness products, and aftermarket sales of peripherals andsupplies. Service revenues reflect revenues from extended service contracts,non-warranty service visits and training.

 

Total revenue for the first quarter of 2006 was $6.9 million, anincrease of 37.8% from $5.0 million in 2005. Net income for the three monthsended January 31, 2006 was $176,000, or $0.05 per share, compared to a net loss of $711,000,or $0.20 per share, for the same period in 2005. Net income for the threemonths ended January 31, 2006 included a $4,000 loss from discontinuedoperations.

 

The Company stated the following objectives and goals for 2006 in itspress release dated January 9, 2006:

 

•                  A drive towardachieving and sustaining profitability;

•                  A fourthconsecutive year of double-digit year-over-year revenue growth;

 

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•                  The introductionof new cardiorespiratory diagnostic products;

•                  Continuation ofthe expansion of our domestic and international sites offering New Leaf ActiveMetabolic Assessments;

•                  Furtherexpansion of the New Leaf products for weight management, exercise and athleticperformance; and

•                  The continuationof efforts to recover the ELA Medical settlement costs and related expensesfrom the insurance carrier.

 

Progress is evident regarding all of the Company’s 2006 objectives. Thefirst quarter of 2006 net earnings marks two consecutive quarters of profitability,something not achieved since 1999. First quarter 2006 revenue growth alsorepresents our seventh consecutive quarter of double-digit year-over-yearrevenue growth. First quarter revenue of $6.9 million also represented a recordrevenue quarter, which surpasses the previous record of $6.7 million set only inthe fourth quarter of fiscal 2005. Looking forward, while the Company may seesome variations in the amount of revenue increases that it achieves fromquarter to quarter, we are continuing to focus on the goals of another year ofdouble-digit year-over-year revenue growth and our drive toward achieving andsustaining profitability.

 

The first quarter saw progress made in the research and development ofseveral new products intended for potential growth opportunities identifiedwith both our domestic and international cardiorespiratory markets. The firstquarter of 2006 also resulted in the addition of new sites offering New LeafActive Metabolic Assessments. On February 6, 2006, we announced the release of *Energy*Smart,the newest addition to our growing list of New Leaf branded health and fitnessproducts. *Energy*Smart is an online meal planningand tracking program sold through New Leaf health and fitness partners fortheir clients and members. The program provides a “dietary roadmapTM” toenergize and train an individual’s metabolism and create a healthier lifestyle.

 

Finally, on January 20, 2006, the Company and Medmarc argued summaryjudgment motions in United States District Court on issues of confirmingMedmarc’s responsibility to reimburse the Company for its $1.4 millionsettlement with ELA and its legal fees paid in defending the lawsuit. In anorder dated February 17, 2006, the Court granted, in large part, the Company’s motionfor summary judgment. The Court determined that the Company was entitled torecover from Medmarc the $1.4 million paid to settle the claim of ELA, subjectto potential exclusion of certain costs, and that the Company is entitled torecover from Medmarc costs and fees in the amount of $49,000 incurred indefending ELA’s claim. See Note 9 to the Consolidated FinancialStatements, “Discontinued Operations and Related Litigation,” in this Form10-QSB for additional discussion of the settlement with ELA and Medmarclitigation.

 

# **Results ofOperations**

# ** **

The Company recorded net income of $176,000 for the three months endedJanuary 31, 2006 compared to a net loss of $711,000 for the same period in 2005.Net income for the three months ended January 31, 2006 included a $4,000 loss from discontinued operations.

 

**Revenue**

 

Total revenue increased by 37.8% to $6.9 million from $5.0 million forthe three months ended January 31, 2006 and 2005, respectively. Domestic productrevenue increased by 41.9% to $5.0 million in 2006 compared to $3.6 million in2005. International product revenue increased 64.7% to $1.2 million in 2006compared to $730,000 in 2005. Service revenue decreased 7.9% to $686,000 in2006 from $745,000 in 2005.

 

Demand for cardiorespiratory product systems and New Leaf products hasremained strong during the first quarter of 2006. Sales of the Company’s EliteSeries systems have remained strong as customers continue to replace theirolder 1085 Series equipment. Sales of the new Ultima PF and Ultima

 

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PFX cardiorespiratory systems also contributed to both domestic andinternational revenue growth. The Company is pleased with customer acceptanceof these new products that began shipping during April 2005. The Company’s NewLeaf health and fitness products also contributed to domestic growth during thefirst quarter due to broadening consumer acceptance. The addition of sites fromboth chain and independent health clubs contributed to growth during thequarter. Customer orders for cardiorespiratory product systems continue to bestrong with no near term signs suggesting that order rates will decline.

 

First quarter revenue also increased due to customer orders receivedlate in 2005 that could not be manufactured and shipped until 2006 because ofraw material lead times. The Company has increased its raw material purchasingcommitments in order to meet customer expectations for delivery of new systems.

 

Service revenue decreased $59,000 or 7.9% during the first quarter of2006 compared to the same quarter in 2005 due to the relatively aggressive pacethat customers are replacing older equipment with the Company’s new models,thereby reducing revenue from extended service contracts and non-warrantyservice visits on older equipment.

 

**Gross Margin**

 

Gross margin percentage for the three months ended January 31, 2006increased to 51.2% of revenue compared to 46.4% for the same period in 2005. Theoverall improvement in gross margin percentages is due to improvedmanufacturing efficiencies associated with increased volume together withimproved gross margins on the Company’s new products.

 

**Selling and Marketing**

 

Selling and marketing expenses for the three months ended January 31,2006 increased by 12.7% to $1.9 million compared to $1.7 million for the sameperiod in 2005. The 41.9% increase in domestic sales for the first three monthsof 2006 resulted in a $137,000 or 57% increase in commission expenses. Inaddition, $68,000 of the increase was planned incremental trade show spendingfor the first quarter of 2006 compared to the first quarter of 2005.

 

**General and Administrative**

 

General and administrative expenses for the three months ended January31, 2006 increased by 16.4% to $773,000 compared to $664,000 for the sameperiod in 2005. General and administrative expenses for the first quarter of2006 included $56,000 for stock-based compensation associated with variableoptions compared to no expense in this area for 2005. In addition, there was a$50,000 increase in general and administrative expenses due to a $15,000increase in the provision for doubtful accounts for 2006 compared to a $35,000decrease in the provision for doubtful accounts for 2005. See Note 4 to theConsolidated Financial Statements, “Stock-Based Compensation,” in this Form10-QSB for additional discussion of variable options.

 

General and administrative expenses also included $15,000 and $31,500 inconsulting expenses associated with Sarbanes-Oxley compliance costs, for thefirst quarter of 2006 and 2005, respectively.

 

**Research and Development**

 

Research and development expenses for the three months ended January31, 2006 decreased by 1.3% to $472,000 from $478,000 for the same period in2005. The Company is currently working on new products intended for use byinternational markets, asthma, allergy and primary care physicians that

 

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are planned for release late in 2006 or early2007. In addition, the Company is also implementing new designs and newcomponents for use in its existing systems that have lower costs and are moreefficient in the manufacturing process.

 

**Amortization of Intangibles**

 

Amortization of developed technology was $203,000 for each of the threemonth periods ended January 31, 2006 and 2005.

 

**Provision for Taxes**

 

The Company recorded a provision for incometaxes to reflect U.S.and State Alternative Minimum Taxes (“AMT”). The Company is required to pay AMTeven though it has substantial federal net operating loss carry forwards.

 

**Discontinued Operations**

 

The $4,000 loss from discontinued operations for the three months endedJanuary 31, 2006 included additional consulting fees and miscellaneous litigation expenses. SeeNote 9 to the Consolidated Financial Statements, “Discontinued Operations andRelated Litigation,” in this Form 10-QSB for additional discussion of thesettlement with ELA and the Medmarc litigation.

 

**Liquidity and Capital Resources**

 

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

 

The Company had cash and cash equivalents of $1.4 million, including $200,000of cash restricted for discontinued operations, and working capital of $5.9million as of January 31, 2006. During the three months ended January 31, 2006,the Company generated $218,000 in cash from continuing operations primarilybecause its net income of $176,000 included $266,000 of depreciation and amortization.Cash was generated by a decrease of $167,000 in prepaid expenses and othercurrent assets and an increase of $175,000 in accounts payable. Cash was usedfor increases of $391,000 and $283,000 in inventories and accounts receivable,respectively. The increase in both accounts receivable and inventory is necessaryto support the Company’s growth in revenue.

 

The Company used $304,000 in cash for discontinued operations, whichincluded a payment of $200,000 made in connection with the settlement agreementbetween the Company and ELA Medical related to expenses associated withpreviously discontinued ICD products. The cash used for discontinued operationsalso included legal fees and consulting expenses and other expenses related tothe ELA Medical settlement and Medmarc litigation. In connection with the $1.4million settlement agreement, the Company executed a $400,000 promissory notethat required a payment of $200,000 that was made on December 31, 2005 andanother $200,000 payment due on June 30, 2006. The promissory note is backed upwith an irrevocable bank letter of credit. The Company is required tocollateralize the irrevocable bank letter of credit with $200,000 of cash thatis classified as cash restricted for discontinued operations at January 31,2006.

 

During the three months ended January 31, 2006, the Company used$35,000 in cash for the purchase of property and equipment. The Company has nomaterial commitments for capital expenditures for fiscal year 2006.

 

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The Company believes thatits liquidity and capital resource needs for fiscal year 2006 will be metthrough its current cash and cash equivalents and cash flows from operations.

 

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

 

**(a)****           Evaluation of Disclosure Controls andProcedures**

 

Management, with the participation of the Company’s chief executiveofficer, Rodney A. Young, and chief financial officer, Dale H. Johnson, hasevaluated the effectiveness of the design and operation of the disclosurecontrols and procedures, as defined in Rules 13a-15(e) under the SecuritiesExchange Act of 1934, as of the end of the period covered by this report. Managementhas concluded that the Company’s disclosure controls and procedures areeffective to ensure that information required to be disclosed in the reportsthat the Company files under the Exchange Act is recorded, processed,summarized and reported within the time periods specified in the rules andforms of the SEC and that the disclosure controls are also effective to ensurethat information required to be disclosed in the Company’s Exchange Act reportsis accumulated and communicated to management, including the chief executiveofficer and chief financial officer, to allow timely decisions regardingrequired disclosure.

 

**(b)****          ****Changes in Internal Controls**

 

There have been no significant changes in internal control overfinancial reporting that occurred during the fiscal quarter covered by thisreport that have materially affected, or are reasonably likely to materiallyaffect, the registrant’s internal control over financial reporting.

 

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**PART II - OTHER INFORMATION**

 

**Item 1. Legal Proceedings.**

 

TheCompany is subject to certain claims and lawsuits that have been filed in theordinary course of business. From time to time, the Company brings suit againstothers to enforce patent rights or to collect debts in the ordinary course ofbusiness. Except for the litigation discussed below, management believes thatthe settlement of all litigation would not have a material effect on theresults of operations or liquidity of the Company.

 

Asdisclosed in Item 3 of the Form 10-KSB for the year ended October 31, 2005, theCompany is involved in a lawsuit brought by Medmarc Insurance Company in UnitedStates District Court for the District of Minnesota involving a claim forindemnification by ELA Medical and the Company’s claim for insurance coveragefrom Medmarc in the matter Medmarc Casualty Insurance Company v. AngeionCorporation, ELA Medical, Inc. and ELA Medical SA.

 

Thefollowing material developments in that matter have occurred:

 

OnJanuary 20, 2006, the Company and Medmarc argued summary judgment motions inUnited States District Court on issues of confirming Medmarc’s responsibilityto reimburse the Company for its $1.4 million settlement with ELA and its legalfees paid in defending the lawsuit.

 

Inan Order dated February 17, 2006, the Court granted, in large part, Angeion’smotion for summary judgment in the pending lawsuit.

 

Insummary, the Court ruled:

 

1.               The June 2005 settlement between Angeion andELA under which Angeion agreed to pay ELA $1.4 million to settle the claims ofELA arising out of the recall of Angeion’s ICDs was reasonable, non-collusiveand made in good faith;

 

2.               Medmarc has a duty to indemnify Angeion forthe $1.4 million settlement, plus interest from June 30, 2005;

 

3.               A total of 32 of the 160 ICDs that wereexplanted did not meet specified voltage levels to warrant recall and thereforethe “device costs” and “ELA expenses” associated with these 32 ICDs were notcovered by the policy. The Court stated it could not make a specificdetermination with respect to that portion, if any, of the $1.4 millionsettlement that pertains to device costs and ELA expenses with respect to these32 ICDs. This matter, therefore, remains subject to future determination by theCourt or resolution by Angeion and Medmarc.

 

4.               Angeion is entitled to recover from Medmarccosts and fees in the amount of $49,353 incurred in defending ELA’s claims.

 

Althoughthe Court’s Order has left a few matters unresolved, Angeion believes thatissuance of this Order validates Angeion’s actions. In connection with thematter, Angeion also intends to ask the Court to require Medmarc to reimburseAngeion for its legal expenses incurred in connection with defending the actionbrought by Medmarc and establishing the duty to defend and the duty toindemnify.

 

ACourt-mandated settlement conference has been set for April 12, 2006. IfAngeion and Medmarc do not settle the remaining issues, Angeion anticipatesthat they will be heard by the Court during the first half of calendar 2006. AnyCourt decision may be subject to appeal.

 

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

 

***Recent Sales of Unregistered Securities***

 

The Company had no unregistered sales of equity securities during thethree months ended January 31, 2006.

 

***Small Business Issuer Purchasesof Equity Securities***

 

The Company did not purchase any equity securities during the threemonths ended January 31, 2006.

 

### **Item 3. DefaultsUpon Senior Securities.**

 

None

 

**Item 4. Submission of Matters to a Vote of Security Holders.**

 

None

 

**Item 5. Other Information.**

 

At a regular meeting of the Board of Directors on March 1, 2006, thefollowing actions were taken.

 

# ***Compensation of Officers***

# ** **

The compensation of Rodney A. Young, President and Chief ExecutiveOfficer, was increased from $250,000 to $275,000 effective April 1, 2006. Mr.Young’s compensation was last adjusted effective July 3, 2005. In addition, theannual compensation of Dale H. Johnson, Chief Financial Officer, was increasedfrom $136,504 to $150,154 effective April 1, 2006. Mr. Johnson’s compensationwas last adjusted effective April 10, 2005.

 

**Item 6. Exhibits.**

 

(a)           The following exhibitsare included herein:

 

31            Certifications pursuant to Section 302 of theSarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14 of the Exchange Act).

32            Certifications pursuant Section 906 of theSarbanes-Oxley Act of 2002 (18 U.S.C. §1350).

99.1         Pressrelease dated March 6, 2006 reporting Angeion Corporation’s results ofoperations for the three months ended January 31, 2006.

99.2         Pressrelease dated February 27, 2006 disclosing Court Order regarding insurancecoverage case.

 

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**SIGNATURES**

 

In accordance with the requirements of the Exchange Act, the registrantcaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 

 
|   | Angeion Corporation                   |   |
|--------|---------------------------------------|--------|
|   | (Registrant)                          |
|   |                                  |
|   |                                  |
| Date:  | March 6, 2006                         |   | /s/ Rodney A. Young |   |
|   | Rodney A. Young                       |
|   | President and Chief Executive Officer |
|   | (Principal Executive Officer)         |
|   |                                  |
|   |                                  |
| Date:  | March 6, 2006                         |   | /s/ Dale H. Johnson |   |
|   | Dale H. Johnson                       |
|   | Chief Financial Officer               |
|   | (Chief Accounting Officer)            |
|        |                                       |        |  |  |  |

 

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