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**U. S. SECURITIES AND EXCHANGECOMMISSION****Washington, D.C. 20549**

**FORM10-Q**

| ý | **QUARTERLY  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|--------|----------------------------------------------------------------------------------------|

**For the quarterly period endedJune 30, 2001.**

**or**
| o | **TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.** |
|---|------------------------------------------------------------------------------------------|

**For the transition period from__________ to __________.**

**Commission file number001-13543**

**ANGEIONCORPORATION**(Exact name of registrant as specified in its charter)
| **Minnesota**                                                   | **41-1579150**                        |
|-----------------------------------------------------------------|---------------------------------------|
| (State or other jurisdiction of  incorporation or organization) | (I.R.S. Employer  Identification No.) |

**350Oak Grove Parkway, Saint Paul, Minnesota 55127-8599**(Address of principal executive offices)

 

 **(651) 484-4874**Registrant’s telephone number, including area code:

Indicate by checkmark whether the issuer (1) filed all reports required to be filed by Section13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months(or for such shorter period that the registrant was required to file suchreports), and (2) has been subject to such filing requirements for the past 90days.
| Yes | ý | No | o |
|-----|--------|----|---|

As of August10, 2001, the Company had outstanding 3,505,163 shares of common stock, $0.01par value.

----

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**PART I - FINANCIAL INFORMATION**

**Item 1.  FinancialStatements**

**ANGEION CORPORATION ANDSUBSIDIARIES**

**Consolidated Balance Sheets******(unaudited, inthousands except share data)

|                                              |                                                                                                                                             | **June 30,********2001** |       | **December 31,********2000** |     |
|---------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------|------------|------------------------------|----------|
|                                              |                                                                                                                                             | ****                     |       | ****                         |     |
| **Assets**                                        |                                                                                                                                             |                     |       |                         |     |
| **Current assets:**                               |                                                                                                                                             |                     |       |                         |     |
|                                              | Cash and cash equivalents                                                                                                                        |                     | $          | 3,953                        |     | $ | 6,350 |   |
|                                              | Accounts receivable, net of  allowance for doubtful accounts of $210 and $153, respectively                                                      |                     | 4,405      |                         | 4,631    |   |
|                                              | Inventories                                                                                                                                      |                     | 4,709      |                         | 3,979    |   |
|                                              | Prepaid expenses and other  current assets                                                                                                       |                     | 590        |                         | 218      |   |
|                                              |                                                                                                                                             |                     |            |                         |          |   |
|                                              | Total current assets                                                                                                                             |                     | 13,657     |                         | 15,178   |   |
| Net non-current assets of discontinued operations |                                                                                                                                             | 191                      |       | 236                          |     |
| Equipment  and fixtures, net                      |                                                                                                                                             | 1,602                    |       | 1,895                        |     |
| Intangible  assets, net                           |                                                                                                                                             | 11,667                   |       | 12,000                       |     |
| Other  assets                                     |                                                                                                                                             | 461                      |       | 724                          |     |
| Goodwill,  net                                    |                                                                                                                                             | 509                      |       | 524                          |     |
|                                              |                                                                                                                                             |                          |       |                              |     |
|                                              |                                                                                                                                             | **$**                    | **28,087** | ** **                   | **$**    | **30,557** | ** ** |
|                                              |                                                                                                                                             | ****                     |       | ****                         |     |
| **Liabilities and Shareholders’ Equity**     |                                                                                                                                             |                     |       |                         |     |
| **Current liabilities:**                          |                                                                                                                                             |                     |       |                         |     |
|                                              | Accounts  payable                                                                                                                                |                     | $          | 836                          |     | $ | 812 |   |
|                                              | Employee compensation                                                                                                                            |                     | 542        |                         | 549      |   |
|                                              | Deferred income                                                                                                                                  |                     | 1,039      |                         | 984      |   |
|                                              | Warranty reserve                                                                                                                                 |                     | 206        |                         | 239      |   |
|                                              | Net current liabilities of  discontinued operations                                                                                              |                     | 309        |                         | 457      |   |
|                                              | Other liabilities and accrued  expenses                                                                                                          |                     | 686        |                         | 474      |   |
|                                              |                                                                                                                                             |                     |            |                         |          |   |
|                                              | Total current liabilities                                                                                                                        |                     | 3,618      |                         | 3,515    |   |
| **Long-term debt**                                |                                                                                                                                             | 20,198                   |       | 20,198                       |     |
|                                              |                                                                                                                                             |                          |       |                              |     |
| **Shareholders’ equity:**                    |                                                                                                                                             |                     |       |                         |     |
|                                              | Common stock, $.01 par  value.  Authorized 10,000,000 shares;  issued and outstanding 3,505,163 shares in 2001 and 3,481,584 shares in 2000 |                     | 35         |               | 35       |       |
|                                              | Additional paid-in capital                                                                                                                       |                     | 123,919    |                         | 123,905  |   |
|                                              | Cumulative translation adjustment                                                                                                                |                     | (9         | )                            | (9       | ) |
|                                              | Accumulated deficit                                                                                                                              |                     | (119,674   | )                            | (117,087 | ) |
|                                              |                                                                                                                                             |                     |            |                         |          |   |
|                                              | Total shareholders’ equity                                                                                                                  |                     | 4,271      |                         | 6,844    |   |
|                                              |                                                                                                                                             |                     |            |                         |          |   |
|                                              |                                                                                                                                             | **$**                    | **28,087** | ** **                   | **$**    | **30,557** | ** ** |
|                                              |                                                                                                                                             | ****                     |       | ****                         |     |
|                                                   |                                                                                                                                                  |                          |            |                              |          |  |  |  |  |

 

See accompanying notes to financialstatements

 

**ANGEION CORPORATION ANDSUBSIDIARIES**

**Consolidated Statements ofOperations********(unaudited, in thousands except per share amounts)**

|                                                             | **Three Months Ended********June 30,** |          | **Six Months Ended********June 30,** |          |
|------------------------------------------------------------------|----------------------------------------|---------------|--------------------------------------|---------------|
|                                                             | ****                                   |          | ****                                 |          |
|                                                             | **2001**                               |          | **2000**                             |          | **2001** |   | **2000** |   |
|                                                             | ****                                   |          | ****                                 |          | **** |   | **** |   |
| **Revenues**                                                     |                                   | ** **    |                                 | ** **    |   | ** ** |   | ** ** |
|                                                             | Equipment and supply sales             | $             | 3,600                                |          | $ | 3,339 |   | $ | 7,019 |   | $ | 7,549 |   |
|                                                             | Service revenue                        | 624           |                                 | 521           |   | 1,266 |   | 1,217 |   |
|                                                             |                                   |               |                                 |               |   |  |   |  |   |
|                                                             | 4,224                                  |          | 3,860                                |          | 8,285 |   | 8,766 |   |
|                                                             |                                        |          |                                      |          |  |   |  |   |
| **Cost of goods sold**                                           |                                   |          |                                 |          |   |   |   |   |
|                                                             | Cost of equipment and supplies         | 2,282         |                                 | 2,679         |   | 4,537 |   | 5,588 |   |
|                                                             | Cost of service revenue                | 98            |                                 | 140           |   | 227 |   | 263 |   |
|                                                             |                                   |               |                                 |               |   |  |   |  |   |
|                                                             | 2,380                                  |          | 2,819                                |          | 4,764 |   | 5,851 |   |
|                                                             |                                        |          |                                      |          |  |   |  |   |
| **Gross margin**                                                 | 1,844                                  |          | 1,041                                |          | 3,521 |   | 2,915 |   |
|                                                             |                                        |          |                                      |          |  |   |  |   |
| **Operating expenses:**                                          |                                   |          |                                 |          |   |   |   |   |
|                                                             | Selling and marketing                  | 1,332         |                                 | 1,205         |   | 2,482 |   | 2,364 |   |
|                                                             | General and administrative             | 647           |                                 | 651           |   | 1,297 |   | 1,356 |   |
|                                                             | Research and development               | 343           |                                 | 442           |   | 763 |   | 818 |   |
|                                                             | Amortization of intangibles            | 324           |                                 | 294           |   | 648 |   | 579 |   |
|                                                             |                                   |               |                                 |               |   |  |   |  |   |
|                                                             | 2,646                                  |          | 2,592                                |          | 5,190 |   | 5,117 |   |
|                                                             |                                        |          |                                      |          |  |   |  |   |
| **Operating loss**                                               | (802                                   | )             | (1,551                               | )             | (1,669 | ) | (2,202 | ) |
| **Other income (expense):**                                      |                                   |          |                                 |          |   |   |   |   |
|                                                             | Interest income                        | 48            |                                 | 136           |   | 131 |   | 216 |   |
|                                                             | Interest expense                       | (510          | )                                    | (510          | ) | (1,020 | ) | (1,084 | ) |
|                                                             |                                   |               |                                 |               |   |  |   |  |   |
| **Loss before taxes**                                            | (1,264                                 | )             | (1,925                               | )             | (2,558 | ) | (3,070 | ) |
|                                                             | Provision for taxes                    | -             |                                 | -             |   | - |   | - |   |
|                                                             |                                   |               |                                 |               |   |  |   |  |   |
| **Loss from continuing operations**                              | (1,264                                 | )             | (1,925                               | )             | (2,558 | ) | (3,070 | ) |
| **Income (loss) from discontinued****operations, net of  taxes** | -                                      |     | 34                                   |     | (29 | ) | 11,063 |     |
|                                                             |                                        |          |                                      |          |  |   |  |   |
| **Net income (loss)**                                            | $                                      | (1,264        | )                                    | $             | (1,891 | ) | $ | (2,587 | ) | $ | 7,993 |   |
|                                                             |                                        |          |                                      |          |  |   |  |   |
| **Net income (loss) per share - basic and diluted**              |                                   |          |                                 |          |   |   |   |   |
|                                                             | Continuing operations                  | $             | (0.36                                | )             | $ | (0.57 | ) | $ | (0.73 | ) | $ | (0.76 | ) |
|                                                             | Discontinued operations                | -             |                                 | 0.01          |   | (0.01 | ) | 2.73 |   |
|                                                             |                                   |               |                                 |               |   |  |   |  |   |
|                                                             | Net income (loss)                      | (0.36         | )                                    | (0.56         | ) | (0.74 | ) | 1.97 |   |
|                                                             |                                   |               |                                 |               |   |  |   |  |   |
| **Weighted average common shares outstanding**                   |                                   |          |                                 |          |   |   |   |   |
|                                                             | Basic and diluted                      | 3,482         |                                 | 3,403         |   | 3,482 |   | 4,060 |   |
|                                                             |                                   |               |                                 |               |   |  |   |  |   |

 

See accompanying notes to financialstatements

 

**ANGEION CORPORATION ANDSUBSIDIARIES**

**Consolidated Statements of CashFlows********(unaudited, in thousands)**

|                                                     | **Six Months Ended********June 30,**                                                                                                           |      |
|----------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------|-----------|
|                                                     | ****                                                                                                                                           |      |
|                                                     | **2001**                                                                                                                                       |      | **2000** |   |
|                                                     | ****                                                                                                                                           |      | **** |   |
| **Cash Flows From Operating  Activities:**               |                                                                                                                                           |      |   |   |
|                                                     | Net income (loss)                                                                                                                              | $         | (2,587 | ) | $ | 7,993 |   |
|                                                     | Adjustments to reconcile net  income (loss) to net cash flows used in operating activities, net of  operating assets and liabilities acquired: |      |   |   |   |
|                                                     | (Income) loss from discontinued  operations                                                                                                    | 29        |   | (11,063 | ) |
|                                                     | Depreciation and amortization                                                                                                                  | 984       |   | 915 |   |
|                                                     | Changes in operating assets and  liabilities:                                                                                                  |      |   |   |   |
|                                                     | Accounts receivable                                                                                                                            | 226       |   | 809 |   |
|                                                     | Inventory                                                                                                                                      | (730      | ) | 775 |   |
|                                                     | Prepaid expenses and other  current assets                                                                                                     | (109      | ) | 52 |   |
|                                                     | Accounts payable                                                                                                                               | 24        |   | (675 | ) |
|                                                     | Employee compensation                                                                                                                          | (7        | ) | (298 | ) |
|                                                     | Other liabilities and accrued  expenses                                                                                                        | 234       |   | 119 |   |
|                                                     |                                                                                                                                           |           |   |  |   |
|                                                     | Net cash used in continuing  operations                                                                                                        | (1,936    | ) | (1,373 | ) |
|                                                     | Net cash used in discontinued  operations                                                                                                      | (177      | ) | (3,119 | ) |
|                                                     |                                                                                                                                           |           |   |  |   |
|                                                     | Net cash used in operating  activities                                                                                                         | (2,113    | ) | (4,492 | ) |
|                                                     |                                                                                                                                           |           |   |  |   |
| **Cash Flows From Investing Activities:**                |                                                                                                                                           |      |   |   |
|                                                     | Purchase of equipment and  fixtures                                                                                                            | (43       | ) | (226 | ) |
|                                                     | Investment in proprietary  software                                                                                                            | (300      | ) | (361 | ) |
|                                                     | Acquisition of operating assets                                                                                                                | -         |   | (468 | ) |
|                                                     |                                                                                                                                           |           |   |  |   |
|                                                     | Net cash used in continuing  operations                                                                                                        | (343      | ) | (1,055 | ) |
|                                                     | Net cash provided by discontinued  operations                                                                                                  | 45        |   | 9,083 |   |
|                                                     |                                                                                                                                           |           |   |  |   |
|                                                     | Net cash provided by (used in)  investing activities                                                                                           | (298      | ) | 8,028 |   |
|                                                     |                                                                                                                                           |           |   |  |   |
| **Cash Flows From Financing Activities:**                |                                                                                                                                           |      |   |   |
|                                                     | Borrowings under bank line of credit                                                                                                           | -         |   | 6,927 |   |
|                                                     | Payments under bank line of  credit                                                                                                            | -         |   | (6,927 | ) |
|                                                     | Proceeds from stock transactions                                                                                                               | 14        |   | 24 |   |
|                                                     |                                                                                                                                           |           |   |  |   |
|                                                     | Net cash provided by financing  activities                                                                                                     | 14        |   | 24 |   |
|                                                     |                                                                                                                                           |           |   |  |   |
| **Net increase (decrease) in cash and cash equivalents** | (2,397                                                                                                                                         | )         | 3,560 |   |
| **Cash and cash equivalents at beginning of period**     | 6,350                                                                                                                                          |      | 5,263 |   |
|                                                     |                                                                                                                                                |      |  |   |
| **Cash and cash equivalents at end of period**           | **$**                                                                                                                                          | **3,953** | ** ** | **$** | **8,823** | ** ** |
|                                                     | ****                                                                                                                                           |      | **** |   |
| **Cash paid for interest expense**                       | **$**                                                                                                                                          | **757**   | ** ** | **$** | **812** | ** ** |
|                                                     | ****                                                                                                                                           |      | **** |   |
|                                                          |                                                                                                                                                |           |  |  |  |  |  |  |  |

 

See accompanying notes to financialstatements

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**June 30, 2001(Unaudited)

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

The consolidated balance sheet as of June 30, 2001, the consolidatedstatements of operations and cash flows for the three and six months ended June30, 2001 and 2000, and the related information presented in these notes havebeen prepared by management in accordance with accounting principles generallyaccepted in the United States of America for interim financial information andwith the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, withoutaudit.  Accordingly, they do not includeall of the information and notes required by accounting principles generallyaccepted in the United States of America for complete financialstatements.  In the opinion of management,all adjustments considered necessary for a fair presentation of results havebeen included.  The balance sheet atDecember 31, 2000 was derived from the audited financial statements as of thatdate.  Operating results for the threeand six month periods ended June 30, 2001 are not necessarily indicative of theresults that may be expected for the year ended December 31, 2001.  For further information, refer to thefinancial statements and notes thereto included in Angeion Corporation’s AnnualReport on Form 10-K for the fiscal year ended December 31, 2000.

During March 2000, Angeion Corporation discontinued its historicalbusiness, the research, development, manufacturing and marketing of implantablecardioverter defibrillators (“ICD”). Consequently, the accompanying consolidated statements of operationspresent all activities of the ICD business under discontinued operationsaccounting rules.  Although the lastsales of ICD products were made during the second quarter of 2000, the Companycontinues to pursue the license or transfer of its ICD technology.  As a result of the December 21, 1999acquisition of Medical Graphics Corporation and discontinuance of the ICDbusiness, Medical Graphics now comprises a majority of the Company’s totalassets and generates all of its sales. Moreover, the Company is now focusing its efforts on the markets servedby and business operations of its wholly owned subsidiary, Medical GraphicsCorporation, and the acquisition and development of future businesses that contributeto shareholder value.

Comprehensive income is a measure of all non-owner changes inshareholders’ equity and includes such items as net income, certain foreigncurrency translation items, minimum pension liability adjustments and changesin the value of available-for-sale securities. For the three and six months ended June 30, 2001 and 2000, comprehensiveincome (loss) for Angeion Corporation was equivalent to net income (loss) asreported.

**2.**          **Reclassifications**

Certain amounts in Angeion’s Form 10-Q for the three and six monthsended June 30, 2000 have been reclassified to conform to the 2001presentation.  These reclassificationshad no effect on net income or shareholders’ equity as previously reported.

**3.**          **Net Income (Loss) Per Share**

Basic net income(loss) per share is calculated by dividing net income (loss) by theweighted-average common shares outstanding during the period.  Net income (loss) per share assumingdilution reflects the potential dilution to basic net income per share thatcould occur upon conversion or exercise of securities, options, or other suchitems, to common shares using the if-converted and treasury stock methods basedupon the weighted-average fair value of the Company’s common shares during theperiod.  The Company uses loss fromcontinuing operations as the “control” number in determining whether thesepotential common shares are dilutive or antidilutive because it has reported adiscontinued operation.  Therefore, thesame number of potential common shares used in computing the diluted per-shareamount for income (loss) from continuing operations for a reporting period willbe used in computing all other reported diluted per-share amounts, even ifthese amounts will be antidilutive to their respective basic per-share amounts.

**4.**          **New Accounting Pronouncements**

In July 2001,the FASB issued Statement No. 141, *BusinessCombinations*, and Statement No. 142, *Goodwill and Other Intangible Assets*.  Statement 141 requires that the purchasemethod of accounting be used for all business combinations initiated after June30, 2001 as well as all purchase method business combinations completed afterJune 30, 2001.  Statement 141 alsospecifies the criteria intangible assets acquired in a purchase method businesscombination must meet in order to be recognized and reported apart fromgoodwill, noting that any purchase price allocable to an assembled workforcemay not be accounted for separately. Statement 142 will require that goodwill and intangible assets withindefinite useful lives no longer be amortized, but instead tested forimpairment at least annually in accordance with the provisions of Statement142.  Statement 142 will also requirethat intangible assets with definite useful lives be amortized over theirrespective estimated useful lives to their estimated residual values, andreviewed for impairment in accordance with SFAS No. 121, *Accounting for the Impairment of Long-Lived Assetsand for Long-Lived Assets to Be Disposed Of*.

 

The Company isrequired to adopt the provisions of Statement 141 immediately and Statement 142effective January 1, 2002.  Furthermore,any goodwill and any intangible asset determined to have an indefinite usefullife that are acquired in a purchase business combination completed after June30, 2001 will not be amortized, but will continue to be evaluated forimpairment in accordance with the appropriate pre-Statement 142 accountingliterature.  Goodwill and intangibleassets acquired in business combinations completed before July 1, 2001 willcontinue to be amortized in accordance with their current treatment prior tothe adoption of Statement 142.

Statement 141will require that the Company, upon adoption of Statement 142, evaluate itsexisting intangible assets and goodwill that were acquired in a prior purchasebusiness combination, and to make any necessary reclassifications in order toconform with the new criteria in Statement 141 for recognition apart fromgoodwill.  Upon adoption of Statement142, the Company will be required to reassess the useful lives and residualvalues of all intangible assets acquired in purchase business combinations, andmake any necessary amortization period adjustments by the end of the firstinterim period after adoption.  In addition,to the extent an intangible asset is identified as having an indefinite usefullife, the Company will be required to test the intangible asset for impairmentin accordance with the provisions of Statement 142 within the first interimperiod.  Any impairment loss will bemeasured as of the date of adoption and recognized as the cumulative effect ofa change in accounting principle in the first interim period.

In connectionwith the transitional goodwill impairment evaluation, Statement 142 willrequire the Company to perform an assessment of whether there is an indicationthat goodwill [and equity-method goodwill] is impaired as of the date ofadoption.  To accomplish this theCompany must identify its reporting units and determine the carrying value ofeach reporting unit by assigning the assets and liabilities, including theexisting goodwill and intangible assets, to those reporting units as of thedate of adoption.  The Company will thenhave up to six months from the date of adoption to determine the fair value ofeach reporting unit and compare it to the reporting unit’s carryingamount.  To the extent a reportingunit’s carrying amount exceeds its fair value, an indication exists that thereporting unit’s goodwill may be impaired and the Company must perform thesecond step of the transitional impairment test.  In the second step, the Company must compare the implied fairvalue of the reporting unit’s goodwill, determined by allocating the reportingunit’s fair value to all of it assets (recognized and unrecognized) andliabilities in a manner similar to a purchase price allocation in accordancewith Statement 141, to its carrying amount, both of which would be measured asof the date of adoption.  This secondstep is required to be completed as soon as possible, but no later than the endof the year of adoption.  Anytransitional impairment loss will be recognized as the cumulative effect of achange in accounting principle in the Company’s statement of earnings.

And finally,any unamortized negative goodwill [and negative equity-method goodwill]existing at the date Statement 142 is adopted must be written off as thecumulative effect of a change in accounting principle.

As of the dateof adoption, the Company expects to have unamortized goodwill in the amount of$437,000, and unamortized identifiable intangible assets in the amount of$11,337,000, both of which will be subject to the transition provisions ofStatements 141 and 142.  Amortizationexpense related to goodwill was $37,000 and $15,000 for the year ended December31, 2000 and the six months ended June 30, 2001, respectively.  Because of the extensive effort needed tocomply with adopting Statements 141 and 142, it is not practicable toreasonably estimate the impact of adopting these Statements on the Company’sfinancial statements at the date of this report, including whether anytransitional impairment losses will be required to be recognized as thecumulative effect of a change in accounting principle.

**5.          Other Commitments**

On December 21,2000, as part of its strategy to leverage its core technologies and marketreputation to enter the cardiac rehabilitation and disease prevention market,the Company entered into a letter of intent and term sheet with a Georgiacorporation engaged in the business of developing and delivering riskassessment and lifestyle management materials and services to patients forimproved cardio-vascular health.  Theagreement gives the Company exclusive distribution rights to a cardiacrehabilitation product for testing until July 1, 2001in exchange for paymentsof $750,000 over a six-month period. These payments may be applied, at the Company's discretion toward eitherthe purchase of the cardiac rehabilitation products or equity in the Georgiacorporation.  The agreementautomatically renewed by its terms and now continues on a month-to-month basiswith payments of $100,000 per month until December 31, 2001, unless notice isgiven 60 days prior to a proposed termination date.  The letter of intent and term sheet also defines the generalterms under which the Company has the right, but not the obligation, to acquirethe Georgia corporation during the distribution period.

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

**Forward-Looking Statements**

Statements includedin this Quarterly Report on Form 10-Q that are not historical or current factsare “forward-looking statements” made pursuant to the safe harbor provision ofthe Private Securities Litigation Reform Act of 1995.  The words “believe,” “expect,” “will,” “can,” “estimate,”“anticipate,” and similar expressions are intended to identify forward-lookingstatements.  Forward-looking statementsare subject to certain risks and uncertainties that could cause actual resultsto differ materially, including the factors set forth in the Section entitled“Certain Risk Factors” in Part I, Item 1, “Business” of the Company’s Form 10-Kfor the year ended December 31, 2000 as well as others not nowanticipated.  Various forward-lookingstatements have been made in this Quarterly Report on Form 10-Q and may also bemade in other Angeion reports filed under the Securities Exchange Act of 1934,in its press releases and in other documents. In addition, from time to time, the Company through its management maymake oral forward-looking statements. The Company undertakes no obligation to update any forward-lookingstatement.

**Overview**

Angeion,through its Medical Graphics Corporation subsidiary, develops, manufactures andmarkets non-invasive cardio-respiratory diagnostic systems and related softwarefor the management and improvement of cardio-respiratory health under theMedGraphics trade name.  The primaryMedGraphics products include pulmonary function and cardiopulmonary exercise testingsystems.  Traditionally, Medical Graphics'revenue has been generated from this area.

On December 13,2000, the Company announced that it intended to focus a significant portion ofits resources on the cardiac rehabilitation and disease prevention markets,which are a logical extension of its core diagnostic systems business.  This will add a much larger consumer focusedmarket to the Company's business and if successful, will lessen its dependenceon one-time sales of capital equipment to large medical facilities.  Angeion stated that new product offeringswould build on the Company's core exercise stress testing technologiesincluding expert system software products and its AeroSport metabolic analyzerproducts.

As part of itsstrategy, the Company entered into a letter of intent and term sheet with aGeorgia corporation engaged in the business of developing and delivering riskassessment and lifestyle management materials and services to patients forimproved cardio-vascular health. See Note 5, "Other Commitments" inthis Form 10-Q.

On January 16,2001, the Company announced that Medical Graphics was adding the PersonalDigital CoachÔ to its cardio-respiratory products.  The Personal Digital CoachÔ is a proprietary device that providesverbal feedback to the user regarding exercise intensity.  The Company will market this new product tothe cardiac rehabilitation, fitness club and weight loss industries through anexclusive OEM distribution agreement with a third party.

During thequarter ended June 30, 2001, the Company completed its first sale of the newproduct.  Revenues were not significant.

**Results of Operations**

AngeionCorporation recorded a net loss of $1,264,000 for the three months ended June30, 2001 compared to a net loss of $1,891,000 for the same period in 2000.  These amounts included no income fromdiscontinued operations for the three months ended June 30, 2001 and income of$34,000 from discontinued operations for 2000.

For the sixmonths ended June 30, 2001, the Company recorded a loss of $2,587,000 comparedto net income of $7,993,000 for the same period in 2000.  Net income for 2000 included income fromdiscontinued operations of $11,063,000, which is represented by a one-time gainof $11,696,000, net of taxes, from the non-exclusive licensing of patent rightsand sale of certain assets, offset by $633,000 of discontinued operatingexpenses.

**Revenues**

Revenuesconsist of product sales and service revenues. Product sales reflect sales of Medical Graphic’s non-invasivecardio-respiratory diagnostic systems and related software and aftermarketsales of peripherals and supplies. Service revenues reflect contract revenues from extended warranties,non-warranty service visits and training.

Total revenueincreased 9.4% to $4,224,000 from $3,860,000 for the three months ended June 30,2001 and 2000, respectively.  Theincrease was primarily due to international product revenue, which increased by26.0% to $1,037,000 in 2001 compared to $823,000 in 2000.  Domestic revenue increased by 1.9% to$2,563,000 in 2001 compared to $2,516,000 in 2000.  Service revenue increased by 19.8% to $624,000 in 2001 from$521,000 in 2000.

Theinternational revenue increase for the second quarter reflects the Company’songoing effort to return international revenue to its historical levels.  Second quarter domestic revenue for 2000included $206,000 in sales of sleep diagnostic products, which the Companydiscontinued selling in the second quarter of 2000 in order to focus on otherproducts with larger market sizes and profit potential.  Excluding sales of sleep diagnosticproducts, domestic revenue increased by 11.0% for the three months ended June30, 2001 compared to the same period in 2000. The service revenue increase for the second quarter reflects the Company’ssuccess in placing more emphasis on sales of extended service warranties.

For the sixmonths ended June 30, 2001, total revenue decreased by 5.5% to $8,285,000 in2001 from $8,766,000 in 2000.  Domesticrevenue for the six months ended June 30 decreased 11.2% to $5,036,000 from$5,669,000 in 2001 and 2000, respectively. International revenue increased 5.5% to $1,983,000 from $1,880,000 forthe first six months of 2001 compared to 2000, respectively.  Service revenue increased by 4.0% to$1,266,000 from $1,217,000 for the six months ended June 30, 2001 and 2000,respectively.

Year to daterevenue for 2001 is lower than 2000 due to several events occurring during thefirst quarter of 2000.  For the sixmonths ended June 30, 2001 domestic revenue decreased 11.2% due to 1999software upgrade orders associated with year 2000 compliance and 1999 systemorders that were shipped in the first quarter of 2000.  Moreover, the first six months of 2000included $789,000 in sales from the now discontinued sleep diagnosticsproducts.  Excluding sales of sleep diagnosticproducts, domestic revenue increased by 3.2% for the six months ended June 30,2001 compared to the same period in 2000. The Company’s ongoing focus on rebuilding international markets has morethan offset the first quarter 2001 decrease in international revenue, which wasdue to 1999 orders for system sales that were shipped in the first quarter of2000.  The year to date increase inservice revenue reflects an increase in sales of extended service warrantiesthat has offset the first quarter decrease caused by the carryover ofnon-warranty service calls from 1999 to 2000 due to the heavy demand andlimited resources associated with installation of year 2000 upgrades late in1999.

 

New orders fordomestic systems have increased by 21.7% when comparing the first six months of2001 to 2000.  International orders forsystems have increased by 16.9% when comparing the first six months of 2001 to2000.  In addition, the Company hasdevoted a significant amount of its resources to marketing a new product forthe cardiac rehabilitation and disease prevention markets.  The first sale occurred in the month of June2001.

**Gross Margin**

Gross marginpercentage increased to 43.7% of revenue for the three months ended June 30,2001 compared to 27.0% for the same period of 2000.  For the six months ended June 30, gross margin percentageincreased to 42.5% in 2001 from 33.3% in 2000. The margin increase for both periods reflects a $332,000 reduction inthe 2000 value of sleep diagnostic product inventory in conjunction with thedecision to discontinue distribution of those products.  Moreover, the margin increases also reflectthe impact of cost reduction programs and discontinuance of lower margin sleepdiagnostics products, partially offset by lower sales of high margin softwareupgrade products associated with year 2000 compliance.  The Company does not expect gross marginpercentages to change significantly for the balance of 2001.

**Selling and Marketing**

Selling andmarketing expenses increased 10.5% to $1,332,000 for the three months endedJune 30, 2001 from $1,205,000 in 2000. For the six months ended June 30, selling and marketing expensesincreased 5.0% to $2,482,000 in 2001 from $2,364,000 in 2000.  Both periods reflect increased expensesassociated with the Company’s focus on the cardiac rehabilitation and diseaseprevention markets along with additional costs in support of the focus oninternational revenue.  The year to dateincrease is somewhat offset by lower commissions due to lower year to datedomestic sales, primarily associated with the decrease in sales of sleepdiagnostics products.

**General and Administrative**

General andadministrative expenses decreased by 0.6% to $647,000 for the three monthsended June 30, 2001 from $651,000 in 2000. For the six months ended June 30, general and administrative expensesdecreased 4.4% to $1,297,000 in 2001 from $1,356,000 in 2000.  Higher legal expenses associated withon-going litigation generally offset lower personnel costs and shareholdercommunications expenses for both the quarter and six-month periods.

**Research and Development**

Research anddevelopment expenses decreased by 22.4% to $343,000 from $442,000 for the threemonths ended June 30, 2001 and 2000, respectively.  For the six months ended June 30, research and developmentexpenses decreased 6.7% to $763,000 in 2001 from $818,000 in 2000.  Ongoing expenses associated with the March2000 acquisition of AeroSport products are lower for both the three and sixmonths ended June 30, 2001 compared to 2000. One of the acquired products, which has been repackaged and integrated with newsoftware and hardware, representsa key component in the Company’s current growth initiative for the cardiacrehabilitation and disease prevention markets.

Both the threeand six month periods of 2001 reflect the Company’s now completed transition toa Windows98/NT/2000 platform.  Theexpenses for 2001 also reflect development of new software and hardwareplatforms that address new market requirements such as the Health InsurancePortability and Accountability Act (HIPAA) of 1996 which will become arequirement in 2002 as well as ongoing replacement of older products.  The Company does not expect to change itscurrent level of investment in research and development for the balance of2001.

**Amortization of Intangibles**

Amortization ofintangibles represents the amortization of goodwill and other intangible assetsassociated with acquisitions. Amortization expenses increased by 10.2% to $324,000 from $294,000 forthe three months ended June 30, 2001 and 2000, respectively.  For the six months ended June 30,amortization of intangibles increased 11.9% to $648,000 in 2001 from $579,000in 2000.  The increase in both periodsreflects the acquisition of AeroSport’s technology in March 2000 and thecapitalization of eligible costs associated with on-going enhancement of theCompany’s proprietary software products.

**Other Income (Expense)**

Interest incomedecreased to $48,000 from $136,000 for the three months ended June 30, 2001 and2000, respectively.  Interest income forthe six months ended June 30 decreased to $131,000 in 2001 from $216,000 in2000.  The decrease in interest incomefor both periods reflects lower excess cash balances available for short-terminvestment as well as lower interest rates.

Interestexpense was $510,000 for the three months ended June 30, 2001 and 2000.  For the six months ended June 30, interestexpense decreased to $1,020,000 in 2001 from $1,084,000 in 2000.  The decrease reflects the minimum interestcharges incurred during the first quarter of 2000 for the Medical Graphics bankline of credit that expired by its terms on March 31, 2000.

 

**Income From Discontinued Operations**

Income fromdiscontinued operations of $11,063,000 for the six months ended June 30, 2000,includes a one-time gain of $11,696,000, net of taxes, related to thenon-exclusive licensing of patent rights and sale of certain assets.  The gain was partially offset by $593,000 ofrental expenses associated with the building previously used for ICD productsas well as other expenses of $40,000 related to discontinued operations.

**Liquidity and Capital Resources**

The Company hadcash of $3,953,000 and working capital of $10,042,000 as of June 30, 2001.  During the six months ended June 30, 2001,the Company used $2,113,000 in cash for continuing operations.  The principal uses of cash included net lossbefore depreciation and amortization of $1,603,000 and increases in inventoryand prepaid expenses of $730,000 and $109,000, respectively.  These uses of cash were offset by a $226,000decrease in accounts receivable and an increase of $234,000 in otherliabilities and accrued expenses.  Inaddition, the Company used $177,000 in cash for discontinued operations, whichincluded $145,000 for rental of the facility formerly used for the Company’sICD products.

During the sixmonths ended June 30, 2001, the Company used $298,000 in cash for investingactivities.  Cash was used to increasethe Company’s investment in proprietary software by $300,000 and to purchase$43,000 of equipment and fixtures.  Cashof $45,000 was generated from the sale of assets related to discontinuedoperations.

At June 30,2001 the Company had no material commitments for capital expenditures.  The Company believes that its cash flows fromoperations together with its existing cash will be adequate to satisfy itsliquidity and capital resource needs through June 2002.

**Item 3.  Quantitativeand Qualitative Disclosures About Market Risk**

The Companyinvests its cash in money market instruments or short-term investment gradesecurities.  The Company believes that adecrease of 100 basis points in prevailing interest rates would not have anadverse effect on its net income or financial position.

The Company’sproduct sales outside the United States are denominated in United Statesdollars.  Accordingly, the Companybelieves its exposure to foreign exchange rate fluctuation is minimal.

**PART II - OTHER INFORMATION**

**Item 1.  LegalProceedings**

***Note Holder Litigation***

On September24, 1999, U.S. Bank National Association, as Trustee on behalf of holders ofAngeion 71⁄2% Senior Convertible Notes due April 2003 brought suit against theCompany in Hennepin County District Court in the State of Minnesota.  The lawsuit sought injunctive relief, adeclaratory judgment, and breach of contract and related relief, alleging thatcertain actions taken by Angeion in 1998 and 1999 constituted a sale of all orsubstantially all of Angeion’s assets, and thereby constituted a DesignatedEvent under terms of the Indenture governing the Notes, thereby requiringrepayment of the Notes.

On November 30,1999, the District Court denied the Trustee’s request for a temporaryinjunction in this matter.  On February7, 2000, the District Court dismissed the suit against Angeion, ruling thatthese transactions did not constitute the sale of all or substantially all ofthe assets of Angeion, that no Designated Event had occurred, and that the Noteholders were not entitled to prepayment of their Notes.  The Trustee appealed both Orders to theMinnesota Court of Appeals.

On August 15,2000, the Minnesota Court of Appeals upheld the decision of the District Courtdenying injunctive relief, but ruled that the District Court determination thatthe transaction did not constitute a sale of all or substantially all of theassets of Angeion was premature and reversed and remanded the case for furtherdiscovery on that issue.  The Court ofAppeals also stated that the sale or license of patent rights could constitutea sale of all or substantially all of the assets of a corporation.  The Court of Appeals also determined,however, that a January 1999 Restructuring, an April 1999 Restructuring and theentering into a May 1999 Withdrawal Agreement did not convey, transfer, orlease assets and that therefore, as a matter of law these actions could nottrigger an obligation to make a repurchase offer.

On September14, 2000, Angeion petitioned the Minnesota Supreme Court for review of thedecision of the Court of Appeals.  In anorder dated October 25, 2000, Angeion’s petition for further review wasdenied.  Accordingly, the case has beenreturned to the District Court for further discovery.  Discovery has been conducted since that date.

The case isscheduled for trial in May 2002.

***Other Legal Matters***

The Company isalso subject to certain claims and lawsuits that have been filed in theordinary course of business.  It ismanagement’s opinion that the settlement of all litigation arising in theordinary course of business would not have a material effect on the financialposition of the Company.

**Item 2.  Changes inSecurities and Use of Proceeds**

None.

**Item 3.  Defaults UponSenior Securities**

None.

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

None

**Item 5.  OtherInformation**

None

**Item 6.  Exhibits andReports on Form 8-K**

(a)         Exhibits List

None

(b)        Reports on Form 8-K

             No reports on Form 8-K were filedduring the three months ended June 30, 2001.

**SIGNATURES**

In accordancewith the requirements of the Exchange Act, the registrant caused this report tobe signed on its behalf by the undersigned, thereunto duly authorized.

|   |            |   | Angeion Corporation                                                                                                  |
|--------|-----------------|--------|----------------------------------------------------------------------------------------------------------------------|
|   |            |   |                                                                                                                      |
|   |            |   | (Registrant)                                                                                                         |
| Date:  | August 10, 2001 |   | /s/ Richard E. Jahnke                                                                                                |
|   |                 |   |                                                                                                                      |
|   |            |   |  Richard E. Jahnke, President and ChiefExecutive Officer  (Principal Executive Officer)     |
|   |            |   |                                                                                                                 |
|   |            |   |                                                                                                                 |
| Date:  | August 10, 2001 |   | /s/ Dale H. Johnson                                                                                                  |
|   |                 |   |                                                                                                                      |
|   |            |   |  Dale H. Johnson, Chief Financial Officer(Chief Accounting Officer)                                             |