###### ** **

**UNITED STATES**

**SECURITIES AND 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 July 31,  2003**                                                                                                                                                       |
|                                                                                                                                                                                                    |                                                                                    |
| **OR**                                                                                                                                                                                                  |
|                                                                                                                                                                                                    |                                                                                    |
| **o**                                                                                                                                                                                                   | **Transition  report under Section 13 or 15(d) of the Exchange Act.**                   |
|                                                                                                                                                                                                    |                                                                                    |
| **For the transition period from                 to               .** |

 

## **Commissionfile number 001-13543**

 

## **Angeion Corporation**

(Exact name of small business issuer as specified in its charter)

 

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

 

# **350 Oak Grove Parkway, Saint Paul, Minnesota55127-8599**

(Address of principal executive offices)

 

**(651) 484-4874**

(Issuer’s telephone number, including area code)

 

Check whether the registrant filed all documents and reports requiredto be filed by Section 12, 13 or 15(d) of the Exchange Act of 1934 afterdistribution of securities under a plan confirmed by a court:

Yes   ý                          No                                o

 

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

Yes   ý                          No                                o

 

The Company had 3,594,433shares of common stock, $0.10 par value, outstanding as of September 4, 2003.

 

 

----

 

**PART I - FINANCIAL INFORMATION**

 

**Item 1. Financial Statements**

 

**ANGEION CORPORATION AND SUBSIDIARIES**

 

**Consolidated Balance Sheets**

**July 31, 2003 and October 31, 2002**

(in thousands except share and per share data)

 
|                                                                                                  |   | **Successor Company** |       |
|-------------------------------------------------------------------------------------------------------|--------|-----------------------|------------|
|                                                                                                  |   | **July 31,  2003**    |       | **October 31,  2002** |   |
|                                                                                                  |   | **(unaudited)**       |       |   |   |
| **Assets**                                                                                            |   |                  |       |   |   |
| **Current assets:**                                                                                   |   |                  |       |   |   |
| Cash and cash equivalents                                                                             |   | $                     | 3,573      |   | $ | 4,434 |   |
| Accounts receivable, net of allowance for doubtful accounts of $404  and $312, respectively           |   | 3,315                 |       | 2,687 |   |
| Inventories                                                                                           |   | 3,015                 |       | 3,470 |   |
| Prepaid expenses and other current assets                                                             |   | 321                   |       | 123 |   |
| Total current assets                                                                                  |   | 10,224                |       | 10,714 |   |
|                                                                                                  |   |                  |       |   |   |
| Property and equipment, net                                                                           |   | 1,730                 |       | 2,164 |   |
| Intangible assets, net                                                                                |   | 7,632                 |       | 8,250 |   |
|                                                                                                  |   | **$**                 | **19,586** |   | **$** | **21,128** | ** ** |
|                                                                                                  |   |                  |       |   |   |
| **Liabilities and Shareholders’  Equity**                                                        |   |                  |       |   |   |
| **Current liabilities:**                                                                              |   |                  |       |   |   |
| Accounts payable                                                                                      |   | $                     | 1,123      |   | $ | 964 |   |
| Employee compensation                                                                                 |   | 689                   |       | 439 |   |
| Deferred income                                                                                       |   | 1,058                 |       | 811 |   |
| Warranty reserve                                                                                      |   | 120                   |       | 111 |   |
| Other liabilities and accrued expenses                                                                |   | 628                   |       | 897 |   |
| Total current liabilities                                                                             |   | 3,618                 |       | 3,222 |   |
|                                                                                                  |   |                  |       |   |   |
| **Shareholders’ equity:**                                                                        |   |                  |       |   |   |
| Common stock, $0.10 par value, authorized 25,000,000 shares, issued  and outstanding 3,594,433 shares |   | 359                   |       | 359 |   |
| Additional paid-in capital                                                                            |   | 17,547                |       | 17,547 |   |
| Accumulated deficit                                                                                   |   | (1,938                | )          | — |   |
| Total shareholders’ equity                                                                       |   | 15,968                |       | 17,906 |   |
|                                                                                                  |   | **$**                 | **19,586** |   | **$** | **21,128** | ** ** |

 

See accompanying notes to consolidated financial statements

 

2

----

 

**ANGEION CORPORATION AND SUBSIDIARIES**

 

**Consolidated Statements of Operations**

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

 
|                                           |   | **Successor  Company**           |       | **Predecessor  Company**        |       | **Successor  Company** |       | **Predecessor  Company** |       |
|------------------------------------------------|--------|----------------------------------|------------|---------------------------------|------------|------------------------|------------|--------------------------|------------|
|                                           |   | **Three Months Ended  July 31,** |       | **Nine Months Ended  July 31,** |       |
|                                           |   | **2003**                         |       | **2002**                        |       | **2003**               |       | **2002**                 |       |
| **Revenues**                                   |   |                             | ** ** |                            | ** ** |                   | ** ** |                     | ** ** |
| Equipment and supply sales                     |   | $                                | 3,774      |                            |       | $                      | 3,452      |                     | $          | 11,495 |   |   | $ | 10,451 |   |
| Service revenue                                |   | 777                              |       |                            | 736        |                   | 2,245      |                     |       | 2,188 |   |
|                                           |   | 4,551                            |       |                            | 4,188      |                   | 13,740     |                     |       | 12,639 |   |
| **Cost of goods sold**                         |   |                             |       |                            |       |                   |       |                     |       |   |   |
| Cost of equipment and supplies                 |   | 2,424                            |       |                            | 2,432      |                   | 7,306      |                     |       | 7,142 |   |
| Cost of service revenue                        |   | 178                              |       |                            | 144        |                   | 550        |                     |       | 365 |   |
|                                           |   | 2,602                            |       |                            | 2,576      |                   | 7,856      |                     |       | 7,507 |   |
|                                           |   |                             |       |                            |       |                   |       |                     |       |   |   |
| **Gross margin**                               |   | 1,949                            |       |                            | 1,612      |                   | 5,884      |                     |       | 5,132 |   |
|                                           |   |                             |       |                            |       |                   |       |                     |       |   |   |
| **Operating expenses:**                        |   |                             |       |                            |       |                   |       |                     |       |   |   |
| Selling and marketing                          |   | 1,363                            |       |                            | 1,272      |                   | 4,135      |                     |       | 3,908 |   |
| General and administrative                     |   | 597                              |       |                            | 666        |                   | 1,880      |                     |       | 1,894 |   |
| Research and development                       |   | 420                              |       |                            | 292        |                   | 1,163      |                     |       | 992 |   |
| Amortization of intangibles                    |   | 206                              |       |                            | 180        |                   | 618        |                     |       | 595 |   |
| Impairment loss on intangible assets           |   | —                           |       |                            | 1,085      |                   | —     |                     |       | 1,085 |   |
| Reorganization items                           |   | —                           |       |                            | 273        |                   | —     |                     |       | 273 |   |
|                                           |   | 2,586                            |       |                            | 3,768      |                   | 7,796      |                     |       | 8,747 |   |
|                                           |   |                             |       |                            |       |                   |       |                     |       |   |   |
| **Operating loss**                             |   | (637                             | )          |                            | (2,156     | )                      | (1,912     | )                        |       | (3,615 | ) |
|                                           |   |                             |       |                            |       |                   |       |                     |       |   |   |
| **Other income (expense):**                    |   |                             |       |                            |       |                   |       |                     |       |   |   |
| Interest income                                |   | 6                                |       |                            | 2          |                   | 24         |                     |       | 12 |   |
| Interest expense                               |   | —                           |       |                            | (197       | )                      | —     |                     |       | (1,217 | ) |
|                                           |   |                             |       |                            |       |                   |       |                     |       |   |   |
| **Loss before taxes**                          |   | (631                             | )          |                            | (2,351     | )                      | (1,888     | )                        |       | (4,820 | ) |
|                                           |   |                             |       |                            |       |                   |       |                     |       |   |   |
| Tax benefit                                    |   | —                           |       |                            | —     |                   | —     |                     |       | (92 | ) |
|                                           |   |                             |       |                            |       |                   |       |                     |       |   |   |
| **Loss from continuing operations**            |   | (631                             | )          |                            | (2,351     | )                      | (1,888     | )                        |       | (4,728 | ) |
|                                           |   |                             |       |                            |       |                   |       |                     |       |   |   |
| **Loss from discontinued operations**          |   | (50                              | )          |                            | —     |                   | (50        | )                        |       | (678 | ) |
|                                           |   |                             |       |                            |       |                   |       |                     |       |   |   |
| **Net loss**                                   |   | $                                | (681       | )                               |       | $                      | (2,351     | )                        | $          | (1,938 | ) |   | $ | (5,406 | ) |
|                                           |   |                             |       |                            |       |                   |       |                     |       |   |   |
| **Net loss per share - basic and diluted**     |   |                             |       |                            |       |                   |       |                     |       |   |   |
| Continuing operations                          |   | $                                | (0.18      | )                               |       | $                      | (0.65      | )                        | $          | (0.53 | ) |   | $ | (1.32 | ) |
| Discontinued operations                        |   | (0.01                            | )          |                            | —     |                   | (0.01      | )                        |       | (0.19 | ) |
| Net loss                                       |   | $                                | (0.19      | )                               |       | $                      | (0.65      | )                        | $          | (0.54 | ) |   | $ | (1.51 | ) |
|                                           |   |                             |       |                            |       |                   |       |                     |       |   |   |
| **Weighted average common shares outstanding** |   |                             |       |                            |       |                   |       |                     |       |   |   |
| Basic and diluted                              |   | 3,594                            |       |                            | 3,595      |                   | 3,594      |                     |       | 3,586 |   |

 

See accompanying notes to consolidated financial statements

 

3

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**ANGEION CORPORATION AND SUBSIDIARIES**

 

**Consolidated Statements of Cash Flows**

**(unaudited, in thousands)**

 
|                                                                                             |   | **Successor  Company**          |      | **Predecessor  Company** |   |
|--------------------------------------------------------------------------------------------------|--------|---------------------------------|-----------|--------------------------|--------|
|                                                                                             |   | **Nine Months Ended  July 31,** |      |
|                                                                                             |   | **2003**                        |      | **2002**                 |   |
| **Cash Flows From Operating Activities:**                                                        |   |                            |      |                     |   |
| Net loss                                                                                         |   | $                               | (1,938    | )                        |   | $ | (5,406 | ) |
| Adjustments to reconcile net loss to net cash flows provided by (used  in) operating activities: |   |                            |      |                     |   |   |
| Loss from discontinued operations                                                                |   | 50                              |      |                     | 678    |   |
| Depreciation and amortization                                                                    |   | 1,086                           |      |                     | 1,070  |   |
| Impairment loss on intangible assets                                                             |   | —                          |      |                     | 1,085  |   |
| Reorganization items                                                                             |   | —                          |      |                     | 273    |   |
| Changes in operating assets and liabilities:                                                     |   |                            |      |                     |   |   |
| Accounts receivable                                                                              |   | (628                            | )         |                     | 728    |   |
| Inventories                                                                                      |   | 455                             |      |                     | 805    |   |
| Prepaid expenses and other current assets                                                        |   | (198                            | )         |                     | 741    |   |
| Accounts payable                                                                                 |   | 159                             |      |                     | 77     |   |
| Employee compensation                                                                            |   | 250                             |      |                     | (215   | ) |
| Deferred income                                                                                  |   | 247                             |      |                     | (29    | ) |
| Warranty reserve                                                                                 |   | 9                               |      |                     | (65    | ) |
| Other liabilities and accrued expenses                                                           |   | (269                            | )         |                     | 704    |   |
| Net cash provided by (used in) continuing operations                                             |   | (777                            | )         |                     | 446    |   |
| Net cash used in discontinued operations                                                         |   | (50                             | )         |                     | (301   | ) |
| Net cash provided by (used in) operating activities                                              |   | (827                            | )         |                     | 145    |   |
|                                                                                             |   |                            |      |                     |   |   |
| **Cash Flows From Investing Activities:**                                                        |   |                            |      |                     |   |   |
| Purchase of property and equipment                                                               |   | (34                             | )         |                     | (71    | ) |
| Investment in proprietary software                                                               |   | —                          |      |                     | (441   | ) |
| Investment in perpetual license                                                                  |   | —                          |      |                     | (70    | ) |
| Net cash used in continuing operations                                                           |   | (34                             | )         |                     | (582   | ) |
| Net cash provided by discontinued operations                                                     |   | —                          |      |                     | 13     |   |
| Net cash used in investing activities                                                            |   | (34                             | )         |                     | (569   | ) |
|                                                                                             |   |                            |      |                     |   |   |
| **Cash Flows From Financing Activities:**                                                        |   |                            |      |                     |   |   |
| Proceeds from stock transactions                                                                 |   | —                          |      |                     | 21     |   |
| Net cash provided by financing activities                                                        |   | —                          |      |                     | 21     |   |
|                                                                                             |   |                            |      |                     |   |   |
| **Net decrease in cash and cash equivalents**                                                    |   | (861                            | )         |                     | (403   | ) |
|                                                                                             |   |                            |      |                     |   |   |
| **Cash and cash equivalents at beginning of period**                                             |   | 4,434                           |      |                     | 2,019  |   |
|                                                                                             |   |                            |      |                     |   |   |
| **Cash and cash equivalents at end of period**                                                   |   | **$**                           | **3,573** | ** **               |   | **$** | **1,616** | ** ** |

 

See accompanying notes to consolidated financial statements

 

4

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**NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS**

July 31, 2003

(Unaudited)

 

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

 

Theconsolidated balance sheet as of July 31, 2003, the consolidated statements ofoperations for the three and nine months ended July 31, 2003 and 2002 and theconsolidated statements of cash flows for the nine months ended July 31, 2003and 2002, and the related information presented in these notes have beenprepared by management in accordance with accounting principles generallyaccepted in the United States of America for interim financial information andwith the instructions to Form 10-QSB 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 ofmanagement, all adjustments considered necessary for a fair presentation ofresults have been included.  Theconsolidated balance sheet at October 31, 2002 was derived from the auditedconsolidated financial statements as of that date.  Operating results for the three and nine months ended July 31,2003 are not necessarily indicative of the results that may be expected for theyear ending October 31, 2003.  Forfurther information, refer to the consolidated financial statements and notesthereto included in Angeion Corporation’s Annual Report on Form 10-KSB for thetransition period ended October 31, 2002.

 

During March2000, Angeion Corporation discontinued its historical business, the research,development, manufacturing and marketing of implantable cardioverterdefibrillators (“ICD”).  Consequently,the accompanying consolidated statements of operations present all activitiesof the ICD business as discontinued operations.  Although the last sales of ICD products were made during thesecond quarter of 2000, the Company continues to pursue the license or transferof its ICD technology.

 

Comprehensiveincome is a measure of all non-owner changes in shareholders’ equity andincludes such items as net income, certain foreign currency translation items,minimum pension liability adjustments and changes in the value ofavailable-for-sale securities.  For thethree and nine months ended July 31, 2003 and 2002, comprehensive loss forAngeion Corporation was equivalent to net loss as reported.

 

**2.****                                      Reorganization**

 

***Reorganization UnderChapter 11.*** On June 17, 2002, the Company filed a voluntary petition for reliefunder Chapter 11 of the United States Bankruptcy Code in the United StatesBankruptcy Court for the District of Minnesota, Third Division (the “Court”)under case number 02-32260.  The filingwas done jointly with the holders of the Company’s 7 1/2% Senior ConvertibleNotes due April 2003 (“Notes”) and included a jointly submitted Plan ofReorganization (the “Plan”).  Thetransaction was implemented as a Chapter 11 Bankruptcy filing for the purposeof enabling the Company and the noteholders to accomplish the restructuring ina controlled manner and to enable the Company to retain a net operating losscarry forward of approximately $128 million out of the $133 millionpre-bankruptcy net operating loss carry forward.  During the bankruptcy period, the Company continued to operate asdebtor-in-possession.  Asdebtor-in-possession, the Company operated as an ongoing business, but couldnot engage in transactions outside the ordinary course of business withoutapproval of the Bankruptcy Court.  TheCompany’s subsidiary, Medical Graphics Corporation, was not part of the Chapter11 filing and continued to transact business as usual during the bankruptcyperiod.

 

On October 24,2002, the Court entered an order confirming the Joint Modified Plan ofReorganization dated September 4, 2002. The Plan became effective October 25, 2002, the next business day.

 

5

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As of June 17, 2002, the date the petition was filed with the Court,there were 3,594,627 shares of the Company’s common stock issued andoutstanding (the “Old Common Stock”). As a result of the Plan, all of the Company’s Old Common Stock wascanceled and all options and warrants to purchase the Company’s Old CommonStock existing as of the petition date were canceled.  To effectuate the Plan, the Company issued a total of 3,594,433shares of its common stock (i) upon conversion of the Notes and other obligationsto equity and (ii) in replacement of the Old Common Stock (the “ReplacementCommon Stock”).  The difference betweenthe 3,594,433 shares actually issued under the Plan and the 3,594,627 sharesoutstanding as of June 17, 2002 reflects a reduction of 194 shares representingfractional shares that were not issued under the Plan.

 

Under thePlan, each holder of the Company’s Notes and each holder of certain otherunsecured claims received such holder’s pro rata share of 95% of theReplacement Common Stock.  Each holderof the Company’s Old Common Stock received a pro rata share of 5% of theReplacement Common Stock and one common stock purchase warrant for each shareof Replacement Common Stock (the “New Warrants”).  For each 20 shares of Old Common Stock owned prior to the Planconfirmation date, shareholders received one share of Replacement Common Stockand one New Warrant to purchase one share of Replacement Common Stock at $7.79per share.  The New Warrants expire onOctober 31, 2007, and are subject to redemption at the Company’s option for$.01 per Warrant at any time after January 1, 2004, provided that the closingprice of the common stock exceeds $9.73 (subject to adjustment) for tenconsecutive trading days after January 1, 2004 and during the term of theWarrants.

 

**3.****                                      AccountingPolicies**

 

***Basis of Presentation.*** The consolidated financial statementscontained in this report reflect the accounting principles set forth inStatement of Position 90-7, *“FinancialReporting by Entities in Reorganization Under the Bankruptcy Code”*(“SOP 90-7”).  This statement providesguidance for financial reporting by entities that have filed voluntarypetitions for relief under and have reorganized in accordance with thebankruptcy code.  In accordance withfresh-start reporting, the reorganization value of the entity is to bedetermined and allocated to the entity’s assets in conformity with purchaseaccounting guidelines.  All assets andliabilities are to be recorded at their respective fair values.  Adopting fresh-start reporting results in anew reporting entity with no beginning retained earnings or deficit.  SOP 90-7 further states that fresh-startfinancial statements prepared by entities emerging from bankruptcy will not becomparable with those prepared before their plans were confirmed because theyare, in effect, those of a new entity. Among other things, a black line is to be drawn in the financialstatements to distinguish between the pre-reorganization entity (“PredecessorCompany”) and the post-reorganization entity (“Successor Company”).  Consequently, after giving effect toreorganization and fresh-start adjustments, the financial statements of aSuccessor Company are deemed not comparable to those of a PredecessorCompany.  For financial reporting purposes,the results of the Predecessor Company and the Successor Company cannot becombined.

 

***Stock BasedCompensation.*** In December 2002, the FASB issued SFAS No. 148, *Accounting for Stock-Based Compensation – Transitionand Disclosure*.  SFAS No. 148provides alternative methods of transition for a voluntary change to the fairvalue based method of accounting for stock-based employee compensation.  In addition, SFAS No. 148 amends thedisclosure requirements of SFAS No. 123 to require prominent disclosures inboth annual and interim financial statements about the method of accounting forstock-based employee compensation and the effect of the method used on reportedresults.  The Company does not plan tochange its method of accounting for stock-based employee compensation.  The Company was required to provide theinterim disclosures effective with its second quarter ended April 30,2003.  These Notes to ConsolidatedFinancial Statements do not contain pro forma disclosures because the Companyhas not granted any options during the three and nine months ended July 31,2003 and there are no options outstanding at July 31, 2003.

 

6

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***Fresh-Start Reporting. ***The effectivedate of the Company’s emergence from bankruptcy was October 25, 2002.  For accounting purposes, the Company adoptedfresh-start reporting in accordance with SOP 90-7 as of October 31, 2002.  In accordance with fresh-start reporting,all assets and liabilities were recorded at their respective fair values.  An independent third-party appraiserdetermined the fair values of substantially all of the Company’s tangible andintangible assets.

 

All financial information prior to October 31, 2002 is presented as pertaining to the Predecessor Company while all financial information presented as of and after October 31, 2002 is presented as pertaining to the Successor Company.  Accordingly, the Consolidated Financial Statements present information pertaining to both the Predecessor Company and the Successor Company.  Tabular presentations in these Notes to Consolidated Financial Statements may include data pertaining to both the Predecessor Company and the Successor Company.  Accordingly, a black line has been drawn in the financial statements to distinguish between the Predecessor Company and Successor Company.

 

***Fiscal Year Change. ***On November 13, 2002, the Company’s Board of Directors changed theCompany’s fiscal year from December 31 to October 31 to coincide with customerbuying patterns of the Medical Graphic’s medical equipment business and the NewLeaf health and fitness product business. The change also enables the Company to report its results in the futureon a comparable basis as a result of the fresh start reporting that wasrequired in conjunction with the Company’s emergence from Chapter 11bankruptcy.

 

**4.****                                      IntangibleAssets**

 

As discussedin Note 3, “Accounting Policies,” the Company adopted fresh-start reporting asdescribed in SOP 90-7 under which the Company’s assets are to be recorded attheir respective fair values.  Anindependent third-party appraiser determined the fair values of the Company’sintangible assets as of October 31, 2002. Accordingly, all intangible assets have been valued at fair value as ofthe date of fresh-start reporting, October 31, 2002.  Intangible assets as of July 31, 2003 consisted of the following:

 
| **(In thousands)**             |   | **Gross  Carrying  Amount** |   | **Accumulated  Amortization** |   | **Intangible  Assets, net** |   |
|--------------------------------|--------|-----------------------------|--------|-------------------------------|--------|-----------------------------|--------|
|                           |   |                        |   |                          |   |                        |   |
| Amortized developed technology |   | $                           | 7,250  |                          | $      | 618                         |   | $ | 6,632 |   |
|                           |   |                        |   |                          |   |                        |   |
| Unamortized trade name         |   | 1,000                       |   | —                        |   | 1,000                       |   |
|                           |   | $                           | 8,250  |                          | $      | 618                         |   | $ | 7,632 |   |

 

7

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Amortization expense was $618,000 and $595,000 for the nine monthsended July 31, 2003 and 2002, respectively. Amortization expense was $636,000 for the ten-month transition periodended October 31, 2002.  Intangibleassets for the Predecessor Company were amortized using the straight-linemethod over the estimated useful lives of the assets that ranged from three totwelve years.  The revalued intangibleassets for the Successor Company are being amortized using the straight-linemethod over the estimated useful lives of the assets that range from seven toten years.  Estimated amortizationexpense for the remainder of fiscal year 2003 and for each of the succeedingyears based on the intangible assets as of July 31, 2003 is as follows:

 
| **(In thousands)**                   |   | **Amortization** |   |
|--------------------------------------|--------|------------------|--------|
| Three months ending October 31, 2003 |   | $                | 206    |   |
| 2004                                 |   | 824              |   |
| 2005                                 |   | 824              |   |
| 2006                                 |   | 824              |   |
| 2007                                 |   | 824              |   |
| Thereafter                           |   | 3,130            |   |
|                                 |   | $                | 6,632  |   |

 

On January 1, 2002, new accounting rules forbusiness combinations and accounting for goodwill and other intangibles (SFASNos. 141 and 142) became effective for the Company.  Accordingly, goodwill, trade name and assembled workforce are nolonger being amortized against earnings. The following table discloses reported net loss and net loss per shareand the adjusted net loss amounts that would have been reported assuming thatSFAS No. 142 were to have been effective for all reported periods.

 
| **(In thousands, except for  per share amounts)** |   | **Three  Months Ended  July 31,** |   | **Nine  Months Ended  July 31,** |   |
|---------------------------------------------------|--------|-----------------------------------|--------|----------------------------------|--------|
| **2003**                                          |   | **2002**                          |   | **2003**                         |   | **2002** |
| **Net loss, as reported**                         |   | $                                 | (681   | )                                | $      | (2,351 | ) | $ | (1,938 | ) | $ | (5,406 | ) |
| Add back amortization:                            |   |                              |   |                             |   |   |   |   |   |
| Goodwill                                          |   | —                            |   | —                           |   | — |   | 6 |   |
| Trade name                                        |   | —                            |   | —                           |   | — |   | 50 |   |
| Assembled workforce                               |   | —                            |   | —                           |   | — |   | 53 |   |
| **Net loss, as adjusted**                         |   | $                                 | (681   | )                                | $      | (2,351 | ) | $ | (1,938 | ) | $ | (5,297 | ) |
|                                              |   |                              |   |                             |   |   |   |   |   |
| Net loss per share, basic and diluted:            |   |                              |   |                             |   |   |   |   |   |
| **Net loss per share, as reported**               |   | $                                 | (0.19  | )                                | $      | (0.65 | ) | $ | (0.54 | ) | $ | (1.51 | ) |
| Add back amortization:                            |   |                              |   |                             |   |   |   |   |   |
| Goodwill                                          |   | —                            |   | —                           |   | — |   | — |   |
| Trade name                                        |   | —                            |   | —                           |   | — |   | 0.01 |   |
| Assembled workforce                               |   | —                            |   | —                           |   | — |   | 0.02 |   |
| **Net loss per share, as adjusted**               |   | $                                 | (0.19  | )                                | $      | (0.65 | ) | $ | (0.54 | ) | $ | (1.48 | ) |

 

**5.****                                      WarrantyReserve**

 

Sales of theCompany’s equipment are subject to a warranty. Equipment warranties typically extend for a period of twelve months fromthe date of installation.  Standardwarranty terms are included in customer contracts.  Under the terms of these warranties, the Company is obligated torepair or replace any components or assemblies that it deems defective inworkmanship or materials.  The Companyreserves the right to reject warranty claims where it determines that failureis due to normal wear, customer modifications, improper

 

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maintenance or misuse.  The Company adjusts the warranty reservebased on the number and type of equipment that is subject to warranty, adjustedfor the remaining months of warranty coverage. The warranty reserve adjustment reflects the Company’s historicalwarranty experience based on type of equipment.  Warranty expenses are evaluated and adjusted periodically.  Warranty provisions and expenses for thenine months ended July 31, 2003 were as follows:

 
| **(In thousands)**       |   | **Warranty  Reserve** |   |
|--------------------------|--------|-----------------------|--------|
| Balance October 31, 2002 |   | $                     | 111    |   |
| Warranty provisions      |   | 169                   |   |
| Warranty expenses        |   | (160                  | )      |
| Balance July 31, 2003    |   | $                     | 120    |   |

 

**6.****                                      Reclassifications**

 

Certainamounts in Angeion’s consolidated financial statements for the three and ninemonths ended July 31, 2002 have been reclassified to conform to the 2003presentation.  These reclassificationshad no effect on net loss or shareholders’ equity.

 

**7.****                                      NetLoss Per Share**

 

Basic loss pershare is computed by dividing net loss by the weighted average sharesoutstanding during the reporting period. Diluted loss per share is computed similar to basic loss per shareexcept that the weighted average shares outstanding are increased to includeadditional shares from the assumed exercise of stock options and warrants, ifdilutive.  The number of additionalshares is calculated by assuming that outstanding stock options or warrantswere exercised and that the proceeds from such exercise were used to acquireshares of common stock at the average market price during the reportingperiod.  There were no dilutive commonshares outstanding for the three and nine months ended July 31, 2003 and 2002.  The Company had warrants outstanding at July31, 2003 to purchase 179,537 shares of its common stock that were consideredantidilutive and therefore not considered to have been exercised.

 

**8.****                                      Noticefor Indemnification**

 

Prior to 2000,the Company designed,developed, manufactured and marketed implantable cardioverter defibrillator(“ICD”) products.  ICD’s are designed totreat abnormally rapid heartbeats in the ventricular (or lower) chambers of theheart, a condition known as ventricular tachycardia (“VT”), and a severe formof VT known as ventricular fibrillation (“VF”), that if not terminated willlead to sudden cardiac death.  ICD’s areelectronic devices that are implanted within the body and are connected to theheart with defibrillator leads. These devices monitor the patient’s heartbeatand, in the event of VT or VF, deliver an electrical shock designed to returnthe heartbeat to normal rhythm.

 

On December 9,1997, Angeion entered into a Manufacturing and Supply Agreement with respect toICD’s with Angellan Medical Systems, LLC, a Delaware limited liability companythat was a Joint Venture between Angeion and ELA Medical, Inc. (the JointVenture was later known as ELA*Angeion, LLC) and combined the United Statessales and marketing efforts of Angeion and ELA Medical, Inc.  On the same date, Angeion entered into a Manufacturingand Supply Agreement with respect to the ICD’s with ELA Medical, S.A., underwhich Angeion agreed to sell ICD’s to ELA Medical, S.A. for sale in theEuropean and Japanese markets.  Theseagreements are collectively referred to as the “1997 Supply Agreements.”

 

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On May 11, 1999, Angeionentered into a withdrawal agreement (“Withdrawal Agreement”) pursuant to whichAngeion withdrew from its membership in the Joint Venture.  Under the terms of the Withdrawal Agreement,ELA Medical, Inc. received sole responsibility for operations of the JointVenture.  In addition, ELA Medical, Inc.assumed certain warranty coverage, technical service and regulatory complianceservices for which Angeion was responsible under (i) applicable law, (ii) theDecember 9, 1997 supply agreement between Angeion and the Joint Venture, and(iii) contracts with third parties for specific ICD products and associatedleads and programmers supplied to such third parties and implanted in humanbeings in the United States (including associated programmers for such ICDmodels).  Angeion retained potentialproduct liability obligations from patients and agreed to maintain specificlevels of product liability insurance.

 

As previously reported, ELA Medical advisedAngeion in a letter dated June 6, 2002 that some of the ICD’s formerlymanufactured by Angeion were experiencing premature battery depletion.  Following the June 6, 2002 letter, Angeionadvised the attending physicians of the patients with these ICD’s of theproblems and provided a recommended procedure to determine what action isrequired.  The text of these letters wasreviewed and orally approved by the FDA during a site visit at Angeion.  ELA Medical thereafter distributed bothletters to physicians who subsequently reported that the devices in questionhad been implanted in 385 patients, excluding the 14 explantations previouslyreported in the June 6, 2002 letter.  OnJuly 31, 2002, the FDA issued a Field Corrective Action Report providing thatthe Angeion Lyra Model 2020, 2021, and 2022 ICD’s be replaced (Field CorrectiveAction # Z-1152-2/Z-1154-2) because “the devices could stop providingtherapy due to premature battery depletion.”

 

In a letter dated June 18, 2003, ELA Medicalprovided notice for indemnification by Angeion for the replacement of the ICD’spursuant to the 1997 Supply Agreements. ELA Medical stated that it had been regularly monitoring explantationsof the Products in patients and compiling an assessment of the costs borne byELA Medical, including, without limitation, the costs of (i) locating andcontacting patients and customers, (ii) explantation of the recalledProducts and implantation of replacement devices; and (iii) replacement devicesfor all recalled Products.  ELA Medicalreported that between June 6, 2002 and March 31, 2003, a total of 90explantations occurred (excluding the first 14 explantations previouslyreported), the costs and expenses for which were borne by ELA Medical.  ELA Medical estimated that it had suffered costsin an amount in excess of 819,339 euros (approximately $917,000 at September11, 2003) through March 31, 2003.  Inaddition to these costs, ELA Medical indicated that it anticipated furthercosts and expenses to be incurred with the outstanding 247 devices thatremain implanted in patients.  ELAMedical indicated that it would compile information regarding its costs as theybecome available and would update Angeion accordingly.

 

The Company has insurance policies aggregating$50 million of product liability insurance coverage, subject to $50,000self-insured retention per occurrence, $500,000 aggregate, which expire on May11, 2004.  During the third quarter of2003, Angeion reserved $50,000 to meet the cost of self-insured retention inthe event that an insurance claim is ultimately paid.  Angeion plans to cooperate both with ELA Medical and theinsurance companies in reviewing this matter.

 

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**9.****                                      NewAccounting Pronouncements**

 

In December 2002, theEmerging Issues Task Force (“EITF”) issued EITF 00-21, Revenue Arrangementswith Multiple Deliverables.  EITF 00-21addresses certain aspects of the accounting by a vendor for arrangements underwhich it will perform multiple revenue-generating activities.  In some arrangements, the differentrevenue-generating activities (deliverables) are sufficiently separable, andthere exists sufficient evidence of their fair values to separately account forsome or all of the deliverables (that is, there are separate units ofaccounting).  In other arrangements,some or all of the deliverables are not independently functional, or there isnot sufficient evidence of their fair values to account for them separately.  EITF 00-21 addresses when and, if so, how anarrangement involving multiple deliverables should be divided into separateunits of accounting.  EITF 00-21 doesnot change otherwise applicable revenue recognition criteria.  EITF 00-21 is applicable for the Companyeffective July 1, 2003 and it will not have an impact on the Company’s currentrevenue recognition policy.

 

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

 

**Forward-LookingStatements and Risk Factors**

 

Statementsincluded in this Quarterly Report on Form 10-QSB that are not historical orcurrent facts are “forward-looking statements” made pursuant to the safe harborprovisions of the Private Securities Litigation Reform Act of 1995.  The words “believe,” “expect,” “will,”“can,” “estimate,” “anticipate,” and similar expressions are intended toidentify forward-looking statements. Forward-looking statements are subject to certain risks anduncertainties that could cause actual results to differ materially includingthe following: (i) the Company’s ability to successfully operate its MedicalGraphics business including its ability to develop, improve and update itscardiorespiratory diagnostic products, (ii) the Company’s ability tosuccessfully introduce its New Leaf products including its New Leaf Weight LossProgram, (iii) the Company’s ability to successfully defend itself from productliability claims related to its Medical Graphics and New Leaf products orclaims associated with its prior cardiac stimulation products, (iv) theCompany’s ability to protect its intellectual property, (v) the Company’sdependence on third party vendors and (vi) the Company’s ability to comply with Nasdaq listing requirements,including maintenance of the $1.00 per share bid price as well as other factorsnot now anticipated.  Additionalinformation with respect to the risks and uncertainties faced by the Companymay be found in, and the prior discussion is qualified in its entirety by, theother risk factors that are described from time to time in Angeion’s Securitiesand Exchange Commission reports, including but not limited to the TransitionReport on Form 10-KSB for the ten-month period ended October 31, 2002, andsubsequently filed reports.

 

In addition tothe risk factors and uncertainties set forth above and in our Transition Reporton Form 10-KSB, the Company believes that the following factors are relevant.

 

***ELA Medical Claimfor Indemnification. ***Asdescribed in Note 8 of Notes to Consolidated Financial Statements, on June 18,2003, the Company received notice of a claim for reimbursement of costsassociated with the explantation of ICD products that were previouslymanufactured and sold to ELA Medical, Inc. and ELA Medical, S.A.   The Company carries product liability insurancethat it believes covers the expense for which the Company may be liable as aresult of its manufacture of the ICD products.

 

The insuranceincludes a self-insured retention of $50,000 per occurrence and aggregateself-insured retention of $500,000.  TheCompany recorded a $50,000 charge during the quarter ended July 31, 2003 toreflect the per occurrence self-insured retention.  The Company’s interpretation of the facts in conjunction with therelevant insurance policy provisions led it to believe that the battery failurewas a single occurrence and therefore that the single self-insured retention of$50,000 was appropriate.  See Note 8,Notice for Indemnification, and Notes to Consolidated Financial Statements inthis Form 10-QSB.

 

The issuesassociated with the ICD products and the insurance coverage provisions areextremely complex and may be subject to interpretation different from theCompany’s.  Accordingly, there can be noassurance that the Company will not incur exposure in excess of the $50,000self-insured retention under the insurance policies.

 

***IntangibleAssets***.  The Company assesses the impairment ofidentifiable intangible assets at least annually or whenever events or changesin circumstances indicate that the carrying value may not be recoverable.  The Company initially evaluates therecoverability of intangible assets based on fair value techniques, mainlyundiscounted cash flows.  If the Companydetermines that the carrying value of intangible assets may not be recoverable,it measures any impairment based on a projected discounted cash flow methodusing a discount rate determined by management to be commensurate with the risk

 

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inherent in the currentbusiness model or another valuation technique. There can be no assurance that events or changes in businesscircumstances will not change or that projected future cash flows will besufficient to justify the carrying value of intangible assets, in which casethe Company would be required to recognize an impairment of a portion or all ofthe intangible assets.

 

From time totime, the Company through its management may make oral forward-lookingstatements.  The Company undertakes noobligation to update any forward-looking statement.

 

**Overview**

 

AngeionCorporation is a medical products company that reported revenue of $13.4million for the ten months ended October 31, 2002 and $16.7 million for theyear ended December 31, 2001.  Domesticproduct sales and service revenues accounted for 83.4% of revenue for the tenmonths ended October 31, 2002 while international product sales accounted forthe remaining 16.6%.

 

Angeion,through its Medical Graphics Corporation subsidiary, develops, manufactures andmarkets non-invasive cardiorespiratory diagnostic equipment under theMedGraphics trade name for the management and improvement of cardiorespiratoryhealth.  The primary MedGraphicsproducts include pulmonary function and cardiorespiratory exercise testingequipment.  The Company also develops, manufacturesand markets health and fitness products and services designed to assistconsumers with weight management, fitness improvement and cardiacrehabilitation.  These new products andservices are sold under the New Leaf brand name to consumers through variousdelivery sites such as health and fitness clubs, weight management and cardiacrehabilitation centers.

 

The ten-monthtransition period that ended October 31, 2002 represented a period ofsignificant change for the Company. Through the Chapter 11 Bankruptcy, all of the Company’s SeniorConvertible Notes due April 2003 were converted into common stock.  In addition, the Company received $2.9million in cash under an agreement that granted a perpetual, non-exclusivelicense to use the Company’s cardiac stimulation technology to Biotronik.  As a result of these actions, the Companyemerged from bankruptcy on October 25, 2002 with a strong balance sheet, nodebt and over $4.4 million in cash.

 

The Companyemerged from its Chapter 11 proceeding and adopted fresh start reporting as ofOctober 31, 2002.  In accordance withfresh-start reporting, all assets and liabilities were recorded at theirrespective fair values.  An independentthird-party appraiser determined the fair values of substantially all of theCompany’s tangible and intangible assets. As a result of that appraisal, the Company (i) increased the net bookvalue of property and equipment from $899,000 to $2,164,000, (ii) decreased thenet book value of intangible assets from $10.1 million to $8.3 million, (iii)eliminated the $1.9 million value of goodwill, (iv) increased the value ofinventory by $59,000, and (v) decreased the value of deferred income by$224,000.

 

The foregoingrevaluation adjustments affect the Successor Company operating results in thefollowing manner.  For fiscal year 2003,they (i) increase depreciation expense by $37,000, (ii) increase amortizationof intangibles by $50,000, (iii) decrease gross margins by $59,000 as currentinventory is sold and (iv) decrease gross margins by $224,000 as deferredservice contracts are recognized as income.

 

The Company’sfinancial statements after October 31, 2002 reflect a new reporting entity, theSuccessor Company, and are not directly comparable to the financial statementsof prior periods.  The principalcomparative differences between the three and nine month periods ended July 31,2003 and 2002 relate to the impact of the changes in indebtedness and therevaluation of the Company’s assets and liabilities to reflect the reorganizationvalue on October 31, 2002.  The changesprimarily affect depreciation and amortization expense, gross margins andinterest expense in the Company’s results of

 

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operations after October 31,2002.  However, for purposes ofcomparative analysis, the following discussion of the operating results of theCompany compares the operating results of the Successor Company with theoperating results of the Predecessor Company for the three and nine months endedJuly 31, 2003 and 2002, respectively. The operations comprised of revenues, selling and marketing expenses,general and administrative expenses and research and development expenses ofthe Predecessor and Successor Companies were substantially similar and thecomparison of those items is meaningful to understanding the business.

 

**Results of Operations**

 

AngeionCorporation recorded a net loss of $681,000 for the three months ended July 31,2003 compared to a net loss of $2.4 million for the same period in 2002.  The net loss for the three and nine monthsended July 31, 2003 included a loss of $50,000 from discontinued operationsattributed to establishing a self-insured retention reserve.  The net loss for 2002 included $197,000 ofinterest expense associated with the Company’s previously outstandingNotes.  For the nine months ended July31, the Company recorded net losses of $1.9 million and $5.4 million for 2003and 2002, respectively.  The net lossfor 2002 included a $92,000 recovery of income taxes, $1.2 million of interestexpense associated with the Company’s previously outstanding Notes and a lossof $678,000 from discontinued operations.

 

**Revenues**

 

Revenuesconsist of product sales and service revenues. Product sales reflect sales of Medical Graphic’s non-invasivecardiorespiratory diagnostic equipment, sales of New Leaf health and fitnessproducts and services, and aftermarket sales of peripherals and supplies.  Service revenues reflect contract revenuesfrom extended service contracts, non-warranty service visits and training.

 

Third quarterrevenue increased by 8.7% to $4.6 million from $4.2 million for the threemonths ended July 31, 2003 and 2002, respectively.  Domestic product revenue increased by 11.0% to $3.1 million in2003 compared to $2.8 million in 2002. Internationally, product revenue increased 2.4% to $675,000 in 2003 from$659,000 in 2002.  Service revenueincreased by 5.6% to $777,000 in 2003 from $736,000 in 2002.

 

Total revenueincreased by 8.7% to $13.7 million compared to $12.6 million for the ninemonths ended July 31, 2003 and 2002, respectively.  Domestic product revenue increased by 16.3% to $9.3 million in2003 compared to $8.0 million in 2002.  Internationalproduct revenue decreased by 10.3% to $2.2 million in 2003 compared to $2.5million in 2002.  Year to date servicerevenue of $2.2 million for 2003 is comparable to 2002.

 

Domesticproduct revenue for the third quarter reflected the same trend seen during thefirst six months of the fiscal year. While domestic customer interest in placing new equipment orders has

 

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remained good, these samecustomers are continuing to exercise caution in making capital expenditures dueto the overall uncertainty of the United States economy.

 

Internationalproduct revenue for the third quarter also reflects similar business conditionsthat have been present for the past two quarters.  European customers are delaying capital expenditures unless thereis a clear immediate need although the weakened U.S. Dollar compared to theEuro has improved the business climate in Europe.  Latin America continues to suffer from very weak economies anddevaluating currencies with no immediate recovery anticipated.  Equipment orders from customers in the PacificRim are returning to normal following some previous delays due to the businessdisruptions caused by the SARS outbreak.

 

Servicerevenue reflects an increase in service contracts being written due to on-goingemphasis of the sale of extended service contracts.  Non-warranty service revenue has been below prior year for thelast two quarters due to a temporary shortage of service representatives.

 

The Companycontinues to develop its New Leaf Personal Exercise products that are currentlytargeting weight-loss consumers through fitness clubs and other delivery sites.

 

**Gross Margin**

 

Gross marginpercentage increased to 42.8% of revenue for the three months ended July 31,2003 compared to 38.5% for the same period in 2002.  For the nine months ended July 31, gross margin percentageincreased to 42.8% in 2003 from 40.6% in 2002. Although overall gross margins have increased in 2003 compared to 2002due to improved manufacturing efficiencies, gross margin percentages for 2003have been negatively affected by the fresh start accounting rules that requiredthe Company to write up its inventory to fair market value at October 31, 2002,rather than carrying inventory at the lower of cost or market.  As a result, the Company increased thecarrying value of its inventory by $59,000 at October 31, 2002.  In addition, the Company was required torecord the direct and incremental cost of fulfilling its obligations associatedwith customer service contracts existing at October 31, 2002.  Consequently, deferred income was reduced by$224,000 at October 31, 2002.

 

As theCompany’s inventory and deferred income turn during fiscal year 2003, the freshstart adjustments for inventory and deferred income have negatively affectedthe Company’s gross margin.  The impactof the October 31, 2002 fresh-start accounting adjustments resulted indecreases in gross margin of $37,000 and $246,000 for the three and nine monthsended July 31, 2003, respectively.  As aresult, the corresponding gross margin percentages were negatively affected by0.8% during the third quarter and 1.8% for the nine months ended July 31,2003.  Consequently, without theseadjustments, the underlying gross margin rates would have been 43.6% and 44.6%for the three and nine months ended July 31, 2003, respectively.  Gross margins will continue to be negativelyaffected by the October 31, 2002 fresh start accounting adjustments by a totalof $37,000 for the remainder of 2003. The fresh start accounting adjustments had no impact, however, on theCompany’s cash flow.

 

**Selling and Marketing**

 

Third quarterselling and marketing expenses increased 7.2% to $1.4 million for the threemonths ended July 31, 2003 compared to $1.3 million in 2002.  For the nine months ended July 31, sellingand marketing expenses increased 5.8% to $4.1 million in 2003 from $3.9 millionin 2002.  The increases for both thethree and nine months ended July 31, 2003 are due primarily to increasedcommissions associated with increased revenue and an overall increase inselling and marketing personnel costs offset somewhat by lower customerdemonstration expenses and lower costs for trade shows.  Moreover, the Company has continued to focuson selling and marketing its New Leaf personal exercise products.

 

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**General and Administrative**

 

General andadministrative expenses decreased by 10.4% to $597,000 for the three monthsended July 31, 2003 compared to $666,000 in 2002.  For the nine months ended July 31, general and administrativeexpenses of $1.9 million in 2003 were comparable to 2002.  Expenses for both the three and nine monthsended July 31, 2003 reflect reduced professional fees and directors’ expensesthat are generally offset by increased personnel expenses.

 

**Research and Development**

 

Research anddevelopment expenses increased 43.8% to $420,000 for the three months endedJuly 31, 2003 compared to $292,000 in 2002. For the nine months ended July 31, research and development expensesincreased 17.2% to $1.2 million in 2003 from $1.0 million in 2002.  The Company’s research and development costsare focused on developing additional cardiorespiratory diagnosticproducts.  The increase in research anddevelopment expenses for the three and nine months ended July 31, 2003 is duethe Company’s discontinuance of capitalizing a portion of its softwaredevelopment costs, which is slightly offset by lower personnel costs during thefirst quarter.  The Company’s previousfocus on the conversion and consolidation of software platforms wassubstantially completed in October 2002. Costs of $108,000 and $318,000 were capitalized as part of the Company’sproprietary software for the three and nine months ended July 31, 2002 whilenone were capitalized during the nine months ended July 31, 2003.

 

**Amortization of Intangibles**

 

Amortizationof intangibles increased to $206,000 from $180,000 for the three months endedJuly 31, 2003 and 2002, respectively. For the nine months ended July 31, 2003, amortization expenses were$618,000 compared to $595,000 for the same period in 2002.  Amortization expenses resulting from freshstart accounting are somewhat higher than those that were incurred prior to therevaluation of intangible assets at October 31, 2002.

 

**Other Income (Expense)**

 

Interestincome for the three months ended July 31, 2003 increased to $6,000 from $2,000in 2002.  For the nine months ended July31, interest income increased to $24,000 in 2003 from $12,000 in 2002.  The increase in interest income reflects anincrease in excess cash balances available for short-term investment.

 

There was nointerest expense for the three or nine months ended July 31, 2003 compared to$197,000 and $1.2 million for 2002. Under the Joint Plan of Reorganization, all of the Company’s SeniorConvertible Notes due April 2003 were converted into common stock of theCompany upon emergence from bankruptcy.

 

**LossFrom Discontinued Operations**

 

The Companyrecorded $50,000 of expense for self-insured retention in the quarter endedJuly 31, 2003.  The insurance cost isassociated with a claim for reimbursement of costs related to ICD’s formerlymanufactured by the Company that were experiencing premature batterydepletion.  For additional details, seeNote 8, Notice for Indemnification, Notes to Consolidated Financial Statementsin this Form 10-QSB.

 

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**Liquidity and Capital Resources**

 

The Companyhas financed its liquidity needs over the last several years through revenuegenerated by the operations of its wholly owned subsidiary, Medical GraphicsCorporation, through revenue from license agreements for patented ICDtechnology and through the use of cash balances.

 

The Companyhad cash of $3.6 million and working capital of $6.6 million as of July 31,2003 compared to cash of $4.4 million and working capital of $7.5 million atOctober 31, 2002.  During the ninemonths ended July 31, 2003, the Company used $827,000 in cash for operatingactivities, primarily as a result of its net loss of $1.9 million, which wasoffset by $1.1 million of depreciation and amortization.  In addition, the Company used cash forincreases of $628,000 and $198,000 in accounts receivable and prepaid expensesand other current assets, respectively, as well as a decrease of $269,000 inother liabilities and accrued expenses. These uses of cash were partially offset with cash generated by a$455,000 decrease in inventories as well as increases of $159,000, $250,000 and$247,000 in accounts payable, accrued employee compensation and deferredincome, respectively.

 

During thenine months ended July 31, 2003, the Company used $34,000 in cash for investingactivities to purchase property and equipment.

 

The Companyhas no material commitments for capital expenditures for the remainder offiscal year 2003.

 

As a result ofthe Company’s October 25, 2002 emergence from bankruptcy and the resultingconversion of debt to equity and its cash of $3.6 million, the Company believesthat its liquidity and capital resource needs for the next twelve months willbe met through its current cash and cash equivalents, cash flows fromoperations and working capital.

 

**OtherCommitments**

 

The Companyhas made various financial commitments in the ordinary course of conducting itsbusiness operations.  The followingtable summarizes all significant commitments:

 
| **(Amounts in thousands)  Description**                   |   | **Three  months  ending  October 31,  2003** |   | **2004** |   | **2005** |   | **2006** |   | **2007 &  Thereafter** |   |
|-----------------------------------------------------------|--------|----------------------------------------------|--------|----------|--------|----------|--------|----------|--------|----------------------------|--------|
| Minimum lease payments                                    |   | $                                            | 81     |     | $      | 220      |   | $        | 13     |                       | $      | 11 |   | $ | 9 |   |
| Minimum royalty payments for sales of  AeroSport products |   | 25                                           |   | 100      |   | 100      |   | 100      |   | —                     |   |
|                                                      |   | $                                            | 106    |     | $      | 320      |   | $        | 113    |                       | $      | 111 |   | $ | 9 |   |

 

**Item3.  Controls and Procedures**

 

**(a)****                                  Evaluationof Disclosure Controls and Procedures**

 

The Company’s Chief ExecutiveOfficer, Richard E. Jahnke, and Chief Financial Officer, Dale H. Johnson, haveevaluated the Company’sdisclosure controls and procedures as of the end of the period covered by thisreport.  Based upon that review, theyhave concluded that these controls and procedures are effective in ensuringthat material information related to the Company is made known to them byothers within the Company.

 

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

 

There havebeen no significant changes in internal control over financial reporting thatoccurred during the fiscal quarter covered by this report that have materiallyaffected, or are reasonably likely to materially affect, the registrant’sinternal control over financial reporting.

 

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**PART II - OTHER INFORMATION**

 

**Item 1. Legal Proceedings**

 

The Company issubject to certain claims and lawsuits that have been filed in the ordinarycourse of business.  Management is ofthe opinion that ultimate settlement of these matters will not have a materialimpact on its financial statements.

 

**Item 2. Changes in Securities**

 

None

 

**Item 3. Defaults Upon Senior Securities**

 

None

 

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

 

On May 15,2003, the Company held its Annual Meeting of Shareholders.  At the meeting, the following actions weretaken:

 

**Electionof Directors**

 

The followingpersons were elected to the Company’s Board of Directors, receiving the votesset forth opposite their names:

 
| **Name**           |   | **Votes For** |   | **Votes Withheld** |   |
|--------------------|--------|---------------|--------|--------------------|--------|
| Arnold A. Angeloni |   | 2,100,098     |   | 162,983            |   |
| Richard E. Jahnke  |   | 2,099,392     |   | 163,689            |   |
| John C. Penn       |   | 2,100,120     |   | 162,961            |   |
| Jeffrey T. Schmitz |   | 2,100,060     |   | 163,021            |   |

 

**Approvalof Employee Stock Purchase Plan**

 

Theshareholders adopted the Angeion Corporation 2003 Employee Stock Purchase Planby the following vote:

 
| For            |   | 1,488,272 |   |
|----------------|--------|-----------|--------|
| Against        |   | 3,408     |   |
| Abstain        |   | 2,779     |   |
| Broker Nonvote |   | 768,622   |   |

 

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**Approveof an Amendment to the Angeion Corporation 2002 Stock Option Plan.**

 

Theshareholders approved an amendment to the Angeion Corporation 2002 Stock OptionPlan to increase from 100,000 to 250,000 the number of shares of common stockunderlying options that can be granted during any fiscal year to anyperson.  The amendment was approved bythe following vote:

 
| For            |   | 1,323,056 |   |
|----------------|--------|-----------|--------|
| Against        |   | 168,201   |   |
| Abstain        |   | 3,202     |   |
| Broker Nonvote |   | 768,622   |   |

 

**Item 5. Other Information**

 

# **None**

 

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

 

(a)                                  Thefollowing exhibits are included herein:

 
| 31 |   | Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of  2002 (Rules 13a-14 and 15d-14 of the Exchange Act). |
|----|--------|--------------------------------------------------------------------------------------------------------------------------|
| 32 |   | Certifications pursuant  Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350).                           |

 

(b)                                 Reportson Form 8-K.

 

On May 15,2003, the Company filed a Current Report on Form 8-K dated May 14, 2003reporting under Item 9, Regulation FD Disclosure.  The Company reported that its President and Chief ExecutiveOfficer, Richard E. Jahnke, presented a slide presentation at the Company’sAnnual Meeting of Shareholders, which provided information about the Company,its products, industry and prospects.

 

On June 4,2003, the Company filed a Current Report on Form 8-K dated June 3, 2003reporting under Item 9, Regulation FD Disclosure.  The Company reported that it had filed a press release on June 3,2003 that disclosed material non-public information regarding its results ofoperations for the three and six months ended April 30, 2003.

 

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**SIGNATURES**

 

In accordance with therequirements of the Exchange Act, the registrant caused this report to besigned on its behalf by the undersigned, thereunto duly authorized.

 

 
|   |                | Angeion  Corporation                   |   |
|--------|---------------------|----------------------------------------|--------|
|   |                | (Registrant)                           |
|   |                |                                   |
|   |                |                                   |
| Date:  | September  12, 2003 |                                   |   | /s/ Richard  E. Jahnke |   |
|   |                | Richard E.  Jahnke                     |
|   |                | President  and Chief Executive Officer |
|   |                | (Principal  Executive Officer)         |
|   |                |                                   |
|   |                |                                   |
| Date:  | September  12, 2003 |                                   |   | /s/ Dale H.  Johnson |   |
|   |                | Dale H.  Johnson                       |
|   |                | Chief  Financial Officer               |
|   |                | (Chief  Accounting Officer)            |
|        |                     |                                        |        |  |  |  |

 

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