Table of Contents





|                                  
|----------------------------------
|UNITED STATES                     
|SECURITIES
AND EXCHANGE COMMISSION
|Washington, D.C. 20549            
|                                  

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FORM 10-Q

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|                                                |                                                                                                                                                                      
|----------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|x                                               | QUARTERLY REPORT PURSUANT
 TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934                                                                             
|                                               
|for
 the quarterly period ended April 30, 2009.
|                                               
|OR                                             
|                                               
|o                                               | TRANSITION REPORT PURSUANT
 TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934for the
 transition period from ___________________ to ____________________.

|                                                                   |                     
|------------------------------------------------------------------ | --------------------
|Commission
 File Number 001-13543                                 
|                                                                  
|ANGEION CORPORATION                                               
|(Exact
 name of registrant as specified in its charter)           
|                                                                  
|Minnesota                                                          | 41-1579150          
|(State
 or other jurisdiction of                                   | (IRS
 Employer      
|incorporation
 or organization)                                    | Identification
 No.)
|                                                                   |                     
|350 Oak Grove Parkway, Saint Paul, Minnesota 55127-8599           
|(Address
 of principal executive offices)                         
|                                                                  
|Registrants
telephone number, including area code: (651) 484-4874

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Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days.


Yes
x          No
o


Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange
Act:


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


Indicate by
check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).


Yes
o          No
o


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


Yes
o          No
x


As of June 1, 2009, the Company had outstanding 4,120,411 shares of
Common Stock, $0.10 par value.





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TABLE OF CONTENTS

|                                |                                                                                        |   
|------------------------------- | -------------------------------------------------------------------------------------- | --
|PART I  FINANCIAL
 INFORMATION |                                                                                       
|                                |                                                                                       
|Item 1.                         | Financial
 Statements                                                                  | 3 
|Item 2.                         | Managements
 Discussion and Analysis of Financial Condition and Results of Operations | 14
|Item 3.                         | Quantitative
 and Qualitative Disclosures about Market Risk                            | 18
|Item 4T.                        | Controls and
 Procedures                                                               | 18
|                                |                                                                                        |   
|PART II  OTHER INFORMATION     |                                                                                       
|                                |                                                                                       
|Item 1.                         | Legal
 Proceedings                                                                     | 19
|Item 1A.                        | Risk
 Factors                                                                          | 19
|Item 2.                         | Unregistered
 Sales of Equity Securities and Use of Proceeds                           | 19
|Item 3.                         | Defaults
 Upon Senior Securities                                                       | 19
|Item 4.                         | Submission
 of Matters to a Vote of Security Holders                                   | 19
|Item 5.                         | Other
 Information                                                                     | 20
|Item 6.                         | Exhibits                                                                               | 20
|                                |                                                                                        |   
|SIGNATURES                      | 21                                                                                    

2

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Table of Contents

PART I  FINANCIAL INFORMATION

Item 1. Financial Statements.

ANGEION CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets 
April 30, 2009 and October 31, 2008(in thousands except
share and per share data)

|                                                                                                                                                                                   |  |                 |        |                   |   |        |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | ------ | ----------------- | - | ------ | -
|                                                                                                                                                                                   |  | April 30,
 2009 |        | October 31,
 2008 |  
|                                                                                                                                                                                   |  | (unaudited)     |        |                   |  
|Assets                                                                                                                                                                             |  |                 |        |                   |   |        |  
|Current assets:                                                                                                                                                                    |  |                 |        |                   |   |        |  
|Cash and cash equivalents                                                                                                                                                          |  | $               | 9,640  |                   | $ | 9,047  |  
|Accounts receivable, net of allowance for doubtful
accounts of $176
 and $283, respectively                                                                                        |  |                 | 4,862  |                   |   | 5,446  |  
|Inventories, net of obsolecence reserve of $693 and
$597, respectively.                                                                                                            |  |                 | 4,909  |                   |   | 5,143  |  
|Prepaid expenses and other current assets                                                                                                                                          |  |                 | 289    |                   |   | 292    |  
|Total current assets                                                                                                                                                               |  |                 | 19,700 |                   |   | 19,928 |  
|                                                                                                                                                                                   |  |                 |        |                   |   |        |  
|Property and equipment, net of accumulated depreciation of $3,115 and
 $2,897, respectively                                                                                        |  |                 | 761    |                   |   | 937    |  
|Intangible assets, net                                                                                                                                                             |  |                 | 1,742  |                   |   | 2,100  |  
|Total Assets                                                                                                                                                                       |  | $               | 22,203 |                   | $ | 22,965 |  
|                                                                                                                                                                                   |  |                 |        |                   |   |        |  
|Liabilities and Shareholders
Equity                                                                                                                                               |  |                 |        |                   |   |        |  
|Current liabilities:                                                                                                                                                               |  |                 |        |                   |   |        |  
|Accounts payable                                                                                                                                                                   |  | $               | 1,382  |                   | $ | 1,544  |  
|Employee compensation                                                                                                                                                              |  |                 | 1,186  |                   |   | 1,288  |  
|Deferred income                                                                                                                                                                    |  |                 | 1,489  |                   |   | 1,531  |  
|Warranty reserve                                                                                                                                                                   |  |                 | 158    |                   |   | 157    |  
|Other current liabilities and accrued
expenses                                                                                                                                     |  |                 | 397    |                   |   | 380    |  
|Total current liabilities                                                                                                                                                          |  |                 | 4,612  |                   |   | 4,900  |  
|                                                                                                                                                                                   |  |                 |        |                   |   |        |  
|Long-term liabilities:                                                                                                                                                             |  |                 |        |                   |   |        |  
|Long-term deferred income                                                                                                                                                          |  |                 | 723    |                   |   | 789    |  
|Total Liabilities                                                                                                                                                                  |  |                 | 5,335  |                   |   | 5,689  |  
|                                                                                                                                                                                   |  |                 |        |                   |   |        |  
|Shareholders equity:                                                                                                                                                              |  |                 |        |                   |   |        |  
|Common stock, $0.10 par value, authorized 25,000,000
shares, 4,195,078
 and 4,166,457 shares issued and 4,120,411 and 4,091,790 shares outstanding in
 2009 and 2008, respectively |  |                 | 412    |                   |   | 409    |  
|Additional paid-in capital                                                                                                                                                         |  |                 | 21,392 |                   |   | 20,956 |  
|Accumulated deficit                                                                                                                                                                |  |                 | (4,936 | )                 |   | (4,089 | )
|Total shareholders equity                                                                                                                                                         |  |                 | 16,868 |                   |   | 17,276 |  
|Total Liabilities and Shareholders Equity                                                                                                                                         |  | $               | 22,203 |                   | $ | 22,965 |  

See accompanying notes to
consolidated financial statements.

3

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Table of Contents

ANGEION CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations(unaudited, in
thousands except per share amounts)

|                                           |  |                               |       |                             |   |       |   |      |        |   |   |        |  
|------------------------------------------ |  | ----------------------------- | ----- | --------------------------- | - | ----- | - | ---- | ------ | - | - | ------ | -
|                                           |  | Three Months Ended
 April 30, |       | Six Months Ended
 April 30, |  
|                                           |  | 2009                          |       | 2008                        |   | 2009  |   | 2008 |       
|Revenues                                   |  |                               |       |                             |   |       |   |      |        |   |   |        |  
|Equipment and supply sales                 |  | $                             | 5,395 |                             | $ | 6,405 |   | $    | 10,965 |   | $ | 13,037 |  
|Service revenue                            |  |                               | 812   |                             |   | 912   |   |      | 1,673  |   |   | 1,789  |  
|                                           |  |                               | 6,207 |                             |   | 7,317 |   |      | 12,638 |   |   | 14,826 |  
|Cost of revenues                           |  |                               |       |                             |   |       |   |      |        |   |   |        |  
|Cost of equipment and supplies             |  |                               | 2,811 |                             |   | 3,346 |   |      | 5,859  |   |   | 6,961  |  
|Cost of service revenue                    |  |                               | 91    |                             |   | 135   |   |      | 172    |   |   | 251    |  
|                                           |  |                               | 2,902 |                             |   | 3,481 |   |      | 6,031  |   |   | 7,212  |  
|                                           |  |                               |       |                             |   |       |   |      |        |   |   |        |  
|Gross margin                               |  |                               | 3,305 |                             |   | 3,836 |   |      | 6,607  |   |   | 7,614  |  
|                                           |  |                               |       |                             |   |       |   |      |        |   |   |        |  
|Operating expenses:                        |  |                               |       |                             |   |       |   |      |        |   |   |        |  
|Selling and marketing                      |  |                               | 1,615 |                             |   | 2,312 |   |      | 3,413  |   |   | 4,683  |  
|General and administrative                 |  |                               | 998   |                             |   | 1,049 |   |      | 2,152  |   |   | 2,367  |  
|Research and development                   |  |                               | 729   |                             |   | 708   |   |      | 1,516  |   |   | 1,326  |  
|Amortization of intangibles                |  |                               | 182   |                             |   | 182   |   |      | 364    |   |   | 364    |  
|                                           |  |                               | 3,524 |                             |   | 4,251 |   |      | 7,445  |   |   | 8,740  |  
|                                           |  |                               |       |                             |   |       |   |      |        |   |   |        |  
|Operating loss                             |  |                               | (219  | )                           |   | (415  | ) |      | (838   | ) |   | (1,126 | )
|Interest income                            |  |                               |      |                             |   | 42    |   |      | 4      |   |   | 105    |  
|                                           |  |                               |       |                             |   |       |   |      |        |   |   |        |  
|Loss before taxes                          |  |                               | (219  | )                           |   | (373  | ) |      | (834   | ) |   | (1,021 | )
|Provision for taxes                        |  |                               | 6     |                             |   |      |   |      | 13     |   |   | 27     |  
|                                           |  |                               |       |                             |   |       |   |      |        |   |   |        |  
|Net loss                                   |  | $                             | (225  | )                           | $ | (373  | ) | $    | (847   | ) | $ | (1,048 | )
|                                           |  |                               |       |                             |   |       |   |      |        |   |   |        |  
|Loss per share - basic                     |  |                               |       |                             |   |       |   |      |        |   |   |        |  
|Net loss per share                         |  | $                             | (0.05 | )                           | $ | (0.09 | ) | $    | (0.21  | ) | $ | (0.26  | )
|                                           |  |                               |       |                             |   |       |   |      |        |   |   |        |  
|Loss per share - diluted                   |  |                               |       |                             |   |       |   |      |        |   |   |        |  
|Net loss per share                         |  | $                             | (0.05 | )                           | $ | (0.09 | ) | $    | (0.21  | ) | $ | (0.26  | )
|                                           |  |                               |       |                             |   |       |   |      |        |   |   |        |  
|Weighted average common shares outstanding |  |                               |       |                             |   |       |   |      |        |   |   |        |  
|Basic                                      |  |                               | 4,120 |                             |   | 4,090 |   |      | 4,110  |   |   | 4,089  |  
|Diluted                                    |  |                               | 4,120 |                             |   | 4,090 |   |      | 4,110  |   |   | 4,089  |  

See accompanying notes to
consolidated financial statements.

4

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ANGEION CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows(unaudited, in
thousands)

|                                                                                 |  |                             |       |      |   |        |  
|-------------------------------------------------------------------------------- |  | --------------------------- | ----- | ---- | - | ------ | -
|                                                                                 |  | Six Months Ended
 April 30, |      
|                                                                                 |  | 2009                        |       | 2008 |  
|Cash Flows From Operating Activities:                                            |  |                             |       |      |   |        |  
|Net loss                                                                         |  | $                           | (847  | )    | $ | (1,048 | )
|Adjustments to reconcile net loss to net cash
provided by operating
 activities: |  |                             |       |      |   |        |  
|Depreciation and amortization                                                    |  |                             | 582   |      |   | 611    |  
|Stock-based compensation                                                         |  |                             | 365   |      |   | 217    |  
|Increase in inventory obsolescence
reserve                                       |  |                             | 96    |      |   | 37     |  
|Decrease in allowance for doubtful
accounts                                      |  |                             | (107  | )    |   | (1     | )
|Changes in operating assets and
liabilities:                                     |  |                             |       |      |   |        |  
|Accounts
 receivable                                                             |  |                             | 691   |      |   | 2,135  |  
|Inventories                                                                      |  |                             | 138   |      |   | (857   | )
|Prepaid
 expenses and other current assets                                       |  |                             | 3     |      |   | 67     |  
|Accounts
 payable                                                                |  |                             | (162  | )    |   | (460   | )
|Employee
 compensation                                                           |  |                             | (102  | )    |   | (415   | )
|Deferred
 income                                                                 |  |                             | (108  | )    |   | 59     |  
|Warranty
 reserve                                                                |  |                             | 1     |      |   | (65    | )
|Other
 current liabilities and accrued expenses                                  |  |                             | 17    |      |   | 3      |  
|Net cash provided by operating activities                                        |  |                             | 567   |      |   | 283    |  
|                                                                                 |  |                             |       |      |   |        |  
|Cash Flows From Investing Activities:                                            |  |                             |       |      |   |        |  
|Purchase of property and equipment and intangible
assets                         |  |                             | (48   | )    |   | (113   | )
|Net cash used in investing activities                                            |  |                             | (48   | )    |   | (113   | )
|                                                                                 |  |                             |       |      |   |        |  
|Cash Flows From Financing Activities:                                            |  |                             |       |      |   |        |  
|Proceeds from issuance of common stock under
employee stock purchase
 plan       |  |                             | 11    |      |   | 11     |  
|Proceeds from the exercise of stock
options                                      |  |                             | 63    |      |   |       |  
|Net cash provided by financing activities                                        |  |                             | 74    |      |   | 11     |  
|                                                                                 |  |                             |       |      |   |        |  
|Net increase in cash and cash equivalents                                        |  |                             | 593   |      |   | 181    |  
|                                                                                 |  |                             |       |      |   |        |  
|Cash and cash equivalents at beginning of period                                 |  |                             | 9,047 |      |   | 6,908  |  
|                                                                                 |  |                             |       |      |   |        |  
|Cash and cash equivalents at end of period                                       |  | $                           | 9,640 |      | $ | 7,089  |  

See accompanying notes to
consolidated financial statements.

5

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Table of Contents

ANGEION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

|   |                                                  
|-- | -------------------------------------------------
|1. | Basis of Presentation and Description of Business

Angeion
Corporation (the Company), through its Medical Graphics Corporation subsidiary, designs and
markets non-invasive cardiorespiratory diagnostic systems that are sold under
the MedGraphics and New Leaf brand and trade names. These cardiorespiratory
diagnostic systems have a wide range of applications in healthcare, wellness,
and health and fitness.

The
consolidated balance sheet as of April 30, 2009, the consolidated
statements of operations for the three and six months ended April 30,
2009 and 2008, and cash flows for the six
months ended April 30, 2009 and 2008, and the related information presented in
these notes have been prepared by management in accordance with U.S. generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X, without audit.
Accordingly, they do not include all of the information and notes required by
U.S. generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments considered necessary
for a fair presentation of results have been included. The consolidated balance
sheet at October 31, 2008 was derived from the audited consolidated financial
statements as of that date. Operating results for the three and six months
ended April 30, 2009 are not
necessarily indicative of the results that may be expected for the year ending
October 31, 2009. For further information, refer to the consolidated financial
statements and notes thereto included in Angeion Corporations Annual Report on
Form 10-K for the year ended October 31, 2008.

Comprehensive
loss is a measure of all non-owner changes in shareholders equity and includes
items such as net loss, certain foreign currency translation items, minimum
pension liability adjustments and changes in the value of available-for-sale
securities. For the three and six months ended April 30, 2009 and 2008, comprehensive loss for Angeion Corporation was equivalent to
net loss as reported.

Preparation
of the consolidated financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities made in the consolidated
financial statements and accompanying notes. Actual results could differ from
those estimates. Estimates include accounts receivable, product warranty and
inventory reserves, and depreciable lives of property, equipment and intangible
assets.

|   |                    
|-- | -------------------
|2. | Revenue Recognition

In
accordance with the SECs Staff Accounting Bulletin No. 104, Revenue
Recognition, the Company recognizes revenue when persuasive
evidence of an arrangement exists, transfer of title has occurred or services
have been rendered, the selling price is fixed or determinable and collectability
is reasonably assured. The Companys products are sold for cash or on unsecured credit
terms requiring payment based on the shipment date. Credit terms can vary
between customers due to many factors, but are generally 30-60 days. Revenue,
net of discounts, is recognized upon shipment or delivery to customers in
accordance with written sales terms. Standard sales terms do not include
customer acceptance conditions, future credits, rebates, price protection or
general rights of return. The terms of sales to both domestic customers and
international distributors are identical. In instances when a customer order
specifies final acceptance of the system, revenue is deferred until all
customer acceptance criteria have been met. Estimated warranty obligations are recorded
upon shipment.

6

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Table of Contents

Service
contract revenue is based on a stated contractual rate and is deferred and
recognized ratably over the service period, which is typically from one to four
years. In accordance with paragraph 4 of the Emerging Issues Task Force
abstract 00-21, Revenue Arrangements with Multiple Deliverables, the
Company applies Financial Accounting Standards Board (FASB) Technical Bulletin No. 90-1 to service contract revenue.
Deferred
income associated with service contracts and supplies was $2,044,000 and $2,005,000 at April 30, 2009 and October 31, 2008,
respectively. Revenue from installation and training services provided
to customers is deferred until the service has been performed. The amount of
deferred installation and training revenue was $129,000 and $223,000 at April
30, 2009 and October 31, 2008, respectively.

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

No
customer accounted for more than 10% of revenues for either the three or six
months ended April 30, 2009 and 2008.

Advance
Payments from Customers

The
Company typically does not receive advance payments from its customers in
connection with the sale of its products. The Company occasionally enters into
an arrangement under which a customer agrees to purchase a large quantity of
product that is to be delivered over a period of time. Depending on the size of
these arrangements, the Company may negotiate an advance payment from these
customers. Advance payments from customers aggregating $39,000 and $92,000 as
of April 30, 2009 and October 31, 2008, respectively, are included in deferred
income on the consolidated balance sheets. Revenue recognition for customer
orders that include advance payments is consistent with the Companys revenue
recognition policy described above.

|   |                             
|-- | ----------------------------
|3. | New Accounting Pronouncement

During
May 2009, the FASB issued Statements of Financial Standards No. 165 (SFAS No.
165), Subsequent Events. SFAS
No. 165 requires all public entities to evaluate subsequent events through the
date that the financial statements are available to be issued and disclose in
the notes the date through which the Company has evaluated subsequent events
and whether the financial statements were issued or were available to be issued
on the disclosed date. SFAS No. 165 defines two types of subsequent events, as
follows: the first type consists of events or transactions that provide
additional evidence about conditions that existed at the date of the balance
sheet and the second type consists of events that provide evidence about
conditions that did not exist at the date of the balance sheet but arose after
that date. SFAS No. 165 is effective for interim and annual periods ending
after June 15, 2009 and must be applied prospectively.

|   |                                           
|-- | ------------------------------------------
|4. | Stock-Based Compensation and Stock Options

Effective
November 1, 2006, the Company adopted the provisions of FASB Statement No. 123
(revised 2004), Share-Based Payment (SFAS No. 123R). Under the fair value
recognition provisions of SFAS No. 123R, the Company measures stock-based
compensation cost at the grant date based on the fair value of the award and
recognizes the compensation expense over the requisite service period, which is
generally the vesting period. Total stock-based compensation expense included in the
Companys statement of operations for the three and six months ended April 30,
2009 was $183,000 and $365,000, respectively, compared to $106,000 and $217,000
for the three and six months ended April 30, 2008, respectively.

7

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Table of Contents

Stock
Options

A
summary of our option activity for the six-month period ended April 30, 2009
and 2008 follows:

|                                  |  |                           |         |                                    |   |        |  |                                    |         |   |   |      | 
|--------------------------------- |  | ------------------------- | ------- | ---------------------------------- | - | ------ |  | ---------------------------------- | ------- | - | - | ---- | 
|                                  |  | For the
 six months ended |        
|                                  |  | April 30,
 2009           |         | April 30,
 2008                    |  
|                                  |  | Shares                    |         | Weighted
 Average
 Exercise
 Price |   | Shares |  | Weighted
 Average
 Exercise
 Price |        
|Outstanding
 at beginning of year |  |                           | 730,953 |                                    | $ | 5.96   |  |                                    | 611,120 |   | $ | 6.12 | 
|Granted                           |  |                           |        |                                    |   |       |  |                                    | 12,000  |   |   | 7.20 | 
|Exercised                         |  |                           | (25,000 | )                                  |   | 2.53   |  |                                    |        |   |   |     | 
|Expired or cancelled              |  |                           |        |                                    |   |       |  |                                    | (24,500 | ) |   | 7.81 | 
|Outstanding
 at end of period     |  |                           | 705,953 |                                    | $ | 6.08   |  |                                    | 598,620 |   | $ | 6.07 | 

On
June 3, 2009, the stockholders of the Company approved an amendment to the
Angeion Corporation 2007 Stock Incentive Plan (the Plan) to increase by
100,000 the shares authorized for issuance under the Plan. The total shares
authorized for issuance under the Plan is now increased to 650,000.

The
following table summarizes information concerning stock options outstanding as
of April 30, 2009:

|                 |       |                     |  |                                                 |         |                              |  |      |  |  |         | 
|---------------- | ----- | ------------------- |  | ----------------------------------------------- | ------- | ---------------------------- |  | ---- |  |  | ------- | 
|Exercise
 Prices |       | Number
 Outstanding |  | Weighted
 Average
 Remaining
 Contractual
 Life |         | Number
 Subject to
 Exercise | 
|$                | 2.00  |                     |  |                                                 | 11,650  |                              |  | 4.44 |  |  | 11,650  | 
|                 | 2.53  |                     |  |                                                 | 72,000  |                              |  | 6.38 |  |  | 72,000  | 
|                 | 5.08  |                     |  |                                                 | 84,000  |                              |  | 7.07 |  |  | 84,000  | 
|                 | 5.16  |                     |  |                                                 | 49,000  |                              |  | 6.33 |  |  |        | 
|                 | 5.66  |                     |  |                                                 | 90,000  |                              |  | 6.05 |  |  |        | 
|                 | 6.23  |                     |  |                                                 | 84,500  |                              |  | 3.97 |  |  | 84,500  | 
|                 | 6.60  |                     |  |                                                 | 71,583  |                              |  | 5.31 |  |  | 32,767  | 
|                 | 7.08  |                     |  |                                                 | 10,000  |                              |  | 5.92 |  |  | 3,334   | 
|                 | 7.79  |                     |  |                                                 | 86,800  |                              |  | 4.44 |  |  | 86,800  | 
|                 | 7.81  |                     |  |                                                 | 2,000   |                              |  | 5.52 |  |  | 667     | 
|                 | 7.86  |                     |  |                                                 | 144,420 |                              |  | 5.50 |  |  | 48,151  | 
|                 |       |                     |  |                                                 |         |                              |  |      |  |  |         | 
|                 |       |                     |  |                                                 |         |                              |  |      |  |  |         | 
|                 | Total |                     |  |                                                 | 705,953 |                              |  | 5.44 |  |  | 423,869 | 
|                 |       |                     |  |                                                 |         |                              |  |      |  |  |         | 

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The
total intrinsic value of options exercised during the three and six months
ended April 30, 2009 was $15,000. The total intrinsic value of options
outstanding and exercisable at April 30, 2009 was $2,600, which was calculated
using the closing stock price as of April 30, 2009 less the exercise price of
in-the-money options. The Company issues new shares when stock options are
exercised. Cash received from the exercise of stock options was $63,000 for the
six month period ended April 30, 2009. Unrecognized compensation expense related
to outstanding stock options as of April 30, 2009 was $939,000, is expected to
be recognized over a weighted average period of 1.74 years, and will be
adjusted for any future changes
in estimated forfeitures.

Restricted
Stock Awards

On
August 28, 2008, the Board of Directors authorized the issuance of 74,667
restricted shares of the Companys common stock. Restricted stock awards are
awards of common stock that are subject to restrictions on transfer and to a
risk of forfeiture if the awardee leaves the Company before the restrictions
lapse. The holder of a restricted stock award is generally entitled at all
times on and after the date of issuance of the restricted shares to exercise
the rights of a shareholder of the Company, including the right to vote the
shares. The value of such stock was established by the market price on the date
of grant which was $5.16 per share. The restricted stock awards will vest over
a three-year period and are included in common stock issued as of the grant
date. The Company did not grant any restricted stock awards during the three and six months
ended April 30, 2009.

Unrecognized
compensation expense related to outstanding restricted stock awards as of April
30, 2009 was $299,000. The Company expects to recognize this over a weighted
average period of 2.36 years.

The
following table presents the statement of operations classification of pre-tax
stock-based compensation expense recognized for the three and six months ended
April 30, 2009:

|                                  |  |                              |     |                            |   |      |  |      |     |  |   |     | 
|--------------------------------- |  | ---------------------------- | --- | -------------------------- | - | ---- |  | ---- | --- |  | - | --- | 
|                                  |  | Three
 months ended April 30 |     | Six months
 ended April 30 |  
|                                  |  | 2009                         |     | 2008                       |   | 2009 |  | 2008 |    
|Cost of
 revenues                 |  | $                            | 13  |                            | $ | 12   |  | $    | 26  |  | $ | 18  | 
|Selling and
 marketing            |  |                              | 43  |                            |   | 24   |  |      | 86  |  |   | 55  | 
|General and
 administrative       |  |                              | 115 |                            |   | 61   |  |      | 229 |  |   | 129 | 
|Research and
 development         |  |                              | 12  |                            |   | 9    |  |      | 24  |  |   | 15  | 
|Stock-based
 compensation expense |  | $                            | 183 |                            | $ | 106  |  | $    | 365 |  | $ | 217 | 

Valuation
Assumptions

The
Company uses the Black-Scholes option-pricing model (Black-Scholes model) to
determine the fair value of stock options as of the grant date. The fair value
of stock options under the Black-Scholes model requires management to make
assumptions regarding projected employee stock option exercise behaviors,
risk-free interest rates, volatility of the Companys stock price and expected
dividends.

9

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|   |            
|-- | -----------
|5. | Inventories

Inventories
consisted of the following at April 30, 2009 and October 31, 2008:

|                |  |      |       |      |   |       | 
|--------------- |  | ---- | ----- | ---- | - | ----- | 
|(In thousands)  |  | 2009 |       | 2008 |  
|Raw
 materials  |  | $    | 2,076 |      | $ | 2,035 | 
|Work-in-Process |  |      | 51    |      |   | 156   | 
|Finished
 goods |  |      | 2,782 |      |   | 2,952 | 
|                |  | $    | 4,909 |      | $ | 5,143 | 

|   |                  
|-- | -----------------
|6. | Intangible Assets

Intangible
assets consisted of the following at April 30, 2009 and October 31, 2008:

|                          |  |      |        |      |   |        |  
|------------------------- |  | ---- | ------ | ---- | - | ------ | -
|(In thousands)            |  | 2009 |        | 2008 |  
|Intangible
 assets:       |  |      |        |      |   |        |  
|Developed
 technology     |  | $    | 6,727  |      | $ | 6,722  |  
|Trademarks
 (unamortized) |  |      | 53     |      |   | 53     |  
|                          |  | $    | 6,780  |      | $ | 6,775  |  
|                          |  |      |        |      |   |        |  
|Amortization              |  |      | (5,038 | )    |   | (4,675 | )
|                          |  | $    | 1,742  |      | $ | 2,100  |  

The
intangible assets are being amortized using the straight-line method over the
estimated useful lives of the assets that range from seven to ten years.
Amortization expense was $364,000 for the six months ended April 30, 2009 and
2008. If the Company continues to utilize pre-emergence bankruptcy net
operating loss carry forwards, the Company will further reduce the carrying
cost of its developed technology until the net carrying cost of these assets is
zero. To the extent that utilization of these NOLs reduces the cost of
developed technology, future amortization expense will be reduced.

Estimated
amortization expense for each of the succeeding fiscal years based on the
intangible assets as of April 30, 2009, which does not reflect the possible
reduction due to the use of NOLs discussed above, is as follows:

|                                    |  |              |       | 
|----------------------------------- |  | ------------ | ----- | 
|(In thousands)                      |  | Amortization |      
|Six months
 ending October 31, 2009 |  | $            | 363   | 
|2010                                |  |              | 421   | 
|2011                                |  |              | 420   | 
|2012                                |  |              | 421   | 
|                                    |  | $            | 1,625 | 

The
Company did not realize any pre-bankruptcy tax benefits for the three and six
months ended April 30, 2009, and 2008. The above table does not include
estimated amortization expense for patents of $64,000, included in developed
technology, that are not yet placed in service.

10

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|   |                 
|-- | ----------------
|7. | Warranty Reserve

Sales of
the Companys equipment are subject to a warranty obligation. Equipment
warranties typically extend for a period of twelve months from the date of
installation. Standard warranty terms are included in customer contracts. Under
the terms of these warranties, the Company is obligated to repair or replace
any components or assemblies that it deems defective in workmanship or
materials. The Company reserves the right to reject warranty claims where it
determines that failure is due to normal wear, customer modifications, improper
maintenance or misuse. The Company maintains a warranty reserve that reflects
the estimated expenses that it will incur to honor the warranties on its
products. The Company adjusts the warranty reserve based on the number and type
of equipment that is subject to warranty, adjusted for the remaining months of
warranty coverage. The warranty reserve adjustment reflects the Companys
historical warranty experience based on type of equipment. Warranty provisions
and claims for the six months ended April 30, 2009 and 2008 were as follows:

|                              |  |      |      |      |   |      |  
|----------------------------- |  | ---- | ---- | ---- | - | ---- | -
|(In thousands)                |  | 2009 |      | 2008 |  
|Balance,
 beginning of period |  | $    | 157  |      | $ | 253  |  
|Warranty provisions           |  |      | 120  |      |   | 142  |  
|Warranty claims               |  |      | (119 | )    |   | (207 | )
|Balance, end
 of period       |  | $    | 158  |      | $ | 188  |  

|   |                   
|-- | ------------------
|8. | Net Loss per Share

Basic
loss per share is computed by dividing net loss by the weighted average shares
outstanding during the reporting period. Diluted loss per share is computed
similarly to basic loss per share except that in computing income per share the
weighted average shares outstanding are increased to include additional shares
from the assumed exercise of stock options or warrants, if dilutive. The number
of additional shares is calculated by assuming that outstanding stock options
or warrants were exercised and that the proceeds from the exercise were used to
acquire shares of common stock at the average market price during the reporting
period.

The
Company had options outstanding at April 30, 2009 and 2008 to purchase 705,953
and 598,620 shares, respectively, of its common stock. As a result of the net
loss in the first and second quarters of both 2009 and 2008, the outstanding
stock options were considered antidilutive and, therefore, were excluded from
diluted loss per share.

|   |             
|-- | ------------
|9. | Income Taxes

The
Company has recorded a provision for taxes from operations of $6,000 and $0 for
the three months ended April 30, 2009 and 2008, respectively. For the six-month
periods ended April 30, 2009 and 2008, the provision for taxes from operations
was $13,000 and $27,000, respectively. The Company believes it is more likely
than not that the Company will report a year-to-date loss. Therefore, no tax
benefit was recorded. This assessment was made in a manner consistent with FASB
Statement No. 109, Accounting for Income Taxes. The amount of income taxes payable, if any,
is determined after utilizing the Companys NOLs, including its pre-emergence
bankruptcy NOLs. Under American
Institute of Certified Public Accountants Statement of Position 90-7, Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code (SOP 90-7), the tax benefit for
the utilization of these pre-emergence bankruptcy
NOL carry forwards must be recognized as a reduction of intangibles
rather than a reduction of the provision for taxes in the statement of
operations.

The
Company adopted the provisions of FASB Interpretation No. 48, Accounting
for Uncertainty in Income Taxes-an interpretation of FASB Statement 109
(FIN 48) on November 1, 2007. There was no additional reserve for uncertain
tax positions recognized as a result of adoption of FIN 48. During the three
and six months ended April 30, 2009, the Company recognized no income tax
expense related to the reserves for uncertain tax positions. The total reserve
as of both October 31, 2008 and April 30, 2009 was $35,200. The entire amount
of the reserve related to uncertainties regarding income tax nexus with various
states in which the Company operates. Included in the reserve is $10,000 of
estimated interest and penalties. The total amount of the reserve has increased
the Companys effective tax rate, and would therefore decrease the effective
tax rate if removed.

11

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Estimated
interest and penalties related to potential underpayment of income taxes are
classified as a component of tax expense in the consolidated statement of
operations. The Company does not expect the amount of reserves for uncertain
tax positions to change significantly in the next twelve months. Similarly, the
Company does not anticipate that the total reserve for uncertain tax positions
will significantly change due to the settlement of audits and the expiration of
statutes of limitations within the next twelve months.

The
Company files a consolidated federal income tax return in the United States
Federal jurisdiction and files various combined and separate tax returns in
several state and local jurisdictions. With limited exceptions, the Company is
no longer subject to U.S. Federal, state and local tax examinations by tax
authorities for fiscal years ending prior to November 1, 2004. There is no
statute of limitations for assessments related to jurisdictions where the
Company may have nexus but has chosen not to file an income tax return.

The
Company had a federal net operating loss carry forward at October 31, 2008 of
approximately $20.3 million. This amount is the remaining utilizable carry
forward following the application of a limit due to an ownership change under
Internal Revenue Code Section 382 that occurred during the fourth quarter of
fiscal year 2006. This carry forward is available to offset a portion of taxes
payable in future years. If not used, this carry forward will expire in the
years 2009 through 2025. Approximately $7.0 million of this carry forward will
expire, if unused, during the next five years ending October 31, 2013. The
Company also has $109,000 of alternative minimum tax credit carry forwards that
do not have expiration dates. Even though the Company has substantial federal net operating
loss carry forwards, any income may
still be subject to U.S. and State alternative minimum taxes.

The
Company has recorded a full valuation allowance against its net deferred tax
asset based on its belief that it was more likely than not that the asset would
not be realized in the future. Although this determination was made in a prior
fiscal year, it is still applicable as of April 30, 2009, and the Company will
continue to assess the need for a full valuation allowance in future quarters.
Under SOP 90-7, a substantial portion of any future reversal of the valuation
allowance will first reduce any intangible assets and then be credited directly
to additional paid-in capital. After the exhaustion of pre-emergence bankruptcy
NOLs, approximately $2.3 million of the valuation allowance is related to
post-bankruptcy NOLs and would be available to reduce the provision for taxes
in the statement of operations and, thereafter, $778,000 related to excess
stock option tax deductions would be recognized as additional paid-in capital
if realized in the Companys income tax return.

|    |           
|--- | ----------
|10. | Litigation

The
Company is also subject to certain claims and lawsuits that have been filed in
the ordinary course of business. From time to time, the Company initiates
lawsuits against others to enforce patents or to seek collection of debts in
the ordinary course of business. It is managements opinion that the settlement
of all litigation arising in the ordinary course of business would not have a
material effect on the financial position, results of operations or liquidity
of the Company.

12

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|    |                
|--- | ---------------
|11. | Severance Costs

On
April 30, 2008, the Company implemented a Reduction-In-Force (RIF) that
terminated the employment of nine employees to allow better management of
operating expenses. In the second quarter 2008, the Company also terminated a
relationship with a foreign distributor. As a result of these actions, the
Company accrued a total of $172,000 in severance costs for the quarter ended
April 30, 2008 which consisted of $169,000 of cash severance and $3,000 of
medical benefits. For the six months ended April 30, 2008, total severance costs
of $366,000 were incurred.

The
Company accrued and paid $6,000 in severance costs in the first half of 2009.

The
following table reconciles 2009 and 2008 second quarter activity for accrued
severance expenses:

|                                                                   |  |      |    |      |   |      |  
|------------------------------------------------------------------ |  | ---- | -- | ---- | - | ---- | -
|(In thousands)                                                     |  | 2009 |    | 2008 |  
|Balance,
 beginning of period                                      |  | $    |   |      | $ | 194  |  
|Severance payments                                                 |  |      | (6 | )    |   | (112 | )
|Additional severance incurred for RIF and
 distributor termination |  |      | 6  |      |   | 172  |  
|Balance, end
 of period                                            |  | $    |   |      | $ | 254  |  

13

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Table of Contents

Item 2. Managements
Discussion and Analysis of Financial Condition and Results of Operations

Overview

The
Company, through its Medical Graphics Corporation subsidiary, designs and
markets non-invasive cardiorespiratory diagnostic systems that are sold under
the MedGraphics and New Leaf brand and trade names. These cardiorespiratory
diagnostic systems have a wide range of applications in healthcare, wellness
and health and fitness. Revenues consist of equipment and supply sales as well
as service revenues. Equipment and supply sales reflect sales of non-invasive
cardiorespiratory diagnostic equipment and aftermarket sales of peripherals and
supplies. Service revenues consist of revenues from extended service contracts,
non-warranty service visits and additional training.

During
the first quarter of fiscal 2009, the Company launched an all-new, updated CCM
ExpressTM, which provides accurate resting energy expenditure
measurements (REE) for either ventilated or spontaneously breathing patients.
The Company expects the added features of the CCM Express to expand the scope
of use for this product and its REE function beyond critical care management
into cardiology, oncology and other markets.

Total
revenues for the second quarter of 2009 was $6.2 million, a decrease of 15.2%
from $7.3 million in 2008. Operating expense for the second quarter of 2009 was
$3.5 million, a decrease of 17.1% from the same period in 2008. Net loss for
the three months ended April 30, 2009 was $225,000, or $0.05 per share,
compared to a net loss of $373,000, or $0.09 per share, for the same period in
2008.

Total
revenues for the six months ended April 30, 2009 was $12.6 million, a decrease
of 14.8% from $14.8 million in 2008. Operating expenses for the six months ended April 30, 2009 were
$7.4 million, a decrease of 14.8% from the same period in 2008. Net loss for
the six months ended April 30, 2009 was $847,000, or $0.21 per share, compared
to a net loss of $1.0 million, or $0.26 per share, for the same period in 2008.

Results of Operations

The
following table contains selected information from the Companys consolidated
statements of operations, expressed as a percentage of revenues:

|                            |  |                              |       |                            |  |       |    |      |       |    |  |       |   
|--------------------------- |  | ---------------------------- | ----- | -------------------------- |  | ----- | -- | ---- | ----- | -- |  | ----- | --
|                            |  | Three Months Ended April 30, |       | Six Months Ended April 30, | 
|                            |  | 2009                         |       | 2008                       |  | 2009  |    | 2008 |      
|Revenues                    |  |                              | 100.0 | %                          |  | 100.0 | %  |      | 100.0 | %  |  | 100.0 | % 
|Cost of
 revenues           |  |                              | 46.8  |                            |  | 47.6  |    |      | 47.7  |    |  | 48.6  |   
|Gross margin                |  |                              | 53.2  |                            |  | 52.4  |    |      | 52.3  |    |  | 51.4  |   
|                            |  |                              |       |                            |  |       |    |      |       |    |  |       |   
|Operating
 expenses:        |  |                              |       |                            |  |       |    |      |       |    |  |       |   
|Selling and marketing       |  |                              | 26.0  |                            |  | 31.6  |    |      | 27.0  |    |  | 31.6  |   
|General and administrative  |  |                              | 16.1  |                            |  | 14.3  |    |      | 17.0  |    |  | 16.0  |   
|Research and development    |  |                              | 11.8  |                            |  | 9.7   |    |      | 12.0  |    |  | 8.9   |   
|Amortization of intangibles |  |                              | 2.9   |                            |  | 2.5   |    |      | 2.9   |    |  | 2.5   |   
|                            |  |                              | 56.8  |                            |  | 58.1  |    |      | 58.9  |    |  | 59.0  |   
|Operating
 loss             |  |                              | (3.6  | )                          |  | (5.7  | )  |      | (6.6  | )  |  | (7.6  | ) 
|Interest income             |  |                              | 0.0   |                            |  | 0.6   |    |      | 0.0   |    |  | 0.7   |   
|Loss before
 taxes          |  |                              | (3.6  | )                          |  | (5.1  | )  |      | (6.6  | )  |  | (6.9  | ) 
|Provision for taxes         |  |                              | 0.0   |                            |  | 0.0   |    |      | 0.1   |    |  | 0.2   |   
|Net loss                    |  |                              | (3.6  | %)                         |  | (5.1  | %) |      | (6.7  | %) |  | (7.1  | %)

14

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Table of Contents

The
following paragraphs discuss the Companys performance for the three and
six-month periods ending April 30, 2009 and 2008:

Revenue

Total
revenue for the three and six months ended April 30, 2009, decreased by 15.2%
and 14.8%, respectively, compared to the same periods in 2008. The decrease in
revenue of $1.1 million for the three-month period ended April 30, 2009 was primarily
caused by the general deterioration in the economic environment as hospitals
and other health care facilities continued to delay or freeze spending on
capital projects. A total of $194,000 of the decrease in revenues resulted from
a decrease in clinical research customer revenue due to the 2008 early
conclusion of our large clinical research customers trials.

The
decrease in revenue of $2.2 million for the six month period ended April 30,
2009 was primarily due to the economic conditions, and in part due to $695,000
decrease in clinical research customer revenue from the 2008 early conclusion
of our large clinical research customers trials.

Gross Margin

Gross
margin percentage for the three and six-months ended April 30, 2009 increased
to 53.2% and 52.3% of revenue, respectively, compared to 52.4% and 51.4%,
respectively, for the same periods in 2008. Gross margin percentage for the
three-month period increased by one percentage point as a result of cost
reductions implemented in the second quarter of 2008 as well as an improved
sales mix. The increase in gross margin percentage for the six-month period was
positively impacted by the same factors as the second quarter, but also
included a larger amount of high margin service revenues as a percentage of
total sales.

Selling and Marketing

Selling
and marketing expenses decreased to $1.6 million and $3.4 million,
respectively, for the three and six-month periods ended April 30, 2009 from
$2.3 million and $4.7 million for the same periods in 2008.

The
$697,000, or 30.1%, decrease for the three month period ended April 30, 2009
compared to the same period in 2008, is primarily due to a drop in payroll,
benefits and other employee related expenses of $353,000 related to the
implementation of a Reduction-in-Force (RIF) in the prior year. On April 30,
2008, the Company terminated nine employees as part of an on-going
restructuring. The Company also accrued $65,000 of severance and medical
benefits for those employees related to the selling and marketing function in
the prior year. The Company also paid a one-time non-recurring termination fee
of $63,000 to a distributor in the second quarter of 2008. During the second
quarter of 2009, the Company also eliminated, due to a change in estimate, a portion of senior management
incentive bonus accrual, which decreased operating expense by $57,000. In
addition, commissions decreased by $126,000 as a result of lower revenues due
to the challenging sales environment.

The
$1.3 million, or 27.1%, decrease for the six-month period ended April 30, 2009
is also primarily due to a drop in payroll, benefits and other employee-related
expenses of $769,000. During the first half of 2008, the Company implemented
two RIFs to better manage operating expenses. The Company also paid the
one-time termination fee of $63,000 to a distributor in the second quarter of
2008. As noted above, during the second quarter of 2009, the Company also
eliminated, due to a change in estimate, a portion of senior management incentive bonus accrual, which decreased
operating expense by $57,000. In addition, commissions decreased by $206,000 as
a result of lower revenues due to the challenging sales environment.

15

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Table of Contents

General and Administrative

For
the three months ended April 30, 2009, general and administrative expenses
decreased by $51,000, or 4.9%, compared to the same period in 2008. For the six
months ended April 30, 2009, general and administrative expenses decreased by
$215,000, or 9.1%, compared to the same periods in 2008.

For
the three months ended April 30, 2009, professional fees, mostly related to the audit
function, decreased by $17,000 compared to the same period in 2008. During
the second quarter of 2009, the Company also eliminated a portion of senior
management incentive bonus accrual, due to a change in estimate, which decreased general and administrative
expense by $57,000. This was partially offset by an increase in non-cash stock-based compensation expense of
$55,000, which was incurred as a result of the issuance of options and
restricted stock awards on August 28, 2008. Payroll expense also decreased by
$17,000 since the CFO position was open for half of the second quarter of 2008.

For
the six months ended April 30, 2009, non-cash stock-based compensation expense
increased by $101,000 due to stock option and restricted share grants issued
August 28, 2008. This was offset by a one-time severance payment in 2008 of
$194,000, a decrease in audit and other professional fees of $79,000 and a net
reduction in general and administrative expense of $43,000 when the
Company eliminated a portion of senior management incentive bonus accrual, due to a change in estimate, in
the second quarter.

Research and Development

Research
and development expenses for the three and six months ended April 30, 2009 were
$729,000 and $1.5 million, respectively, compared to $708,000 and $1.3 million,
respectively, for the same period in 2008.

Payroll
and benefits expense increased by $191,000 for the six months ended April 30,
2009 compared to the same period in 2008 as the Company expanded its investment
in new product development and quality assurance. Project expenses associated
with new products increased by $31,000 due to the launch of the updated CCM
Express in the first quarter of 2009. This was partially offset by a decrease in
legal fees of $30,000 due to less patent-related work compared to the prior
year. The Companys current new product development initiatives include
products targeted for hospital intensive care units, cardiology, dietary,
asthma, allergy and primary care physicians, health and fitness club
professionals, as well as international markets.

Amortization of Intangibles

Amortization
of developed technology was $182,000 and $364,000, respectively, for the three
and six months ended April 30, 2009, unchanged from the comparable periods in
2008.

Interest Income

Interest
income for the three months and six month periods ended April 30,
2009 decreased $42,000 and $101,000,
respectively, compared to the same periods in 2008. The decrease in interest
income is principally due to significantly lower market interest rates as the
Company moved its invested cash and cash equivalents into investments where the
main goal is preservation of capital. The Company is exploring alternatives to
increase its interest income while maintaining the highest degree of safety in
its investments.

16

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Provision for Income Taxes

The
Company is required to present the provision for taxes as if it were fully
taxable in accordance with SOP 90-7. With respect to the actual payment of
taxes, however, the Company has utilized its pre-emergence bankruptcy NOLs in
the calculation of its income taxes payable but is still required to pay U.S.
and State alternative minimum taxes (AMT) in certain jurisdictions, even though
it has substantial federal and state NOL carry forwards. During the quarters
ended April 30, 2009 and 2008, the Company did not use any tax benefits related
to pre-emergence bankruptcy NOLs. See note 9 to the consolidated financial
statements, Income Taxes, in this Form 10-Q for additional discussion of the
accounting for income taxes and the use of pre-emergence bankruptcy NOLs.

Liquidity and Capital Resources

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

The
Company had cash and cash equivalents of $9.6 million and working capital of
$15.1 million as of April 30, 2009. During the first half of fiscal 2009, the
Company reported a net loss of $847,000. However, cash flow from operating
activities were $567,000, primarily due to the collections of accounts
receivable for $691,000 and the add-back of non-cash expenses totaling $947,000
for depreciation, amortization and stock-based compensation expense.

Partially
offsetting these cash inflows were a decrease in accounts payable balances of
$162,000, a decrease in employee compensation payables of $102,000 and a
decrease in deferred income of $108,000. Employee compensation accruals
decreased due to a lower bonus accrual for 2009 year-to-date performance
compared to 2008. Accounts payable balances have dropped as the business
environment that the Company operates in has slowed.

For
the six months ended April 30, 2009, the Company used $48,000 in cash for the
purchase of property and equipment and intangible assets. The Company has no
material commitments for capital expenditures for the remainder of fiscal year
2009.

The
Company generated cash from financing activities of $74,000 during the six
months ended April 30, 2009 from the exercise of stock options and the issuance
of shares under the Employee Stock Purchase Plan.

The
Company believes that its liquidity and capital resource needs for at least the
next 12 months will be met through its current cash and cash equivalents as
well as cash flows resulting from operations. In addition, as previously
announced, the Company has developed a market-focused approach to leverage the
strength of its MedGraphics brand and worldwide selling and distribution
capability. Specifically, the Company has held discussions with various
potential product and technology partners. If the Company is successful in
concluding these negotiations, it may use some of its cash and capital
resources in the acquisition of new technologies or businesses. Although the
Company is continuing to look at a number of these opportunities, it currently
has no agreements or understandings with any of these third parties.

17

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Forward Looking
Statements.

The
discussion in this Form 10-Q, including statements in this Management
Discussion and Analysis of Financial Condition and Results of Operations,
contains forward-looking statements about Angeions future financial results
and business prospects that by their nature involve substantial risks and
uncertainties. You can identify these statements by the use of words such as
anticipate, believe, estimate, expect, project, intend,
plan, will,
target, and other words and terms of similar meaning in connection with any
discussion of future operating or financial performance or business plans or
prospects. Our actual results may differ materially depending on a variety of
factors including: (1) national and worldwide economic and capital market
conditions; (2) continuing cost-containment efforts in our hospital, clinics,
and office market, (3) our ability to explore and acquire new businesses and
products that complement our existing products, (4) our ability to successfully
operate our business including our ability to develop, improve, and update our
cardiorespiratory diagnostic products and successfully sell these products
under the MedGraphics and New Leaf Fitness brand names into existing and new
markets, (5) our ability to maintain our cost structure at a level that is
appropriate to our near to mid-term revenue expectations and that will enable
us to increase revenues and profitability as opportunities develop, (6) our
ability to achieve constant margins for our products and consistent and
predictable operating expenses in light of variable revenues from our clinical
research customers, (7) our ability to effectively manufacture and ship
products in required quantities to meet customer demands, (8) our ability to
expand our international revenue through our distribution partners and our
Milan, Italy representative branch office; (9) our ability to successfully
defend ourselves from product liability claims related to our cardiorespiratory
diagnostic products and claims associated with our prior cardiac stimulation
products, (10) our ability to defend our existing intellectual property and to
obtain United States and international intellectual property protection for our
new products; (11) our ability to develop and maintain an effective system of
internal controls and procedures and disclosure controls and procedures, and
(12) our dependence on third-party vendors for some of our products.

Additional
information with respect to the risks and uncertainties faced by the Company
may be found in, and the above discussion is qualified in its entirety by, the
other risk factors that are described from time to time in the Companys
Securities and Exchange Commission reports, including the Annual Report on Form
10-K for the year ended October 31, 2008 and subsequentlyfiled reports.

Item
3. Quantitative and Qualitative Disclosures About Market Risk

None.

Item
4T. Controls and Procedures.

(a) Evaluation of Disclosure Controls and
Procedures

Management,
with the participation of the Companys chief executive officer, Rodney A.
Young, and chief financial officer, William J. Kullback, has evaluated the
effectiveness of the design and operation of the disclosure controls and
procedures, as defined in Rules 13a-15(e) under the Securities Exchange Act of
1934, as of the end of the period covered by this report. Management has
concluded that the Companys disclosure controls and procedures are effective
to ensure that information required to be disclosed in the reports that the
Company files under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the SEC
and that the disclosure controls are also effective to ensure that information
required to be disclosed in the Companys Exchange Act reports is accumulated
and communicated to management, including the chief executive officer and
principal accounting officer, to allow timely decisions regarding required
disclosure.

(b) Changes in Internal
Controls.

There
have been no significant changes in internal control over financial
reporting that occurred during the second fiscal quarter of 2009 that have
materially affected, or are reasonably likely to materially affect, the
registrants internal control over financial reporting.

18

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Table of Contents

PART II  OTHER INFORMATION

Item 1. Legal Proceedings.

From
time to time, the Company is subject to certain claims and lawsuits that are
filed in the ordinary course of business. In addition, the Company brings suit
against others to enforce patent rights or to collect debts in the ordinary
course of business. Management believes that the settlement or other resolution
of all litigation would not have a material effect on the results of operations
or liquidity of the Company.

Item 1A. Risk Factors

The
most significant risk factors applicable to the Company are described in Part
I, Item 1A Risk Factors of our Annual Report on Form 10-K for the year ended
October 31, 2008. Except as set forth below, we believe there have been no
material changes from the risk factors disclosed in that Annual Report on Form
10-K.

The Company is experiencing continuing slowness in
its
sales of its MedGraphics cardiorespiratory products due to cost-containment
measures in its hospital, clinics and physician office market and is unable to
predict when sales in this market will recover.

The
Company sells its MedGraphics brand cardiorespiratory diagnostic systems and
services to hospitals, clinics and physician offices. During the first half of
2009, the Company experienced lower than anticipated sales to these customers
due to continuing slowdowns in orders, delayed capital projects, and cuts in
capital and operating budgets. Although the Company is continuing to market its
new and existing products to these customers, the Company is unable to predict
when these customers will resume traditional or predictable purchasing
patterns.

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

None.

Item 3. Defaults Upon Senior
Securities.

None.

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

Our
Annual Meeting of Shareholders was held on June 3, 2009. Of the 4,120,411 shares
of common stock outstanding and entitled to vote at the meeting as of April 14,
2009, 3,202,577 shares were present, either in person or by proxy. The
following describes the matters considered by the shareholders at the Annual
Meeting, as well as the results of the votes cast at the meeting.

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Table of Contents

Proposal 1:To elect
six directors of the Company to serve until the next Annual Meeting of
Shareholders or until their respective successors have been elected and
qualified.

|                      |  |           |  |         |  |  |  |          | 
|--------------------- |  | --------- |  | ------- |  |  |  | -------- | 
|Nominee               |  |           |  | For     |  |  |  | Withheld | 
|                      |  |           |  |        
|John R.
 Baudhuin     |  | 3,098,677 |  | 103,900
|K. James
 Ehlen, M.D. |  | 3,098,755 |  | 103,822
|John C. Penn          |  | 3,096,683 |  | 105,894
|Paula R.
 Skjefte     |  | 3,098,763 |  | 103,814
|Philip I.
 Smith      |  | 2,754,265 |  | 448,312
|Rodney A.
 Young      |  | 3,098,765 |  | 103,812

Proposal 2:To approve
an amendment to the Angeion Corporation 2007 Stock Incentive Plan to increase
by 100,000 the shares authorized for issuance under the Plan.

|          |     |        |  |         |  |           |  |                
|--------- | --- | ------ |  | ------- |  | --------- |  | ---------------
|          | FOR |        |  | AGAINST |  | ABSTAIN   |  | BROKER NON-VOTE
|          |     |        |  |         |  |          
|1,159,480 |     | 29,138 |  | 56,877  |  | 1,957,082

Item 5. Other Information.

None.

Item
6. Exhibits.

|    |                                                                         
|--- | ------------------------------------------------------------------------
|31. | Certifications
 pursuant to Rules 13a-14 and 15d-14 of the Exchange Act.
|    |                                                                         
|32. | Certifications
 pursuant to 18 U.S.C. § 1350.                           

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Table of Contents

SIGNATURES

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

|               |                                        |                          | 
|-------------- | -------------------------------------- | ------------------------ | 
|               | ANGEION
 CORPORATION                  
|               | (Registrant)                          
|               |                                       
|June 12,
 2009 |                                       
|               |                                       
|               | By:                                    | /s/ Rodney
 A. Young     | 
|               | Rodney A.
 Young                      
|               | President
 and Chief Executive Officer
|               |                                       
|June 12,
 2009 |                                       
|               |                                       
|               | By:                                    | /s/ William
 J. Kullback | 
|               | William J.
 Kullback                  
|               | Chief
 Financial Officer              

21

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