**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

#### **Washington,D.C.  20549**

#### ** **

**FORM 10-Q**

 
| **x**                                                    | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT  OF 1934**  |
|----------------------------------------------------------|----------------------------------------------------------------------------------------------------------|
| **for the quarterly period ended April 30,  2008.** |
| **OR**                                                   |
| o                                                        | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |

**for the transition period from                       to                      .**

 

**Commission File Number**  **001-13543**

 

**ANGEIONCORPORATION**

(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, Minnesota55127-8599**

(Address of principal executive offices)

 

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

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.
| **Yes**x | **No**o | ** ** |
|----------|---------|------------|

 

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, a non-accelerated filer, or a smaller reportingcompany. See definitions of “large accelerated filer,” “accelerated filer,” and“smaller reporting company” in Rule 12b-2 of the Exchange Act. (Checkone):

 

| Large  accelerated filer o                     |   | Accelerated  filer o         |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non-accelerated  filer o                       |   | Smaller  reporting company x |
| (Do  not check if a smaller reporting company) |   |                              |

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).
| **Yes**o | **No**x | ** ** |
|----------|---------|------------|

 

Asof June 13, 2008, the Company had outstanding 4,089,803 shares of CommonStock, $0.10 par value.

 

 

----

 

**TABLE OF CONTENTS**

 
| ***PART I – FINANCIAL INFORMATION*** |
|------------------------------------------------|
| * *                                       |
| Item 1.                                        | Financial Statements |
| Item 2.                                        | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |
| Item 3.                                        | Quantitative  and Qualitative Disclosures about Market Risk |
| Item 4.                                        | Controls and  Procedures |
| Item 4T.                                       | Controls and  Procedures |
|                                           |
| **PART II  – OTHER INFORMATION**     |
|                                           |
| Item 1.                                        | Legal Proceedings |
| Item 1A.                                       | Risk Factors |
| Item 2.                                        | Unregistered  Sales of Equity Securities and Use of Proceeds |
| Item 3.                                        | Defaults Upon  Senior Securities |
| Item 4.                                        | Submission of  Matters to a Vote of Security Holders |
| Item 5.                                        | Other  Information |
| Item 6.                                        | Exhibits |
|                                           |
| **SIGNATURES**                                 |

 

2

----

 

**PART I – FINANCIAL INFORMATION**

 

**Item1.  Financial Statements.**

 

**ANGEION CORPORATION AND SUBSIDIARIES**

**Consolidated Balance Sheets**

**April 30, 2008 and October 31, 2007**

(inthousands except share and per share data)

 
| ** **                                                                                                                                   | ** ** | **April 30,** | ** ** | **October 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|----------------------|------------|
| ** **                                                                                                                                   | ** ** | **2008**           | ** ** | **2007**             | ** ** |
| ** **                                                                                                                                   | ** ** | **(unaudited)**    | ** ** | ** **           | ** ** |
| **Assets**                                                                                                                                   |       |               |       |                 |       |
| **Current assets:**                                                                                                                          |       |               |       |                 |       |
| Cash and cash equivalents                                                                                                                    |       | $                  | 7,089      |                 | $          | 6,908 |   |
| Accounts receivable, net of allowance for  doubtful accounts of $84 and $85, respectively                                                    |       | 5,816              |       | 7,950                |       |
| Inventories                                                                                                                                  |       | 6,130              |       | 5,310                |       |
| Prepaid expenses and other current assets                                                                                                    |       | 280                |       | 347                  |       |
| Total current assets                                                                                                                         | ** ** | **19,315**         | ** ** | **20,515**           | ** ** |
|                                                                                                                                         |       |               |       |                 |       |
| Property and equipment, net of accumulated depreciation  of $2,700 and $2,453, respectively                                                  |       | 1,168              |       | 1,302                |       |
| Intangible assets, net                                                                                                                       |       | 2,352              |       | 2,716                |       |
| **Total Assets**                                                                                                                             | ** ** | **$**              | **22,835** | ** **           | **$**      | **24,533** | ** ** |
|                                                                                                                                         |       |               |       |                 |       |
| **Liabilities  and Shareholders’ Equity**                                                                                               |       |               |       |                 |       |
| **Current liabilities:**                                                                                                                     |       |               |       |                 |       |
| Accounts payable                                                                                                                             |       | $                  | 1,398      |                 | $          | 1,859 |   |
| Employee compensation                                                                                                                        |       | 1,626              |       | 2,041                |       |
| Deferred income                                                                                                                              |       | 1,867              |       | 1,839                |       |
| Warranty reserve                                                                                                                             |       | 188                |       | 253                  |       |
| Other current liabilities and accrued  expenses                                                                                              |       | 373                |       | 369                  |       |
| Total current liabilities                                                                                                                    |       | 5,452              |       | 6,361                |       |
|                                                                                                                                         |       |               |       |                 |       |
| **Long-term liabilities:**                                                                                                                   |       |               |       |                 |       |
| Long-term deferred income                                                                                                                    |       | 774                |       | 743                  |       |
| **Total Liabilities**                                                                                                                        |       | 6,226              |       | 7,104                |       |
|                                                                                                                                         |       |               |       |                 |       |
| **Shareholders’ equity:**                                                                                                               |       |               |       |                 |       |
| Common stock, $0.10 par value, authorized  25,000,000 shares, issued and outstanding, 4,089,803 shares in 2008 and  4,088,445 shares in 2007 |       | 409                |       | 409                  |       |
| Additional paid-in capital                                                                                                                   |       | 20,651             |       | 20,423               |       |
| Accumulated deficit                                                                                                                          |       | (4,451             | )          | (3,403               | )          |
| Total shareholders’ equity                                                                                                              |       | 16,609             |       | 17,429               |       |
| **Total Liabilities and Shareholders’ Equity**                                                                                          | ** ** | **$**              | **22,835** | ** **           | **$**      | **24,533** | ** ** |

 

See accompanying notes toconsolidated financial statements.

 

3

----

 

**ANGEION CORPORATION AND SUBSIDIARIES**

**Consolidated Statements of Earnings**

(unaudited,in thousands except per share amounts)

 
| ** **                                     | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                     | ** ** | **April 30,**               | ** ** | **April 30,**             | ** ** |
| ** **                                     | ** ** | **2008**                         | ** ** | **2007**                       | ** ** | **2008** | ** ** | **2007** | ** ** |
| **Revenues**                                   | ** ** | ** **                       | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Equipment and supply sales                     |       | $                                | 6,405      |                           | $          | 9,147 |   | $ | 13,037 |   | $ | 19,035 |   |
| Service revenue                                |       | 912                              |       | 813                            |       | 1,789 |   | 1,544 |   |
|                                           |       | 7,317                            |       | 9,960                          |       | 14,826 |   | 20,579 |   |
| **Cost of sales**                              |       |                             |       |                           |       |   |   |   |   |
| Cost of equipment and supplies                 |       | 3,346                            |       | 4,811                          |       | 6,961 |   | 10,031 |   |
| Cost of service revenue                        |       | 135                              |       | 123                            |       | 251 |   | 235 |   |
|                                           |       | 3,481                            |       | 4,934                          |       | 7,212 |   | 10,266 |   |
|                                           |       |                             |       |                           |       |   |   |   |   |
| **Gross margin**                               |       | 3,836                            |       | 5,026                          |       | 7,614 |   | 10,313 |   |
|                                           |       |                             |       |                           |       |   |   |   |   |
| **Operating expenses:**                        |       |                             |       |                           |       |   |   |   |   |
| Selling and marketing                          |       | 2,312                            |       | 2,536                          |       | 4,683 |   | 5,011 |   |
| General and administrative                     |       | 1,049                            |       | 887                            |       | 2,367 |   | 2,047 |   |
| Research and development                       |       | 708                              |       | 693                            |       | 1,326 |   | 1,368 |   |
| Amortization of intangibles                    |       | 182                              |       | 190                            |       | 364 |   | 385 |   |
|                                           |       | 4,251                            |       | 4,306                          |       | 8,740 |   | 8,811 |   |
|                                           |       |                             |       |                           |       |   |   |   |   |
| **Operating income / (loss)**                  |       | (415                             | )          | 720                            |       | (1,126 | ) | 1,502 |   |
| Interest income                                |       | 42                               |       | 47                             |       | 105 |   | 83 |   |
|                                           |       |                             |       |                           |       |   |   |   |   |
| **Income / (loss) before taxes**               |       | (373                             | )          | 767                            |       | (1,021 | ) | 1,585 |   |
| Provision for taxes                            |       | —                           |       | 314                            |       | 27 |   | 643 |   |
|                                           |       |                             |       |                           |       |   |   |   |   |
| **Net income / (loss)**                        |       | $                                | (373       | )                              | $          | 453 |   | $ | (1,048 | ) | $ | 942 |   |
|                                           |       |                             |       |                           |       |   |   |   |   |
| **Earnings / (loss) per share - basic**        |       |                             |       |                           |       |   |   |   |   |
| Net income (loss) per share                    |       | $                                | (0.09      | )                              | $          | 0.11 |   | $ | (0.26 | ) | $ | 0.24 |   |
|                                           |       |                             |       |                           |       |   |   |   |   |
| **Earnings / (loss) per share - diluted**      |       |                             |       |                           |       |   |   |   |   |
| Net income (loss) per share                    |       | $                                | (0.09      | )                              | $          | 0.11 |   | $ | (0.26 | ) | $ | 0.22 |   |
|                                           |       |                             |       |                           |       |   |   |   |   |
| **Weighted average common shares outstanding** |       |                             |       |                           |       |   |   |   |   |
| **Basic**                                      |       | 4,090                            |       | 3,945                          |       | 4,089 |   | 3,890 |   |
| **Diluted**                                    |       | 4,090                            |       | 4,310                          |       | 4,089 |   | 4,279 |   |

 

See accompanying notes toconsolidated financial statements.

 

4

----

 

**ANGEION CORPORATION AND SUBSIDIARIES**

**Consolidated Statements of Cash Flows**

(unaudited,in thousands)

 
| ** **                                                                                                                                                                                                                                                           | ** ** | **Six Months Ended** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                                                                                                                                                                                                           | ** ** | **April 30,**             | ** ** |
| ** **                                                                                                                                                                                                                                                           | ** ** | **2008**                       | ** ** | **2007** | ** ** |
| **Cash Flows From Operating Activities:**                                                                                                                                                                                                                            |       |                           |       |   |   |
| Net income / (loss)                                                                                                                                                                                                                                                  |       | $                              | (1,048     | ) | $ | 942 |   |
| Adjustments to reconcile net income (loss)  to net cash provided by (used in) operating activities:                                                                                                                                                                  |       |                           |       |   |   |
| Depreciation and amortization                                                                                                                                                                                                                                        |       | 611                            |       | 553 |   |
| Stock-based compensation                                                                                                                                                                                                                                             |       | 217                            |       | 7 |   |
| Deferred income taxes                                                                                                                                                                                                                                                |       | —                         |       | 467 |   |
| Changes in operating assets and  liabilities:                                                                                                                                                                                                                        |       |                           |       |   |   |
| Accounts receivable                                                                                                                                                                                                                                                  |       | 2,134                          |       | (2,123 | ) |
| Inventories                                                                                                                                                                                                                                                          |       | (820                           | )          | 205 |   |
| Prepaid expenses and other current assets                                                                                                                                                                                                                            |       | 67                             |       | (48 | ) |
| Accounts payable                                                                                                                                                                                                                                                     |       | (460                           | )          | 232 |   |
| Employee compensation                                                                                                                                                                                                                                                |       | (415                           | )          | (474 | ) |
| Deferred income                                                                                                                                                                                                                                                      |       | 59                             |       | (736 | ) |
| Warranty reserve                                                                                                                                                                                                                                                     |       | (65                            | )          | (25 | ) |
| Other current liabilities and accrued  expenses                                                                                                                                                                                                                      |       | 3                              |       | (62 | ) |
| Net cash provided by (used in) operating  activities                                                                                                                                                                                                                 |       | 283                            |       | (1,062 | ) |
|                                                                                                                                                                                                                                                                 |       |                           |       |   |   |
| **Cash Flows From Investing Activities:**                                                                                                                                                                                                                            |       |                           |       |   |   |
| Purchase of property and equipment                                                                                                                                                                                                                                   |       | (113                           | )          | (159 | ) |
| Net cash used in investing activities                                                                                                                                                                                                                                |       | (113                           | )          | (159 | ) |
|                                                                                                                                                                                                                                                                 |       |                           |       |   |   |
| **Cash Flows From Financing Activities:**                                                                                                                                                                                                                            |       |                           |       |   |   |
| Proceeds from issuance of common stock under  employee stock purchase plan                                                                                                                                                                                           |       | 11                             |       | 18 |   |
| Proceeds from the exercise of stock options                                                                                                                                                                                                                          |       | —                         |       | 1,108 |   |
| Proceeds from the exercise of warrants                                                                                                                                                                                                                               |       | —                         |       | 257 |   |
| Tax benefit from stock options exercised                                                                                                                                                                                                                             |       | —                         |       | 155 |   |
| Net cash provided by financing activities                                                                                                                                                                                                                            |       | 11                             |       | 1,538 |   |
|                                                                                                                                                                                                                                                                 |       |                           |       |   |   |
| **Net increase in cash and cash equivalents**                                                                                                                                                                                                                        |       | 181                            |       | 317 |   |
|                                                                                                                                                                                                                                                                 |       |                           |       |   |   |
| **Cash and cash equivalents at beginning of  period**                                                                                                                                                                                                                |       | 6,908                          |       | 4,069 |   |
|                                                                                                                                                                                                                                                                 |       |                           |       |   |   |
| **Cash and cash equivalents at end of period**                                                                                                                                                                                                                       | ** ** | **$**                          | **7,089**  | ** ** | **$** | **4,386** | ** ** |
| **Supplemental disclosure of non-cash investing  activities:**                                                                                                                                                                                                       | ** ** | ** **                     | ** ** | ** ** | ** ** |
| During the six months ended April 30, 2007, the Company  decreased intangible assets by $467,000 with an offsetting decrease to the  deferred tax valuation allowance of $467,000 for the usage of pre-emergence bankruptcy  net operating loss carry forwards. |       |                           |       |   |   |

 

See accompanying notes toconsolidated financial statements.

 

5

----

 

**ANGEIONCORPORATION**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**1.****                                      Basisof Presentation and Description of Business**

 

Angeion Corporation (the “Company”) through its Medical Graphics Corporationsubsidiary, designs and markets non-invasive cardiorespiratory diagnosticsystems that are sold under the MedGraphics and New Leaf brand and tradenames.  These cardiorespiratorydiagnostic systems have a wide range of applications in healthcare, wellnessand health and fitness.

 

Theconsolidated balance sheet as of April 30, 2008, the consolidatedstatements of earnings for the three and six months ended April 30, 2008and 2007, and cash flows for the six months ended April 30, 2008 and 2007,and the related information presented in these notes have been prepared bymanagement in accordance with U.S. generally accepted accounting principles forinterim financial information and with the instructions to Form 10-Q and Rule 10-01of Regulation S-X, without audit. Accordingly, they do not include all of the information and notesrequired by U.S. generally accepted accounting principles for completefinancial statements.  In the opinion ofmanagement, all adjustments considered necessary for a fair presentation ofresults have been included.  Theconsolidated balance sheet at October 31, 2007 was derived from theaudited consolidated financial statements as of that date.  Operating results for the three and sixmonths ended April 30, 2008 are not necessarily indicative of the resultsthat may be expected for the year ending October 31, 2008.  For further information, refer to theconsolidated financial statements and notes thereto included in AngeionCorporation’s Annual Report on Form 10-K for the year ended October 31,2007.

 

Comprehensiveincome (loss) is a measure of all non-owner changes in shareholders’ equity andincludes items such as net income, certain foreign currency translation items,minimum pension liability adjustments and changes in the value ofavailable-for-sale securities.  For thethree and six months ended April 30, 2008 and 2007, comprehensive income(loss) for Angeion Corporation was equivalent to net income (loss) as reported.

 

Preparationof the consolidated financial statements in conformity with U.S. generallyaccepted accounting principles requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities anddisclosures of contingent assets and liabilities made in the consolidatedfinancial 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 AccountingBulletin No. 104, “*Revenue Recognition*,”the Company recognizes revenue when persuasive evidence of an arrangementexists, transfer of title has occurred or services have been rendered, theselling price is fixed or determinable and collectability is reasonablyassured.  The Company’s products are soldfor cash or on credit terms requiring payment based on the shipment date.  Credit terms can vary between customers dueto many factors, but are generally 30-60 days. Revenue, net of discounts, is recognized upon shipment or delivery tocustomers in accordance with written sales terms.  Standard sales terms do not include customeracceptance conditions, future credits, rebates, price protection or generalrights of return.  The terms of sales toboth domestic customers and international distributors are identical.  In instances when a customer order specifiesfinal acceptance of the system, revenue is deferred until all customeracceptance criteria have been met. Estimated warranty obligations are recorded upon shipment.

 

6

----

 

Service contract revenue is based on a statedcontractual rate and is deferred and recognized ratably over the serviceperiod, which is typically from one to four years.  In accordance with paragraph 4 of theEmerging Issues Task Force abstract 00-21, “*Revenue Arrangements withMultiple Deliverables*,” the Company applies Financial AccountingStandards Board (“FASB”) Technical BulletinNo. 90-1 to service contract revenue. Deferred income associatedwith service contracts and supplies was$2,221,000 and $2,120,000 at April 30, 2008 and October 31, 2007,respectively. Revenue from installation and training services providedto customers is deferred until the service has been performed.  The amount of deferred installation andtraining revenue was $350,000 and $365,000 at April 30, 2008 and October 31,2007, respectively.

 

**When a sale involves multiple deliverables,such as equipment, installation services and training, the amount of the considerationfrom an arrangement is allocated to each respective element based on theresidual method and recognized as revenue when revenue recognition criteria foreach element is met.  Considerationallocated to delivered equipment is equal to the total arrangementconsideration less the fair value of installation and training.  The fair value of installation and trainingservices is based on specific objective evidence, including third-partyinvoices.**

 

**The Company had one customer that accountedfor 23.8% of revenues for both the three and six months ended April 30,2007.  No customer accounted for morethan 10% of revenues for the three and six months ended April 30, 2008.**

 

***Advance Payments from Customers***

 

TheCompany typically does not receive advance payments from its customers inconnection with the sale of its products. The Company occasionally enters into an arrangement under which acustomer agrees to purchase a large quantity of product that is to be deliveredover a period of time.  Depending on the sizeof these arrangements, the Company may negotiate an advance payment from thesecustomers.  Advance payments fromcustomers aggregating $70,000 and $97,000 as of April 30, 2008 and October 31,2007, respectively, are included in deferred income on the consolidated balancesheets.  Revenue recognition for customerorders that include advance payments is consistent with the Company’s revenuerecognition policy described above.

 

**3.****                                      New Accounting Pronouncements**

 

InMay 2008, the FASB issued Statements of Financial Standards No. 162(SFAS 162), “The Hierarchy of Generally Accepted Accounting Principles.” SFAS162 is intended to improve financial reporting by identifying a consistentframework, or hierarchy, for selecting accounting principles to be used in preparingfinancial statements that are presented in conformity with U.S. generallyaccepted accounting principles (GAAP) for nongovernmental entities.

 

Prior to the issuance of SFAS162, GAAP hierarchy was defined in the American Institute of Certified PublicAccountants (AICPA) Statement on Auditing Standards No. 69 (SAS 69), “TheMeaning of Present Fairly in Conformity With Generally Accepted AccountingPrinciples.” SAS 69 has been criticized because it is directed to the auditorrather than the entity. SFAS 162 addresses these issues by establishing thatthe GAAP hierarchy should be directed to entities because it is the entity (notits auditor) that is responsible for selecting accounting principles forfinancial statements that are presented in conformity with GAAP.

 

SFAS 162 is effective 60 daysfollowing the SEC’s approval of the Public Company Accounting Oversight BoardAuditing amendments to AU Section 411, “The Meaning of Present Fairlyin Conformity with Generally Accepted Accounting Principles.”  The Company does not expect SFAS 162 to havea material effect on its consolidated financial statements.

 

7

----

 

During May 2008, the FASBissued SFAS 163, “*Accounting for Financial Guarantee InsuranceContracts*.”  SFAS 163 providesenhanced guidance on the recognition and measurement to be used to account forpremium revenue and claim liabilities and related disclosures and is limited tofinancial guarantee insurance (and reinsurance) contracts, issued by enterprisesincluded within the scope of FASB Statement No. 60, “*Accountingand Reporting by Insurance Enterprises*”.  SFAS 163 also requires that an insuranceenterprise recognize a claim liability prior to an event of default when thereis evidence that credit deterioration has occurred in an insured financialobligation.  SFAS 163 is effective forfinancial statements issued for fiscal years and interim periods beginningafter December 15, 2008, with early application not permitted.  The Company does not expect SFAS 163 to havean impact on its consolidated financial statements.

 

In September 2006, the FASB issued SFAS No. 157,*Fair Value Measurements* (“SFAS No. 157”),which is effective for fiscal years beginning after November 15, 2007 andfor interim periods within those years. This statement defines fair value, establishes a framework for measuringfair value and expands the related disclosure requirements.  The Company is currently evaluating theimpact of SFAS No. 157 on its consolidated financial statements.

 

InFebruary 2008, the FASB issued FASB Staff Position (FSP) FinancialAccounting Standard (FAS) 157-1, *Applicationof FASB Statement No. 157 to FASB Statement No. 13 and Its RelatedInterpretive Accounting Pronouncements That Address Leasing Transactions*, and FSP FAS 157-2, *Effective Date of FASBStatement No. 157* . FSP FAS 157-1 removes leasing from thescope of SFAS No. 157, “Fair Value Measurements.” FSP FAS 157-2 delays theeffective date of SFAS No. 157 from 2008 to 2009 for all nonfinancialassets and nonfinancial liabilities, except those that are recognized ordisclosed at fair value in the financial statements on a recurring basis (atleast annually). See SFAS No. 157 discussion above.

 

InDecember 2007, the FASB issued SFAS No. 141 (revised 2007) *Business Combinations* (SFAS No. 141(R)).SFAS No. 141(R) retains the fundamental requirements of the originalpronouncement requiring that the purchase method be used for all businesscombinations. SFAS No. 141(R) defines the acquirer as the entity thatobtains control of one or more businesses in the business combination,establishes the acquisition date as the date that the acquirer achieves controland requires the acquirer to recognize the assets acquired, liabilities assumedand any noncontrolling interest at their fair values as of the acquisitiondate. SFAS No. 141(R) also requires that acquisition-related costs berecognized separately from the acquisition. SFAS No. 141(R) iseffective for fiscal years beginning on or after December 15, 2008. TheCompany is currently assessing the impact of SFAS No. 141(R) on itsconsolidated financial statements.

 

InDecember 2007, the FASB issued Statement No. 160, *Noncontrolling Interests in Consolidated FinancialStatements*(SFAS No. 160).SFAS No. 160 clarifies that a noncontrolling interest in a subsidiaryshould be reported as equity in the consolidated financial statements.Consolidated net income should include the net income for both the parent andthe noncontrolling interest with disclosure of both amounts on the consolidatedstatement of income. The calculation of earnings per share will continue to bebased on income amounts attributable to the parent. SFAS No. 160 iseffective for fiscal years beginning on or after December 15, 2008. TheCompany is currently assessing the impact of SFAS No. 160 on itsconsolidated financial statements.

 

**4.****                                     ****Share-BasedCompensation and Stock Options**

 

Effective November 1, 2006,the Company adopted the provisions of FASB Statement No. 123 (revised2004), *Share-Based Payment* (“SFAS No. 123R”).  Under the fair value recognition provisionsof SFAS No. 123R, the Company measures stock-based compensation cost atthe grant date based on the

 

8

----

 

fair value of the award and recognizes thecompensation expense over the requisite service period, which is generally thevesting period.  The Company elected themodified-prospective method of adopting SFAS No. 123R, under which priorperiods are not retroactively restated. The provisions of SFAS No. 123R apply to awards granted, modifiedor cancelled after the November 1, 2006 effective date.  There were no non-vested awards outstandingon the effective date for SFAS No. 123R. Total share-based compensation expense included in the Company’sstatement of earnings for the three and six months ended April 30, 2008was $106,000 and $217,000, respectively, compared to $4,000 and $7,000 for thethree and six months ended April 30, 2007, respectively.

 

***StockOptions***

 

Under the Angeion Corporation 2002Stock Option Plan (the “2002 Plan”), the Company had reserved 800,000 shares ofits common stock for issuance upon exercise of stock options.  As of April 30, 2008, options for800,000 shares had been granted, 426,850 shares had been issued upon exerciseof options, 950 were forfeited and options to purchase 372,200 shares remainedoutstanding.  In connection with ouradoption of the 2007 Stock Incentive Plan described below, the 2002 Plan wasamended to provide that no new options could be granted under the 2002 Plan.

 

At a Special Meeting ofShareholders held on August 22, 2007, the shareholders approved theAngeion Corporation 2007 Stock Incentive Plan (the “2007 Plan”) and reserved250,000 shares of its common stock for issuance upon exercise of stock optionsunder the 2007 Plan.  As of April 30,2008, options for 226,420 shares were outstanding and 23,580 shares wereavailable for future grant.

 

At the 2008 Annual Meeting ofShareholders held on May 20, 2008, the shareholders approved an amendmentto the 2007 Plan that increased the authorized shares of common stock forissuance upon exercise of stock options by 300,000 to a total of 550,000shares.

 

The 2007 Plan and 2002 Plan bothprovide that incentive stock options and nonqualified stock options to purchaseshares of common stock may be granted at prices determined by the CompensationCommittee, except that the purchase price of incentive stock options may not beless than the fair market value of the stock at date of grant.  Under the 2007 Plan, all options expire nolater than seven years from the grant date while under the 2002 Plan, alloptions expire no later than ten years from the grant date.  Options under both plans are subject tovarious vesting schedules.

 
| ** **                       | ** ** | **For the six months ended** | ** ** |
|----------------------------------|------------|--------------------------------------------------|------------|
| ** **                       | ** ** | **April 30, 2008**                     | ** ** | **April 30, 2007** | ** ** |
| ** **                       | ** ** | **Shares**                                       | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
| Outstanding at beginning of year |       | 611,120                                          |       | $ | 6.12 |   | 624,187 |   | $ | 5.03 |   |
| Granted                          |       | 12,000                                           |       | 7.20 |   | 1,536 |   | 11.62 |   |
| Exercised                        |       | —                                           |       | — |   | (227,437 | ) | 4.95 |   |
| Expired or cancelled             |       | (24,500                                          | )          | 7.81 |   | — |   | — |   |
| Outstanding at end of period     |       | 598,620                                          |       | $ | 6.07 |   | 398,286 |   | $ | 5.10 |   |

 

9

----

 

The following table summarizes information concerning stock optionsoutstanding as of April 30, 2008:

 
| ** **   | ** ** | ** **      | ** ** | **Weighted**    | ** ** | ** **          | ** ** |
|--------------|------------|-----------------|------------|-----------------|------------|---------------------|------------|
| ** **   | ** ** | ** **      | ** ** | **Average**     | ** ** | ** **          | ** ** |
| ** **   | ** ** | ** **      | ** ** | **Remaining**   | ** ** | **Number**          | ** ** |
| **Exercise** | ** ** | **Number**      | ** ** | **Contractual** | ** ** | **Subject to** | ** ** |
| **Prices**   | ** ** | **Outstanding** | ** ** | **Life**        | ** ** | **Exercise**        | ** ** |
| $            | 2.00       |            |       | 11,650          |       | 5.44                |       | 11,650 |   |
| 2.53         |       |            | 97,000     |            | 7.38       |                | 97,000     |   |
| 5.08         |       |            | 84,000     |            | 8.07       |                | 84,000     |   |
| 6.23         |       |            | 84,500     |            | 5.80       |                | 84,500     |   |
| 6.60         |       |            | 78,250     |            | 6.31       |                | 6,666      |   |
| 7.08         |       |            | 10,000     |            | 6.92       |                | —     |   |
| 7.79         |       |            | 86,800     |            | 5.44       |                | 86,800     |   |
| 7.81         |       |            | 2,000      |            | 6.52       |                | —     |   |
| 7.86         |       |            | 144,420    |            | 6.50       |                | —     |   |
|         |       |            |       |            |       |                |       |   |
| Total        |       |            | 598,620    |            | 6.42       |                | 370,616    |   |

 

The total intrinsic value ofoptions exercised during the three and six months ended April 30, 2008 was$0.  The total intrinsic value of optionsoutstanding and exercisable at April 30, 2008 was $836,000 and $789,000,respectively, which was calculated using the closing stock price as of April 30,2008 less the exercise price of in-the-money options.  The Company issues new shares when stockoptions are exercised.  There was no cashreceived from the exercise of stock options or related tax benefits recognizedfor the three and six month period ended April 30, 2008.  Unrecognized compensation expense related tooutstanding stock options as of April 30, 2008 was $1,014,000 and isexpected to be recognized over a weighted average period of 2.49 years and willbe adjusted for any future changes in estimated forfeitures.

 

The following table presents thestatement of earnings classification of pre-tax share-based compensationexpense recognized for the three and six months ended April 30, 2008:

 
| **(In thousands)**          | ** ** | **Three Months  Ended  April 30, 2008** | ** ** | **Six Months  Ended  April 30, 2008** | ** ** |
|----------------------------------|------------|--------------------------------------------------------|------------|------------------------------------------------------|------------|
| Cost of goods sold               |       | $                                                      | 12         |                                                 | $          | 18 |   |
| Selling and marketing            |       | 24                                                     |       | 55                                                   |       |
| General and administrative       |       | 61                                                     |       | 129                                                  |       |
| Research and development         |       | 9                                                      |       | 15                                                   |       |
| Share-based compensation expense |       | $                                                      | 106        |                                                 | $          | 217 |   |

 

***ValuationAssumptions***

 

The Company uses the Black-Scholesoption-pricing model (“Black-Scholes model”) to determine the fair value ofstock options as of the grant date.  Thefair value of stock options under the Black-Scholes model requires managementto make assumptions regarding projected employee stock option exercisebehaviors, risk-free interest rates, volatility of the Company’s stock priceand expected dividends.

 

10

----

 

***Employee Stock Purchase Plan***

 

The Angeion Corporation 2003Employee Stock Purchase Plan (“Stock Plan”) allows participating employees topurchase shares of the Company’s common stock at a discount through payrolldeductions.  The Stock Plan is availableto all employees subject to certain eligibility requirements.  Terms of the Stock Plan provide thatparticipating employees may purchase the Company’s common stock on a voluntaryafter tax basis.  Historically, employeescould purchase the Company’s common stock at a price that is no less than thelower of 85% of the fair market value of one share of common stock at thebeginning or end of each stock purchase period or phase.  The Company increased the price at whichcommon stock may be purchased to 95% of the market value effective January 1,2007.  The Stock Plan is carried out insix-month phases, with phases beginning on January 1 and July 1 ofeach calendar year.  For the phase thatended on December 31, 2007, employees purchased 1,348 shares at a price of$7.81 per share.  As of April 30,2008, the Company has withheld approximately $7,020 from employeesparticipating in the phase that began on January 1, 2008.  At April 30, 2008, approximately 69,085shares of common stock were available for future purchase under the Stock Plan.

 

**5.****                                      Inventories**

 

**Inventoriesconsisted of the following at April 30, 2008 and October 31, 2007:**

 
| **(In thousands)** | ** ** | **2008** | ** ** | **2007** | ** ** |
|-------------------------|------------|----------|------------|----------|------------|
| Raw materials           |       | $        | 2,632      |     | $          | 2,380 |   |
| Work-in-Process         |       | 391      |       | 177      |       |
| Finished goods          |       | 3,107    |       | 2,753    |       |
|                    |       | $        | 6,130      |     | $          | 5,310 |   |

 

**6.****                                      IntangibleAssets and Goodwill**

 

**Intangible assetsconsisted of the following at April 30, 2008 and October 31, 2007:**

 
| **(In thousands)** | ** ** | **2008** | ** ** | **2007** | ** ** |
|-------------------------|------------|----------|------------|----------|------------|
| Intangible assets:      |       |     |       |     |       |
| Developed technology    |       | $        | 6,663      |     | $          | 6,663 |   |
| Amortization            |       | (4,311   | )          | (3,947   | )          |
|                    |       | $        | 2,352      |     | $          | 2,716 |   |

 

The intangible assets are being amortized using the straight-line methodover the estimated useful lives of the assets that range from three to tenyears.  Amortization expense was $364,000and $385,000 for the six months ended April 30, 2008 and 2007,respectively.  If the Company continuesto utilize pre-emergence bankruptcy net operating loss carry forwards, theCompany will further reduce the carrying cost of its developed technology untilthe net carrying cost of these assets is zero. To the extent that utilization of these NOLs reduces the cost ofdeveloped technology, future amortization expense will be reduced.

 

11

----

 

Estimated amortization expense for each of the succeeding fiscal yearsbased on the intangible assets as of April 30, 2008, which does notreflect the possible reduction discussed above, is as follows:

 
| **(In thousands)**                 | ** ** | **Amortization** | ** ** |
|-----------------------------------------|------------|------------------|------------|
| Six months ending October 31, 2008 |       | $                | 364        |   |
| 2009                                    |       | 727              |       |
| 2010                                    |       | 421              |       |
| 2011                                    |       | 420              |       |
| 2012                                    |       | 420              |       |
|                                    |       | $                | 2,352      |   |

 

The Company did not realize anypre-bankruptcy tax benefits for the six months ended April 30, 2008.   Therefore, there were no non-amortizationchanges in the cost of intangible assets from October 31, 2007.

 

**7.****                                      WarrantyReserve**

 

Sales of the Company’s equipment are subject to a warrantyobligation.  Equipment warranties typicallyextend for a period of twelve months from the date of installation.  Standard warranty terms are included incustomer contracts.  Under the terms ofthese warranties, the Company is obligated to repair or replace any componentsor assemblies that it deems defective in workmanship or materials.  The Company reserves the right to rejectwarranty claims where it determines that failure is due to normal wear,customer modifications, improper maintenance or misuse.  The Company maintains a warranty reserve thatreflects the estimated expenses that it will incur to honor the warranties onits products.  The Company adjusts thewarranty reserve based on the number and type of equipment that is subject towarranty, adjusted for the remaining months of warranty coverage.  The warranty reserve adjustment reflects theCompany’s historical warranty experience based on type of equipment.  Warranty provisions and claims for the sixmonths ended April 30, 2008 and 2007 were as follows:

 
| **(In thousands)**      | ** ** | **2008** | ** ** | **2007** | ** ** |
|------------------------------|------------|----------|------------|----------|------------|
| Balance, beginning of period |       | $        | 253        |     | $          | 335 |   |
| Warranty provisions          |       | 142      |       | 311      |       |
| Warranty claims              |       | (207     | )          | (336     | )          |
| Balance, end of period       |       | $        | 188        |     | $          | 310 |   |

 

**8.****                                     ****Earnings (Loss) per Share**

 

**Basic earnings(loss) per share is computed by dividing net earnings (loss) by the weightedaverage shares outstanding during the reporting period.  Diluted earnings (loss) per share is computedsimilarly to basic earnings (loss) per share except that in computing incomeper share the weighted average shares outstanding are increased to includeadditional shares from the assumed exercise of stock options or warrants, ifdilutive.  The number of additionalshares is calculated by assuming that outstanding stock options or warrantswere exercised and that the proceeds from the exercise were used to acquireshares of common stock at the average market price during the reporting period.**

 

**The Company had142,870 warrants outstanding at April 30, 2007 to purchase shares of itscommon stock.  There were no warrantsthat remained outstanding at April 30, 2008 as all unexercised warrantsexpired by their terms on October 31, 2007.  The Company also had options outstanding at April 30,2008 and 2007 to purchase 598,620 and 398,286 shares, respectively, of itscommon stock.  As a**

 

**12**

----

 

**result of the net loss in the first andsecond quarters 2008, the outstanding stock options were consideredantidilutive and, therefore, were excluded from diluted earnings (loss) pershare.**

 

Shares used in the earnings (loss) per sharecomputations are as follows:

 
| ** **                                            | ** ** | **Three Months Ended  April 30,** | ** ** | **Six Months Ended  April 30,** | ** ** |
|-------------------------------------------------------|------------|--------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                            | ** ** | **2008**                                         | ** ** | **2007**                                       | ** ** | **2008** | ** ** | **2007** | ** ** |
| Weighted average common shares outstanding  - basic   |       | 4,090                                            |       | 3,945                                          |       | 4,089 |   | 3,890 |   |
| Dilutive effect of stock options                      |       | —                                           |       | 365                                            |       | — |   | 389 |   |
| Weighted average common shares outstanding  - diluted |       | 4,090                                            |       | 4,310                                          |       | 4,089 |   | 4,279 |   |

 

**9.**                                      Income Taxes

 

The Company has recorded a provision for taxes from operations of $0and $314,000 for the three months ended April 30, 2008 and 2007,respectively.  The Company has notrecognized the tax benefit generated by the year-to-date loss in light of theuncertainty surrounding the Company’s level of profitability for the balance offiscal 2008 given, among other things, the lower expectations of clinicalresearch revenues and the timing and success of new product introductions.  This assessment was made in a mannerconsistent with FASB Statement No. 109, *Accountingfor Income Taxes*.  For thequarter ended April 30, 2007, the provision for taxes was calculated andpresented in the statement of earnings as if the Company’s earnings were fullytaxable.  The amount of income taxes payable, if any,is determined after utilizing the Company’s NOLs, including its pre-emergencebankruptcy NOLs.  Under American Institute of Certified PublicAccountants Statement of Position 90-7, *FinancialReporting by Entities in Reorganization Under the Bankruptcy Code* (“SOP90-7”), the tax benefit for the utilization of these pre-emergence bankruptcy NOL carry forwards must berecognized as a reduction of intangibles rather than a reduction of theprovision for taxes in the statement of earnings.

 

TheCompany adopted the provisions of FASB Interpretation No. 48, *Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement109* (“FIN 48”) on November 1, 2007.  There was no additional reserve for uncertaintax positions recognized as a result of adoption of FIN 48.  During the three and six months ended April 30,2008, the Company recognized $0 and $27,000, respectively, of income taxexpense related to the increase in reserves for uncertain tax positions.  The total reserve as of April 30, 2008was $27,000.  The entire amount of thereserve related to uncertainties regarding income tax nexus with various statesin which the Company operates.  Includedin the reserve is $8,000 of estimated interest and penalties.  The total amount of the reserve has increasedthe Company’s effective tax rate, and would therefore decrease the effectivetax rate if removed.

 

Estimated interest and penaltiesrelated to potential underpayment of income taxes are classified as a componentof tax expense in the consolidated statement of earnings.  The Company does not expect the amount ofreserves for uncertain tax positions to change significantly in the next twelvemonths.  The Company does not anticipatethat the total reserve for uncertain tax positions will significantly changedue to the settlement of audits and the expiration of statutes of limitationswithin the next twelve months.

 

The Company files a consolidatedfederal income tax return in the United States Federal jurisdiction and filesvarious combined and separate tax returns in several state and localjurisdictions. With limited exceptions, the Company is no longer subject to U.S.Federal, state and local tax examinations by tax authorities for fiscal yearsending prior to November 1, 2004. There is no statute of

 

13

----

 

limitations for assessments related to jurisdictionswhere the Company may have nexus but has chosen not to file an income taxreturn.

 

The Company had a federal net operating loss carry forward at October 31,2007 of approximately $20.9 million. This amount is the remaining utilizable carry forward following the applicationof a limit due to an ownership change under Internal Revenue Code Section 382that occurred during the fourth quarter of fiscal year 2006.  This carry forward is available to offset aportion of taxes payable in future years. If not used, this carry forward will expire in the years 2009 through2025.  Approximately $7.6 million of thiscarry forward will expire, if unused, during the next five years ending October 31,2012.  The Company also has $115,000 ofalternative minimum tax credit carry forwards that do not have expirationdates.  Even though the Company has substantial federalnet operating loss carry forwards, anyincome may still be subject to U.S. and State alternative minimum taxes.

 

The Company has recorded a full valuation allowance against its netdeferred tax asset based on its belief that it was more likely than not thatthe asset would not be realized in the future. Although this determination was made in a prior fiscal year, it is stillapplicable as of April 30, 2008, and the Company will continue to assessthe need for a full valuation allowance in future quarters.  Under SOP 90-7, a substantial portion of anyfuture reversal of the valuation allowance will first reduce any intangibleassets and then be credited directly to additional paid-in capital.  After the exhaustion of pre- emergencebankruptcy NOLs, approximately $2.3 million of the valuation allowance isrelated to post-bankruptcy NOLs and would be available to reduce the provision fortaxes in the statement of earnings and, thereafter, $778,000 related to excessstock option tax deductions would be recognized as additional paid-in capitalwhen realized in the Company’s income tax return.

 

**10.****                               Litigation**

 

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

 

**11.****                               SeveranceCosts**

 

**On April 30, 2008, the Companyimplemented a second Reduction-In-Force (RIF) that terminated the employment ofnine employees to allow better management of operating expenses.  In the second quarter 2008, the Company alsoterminated a relationship with a foreign distributor.  As a result of these actions, the Companyaccrued 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 medicalbenefits.  For the six months ended April 30,2008, total severance costs of $366,000 were incurred.**

 

**The following table reconciles second quarteractivity for accrued severance expenses:**

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

 

14

----

 

**Item 2. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations**

 

### **Overview**

###  

TheCompany, through its Medical Graphics Corporation subsidiary, designs andmarkets non-invasive cardiorespiratory diagnostic systems that are sold underthe MedGraphics and New Leaf brand and trade names.  These cardiorespiratory diagnostic systemshave a wide range of applications in healthcare, wellness and health andfitness.  Revenues consist of equipmentand supply sales as well as service revenues. Equipment and supply sales reflect sales of non-invasivecardiorespiratory diagnostic equipment and aftermarket sales of peripherals andsupplies.  Service revenues consist ofrevenues from extended service contracts, non-warranty service visits andadditional training.

 

The Company has developed and had planned to launch the new generationPlatinum Elite cardiorespiratory system in its hospital and physician officeproduct line at the end of the fourth quarter of fiscal 2007.  This new system, the first significantintroduction since 1998, has several new features and technologicaladvancements, and will enable Angeion to achieve new manufacturingsynergies.  Angeion delayed the productlaunch until the latter half of the second quarter of fiscal 2008 while itfine-tuned the technical performance and finalized regulatory certificationsrelated to this system.  ThePlatinum Elite is now available and being distributed into the marketplace.

 

In addition, the Company recently introduced the Physician OfficeProgram which is a targeted sales and marketing campaign directed at thediagnosis of Chronic Obstructive Pulmonary Disease (COPD).  The program is expected to raise awareness ofCOPD and increase demand for the Company’s non-invasive pulmonary functiondiagnostic systems.

 

Total revenue for the second quarter of 2008 was $7.3 million, adecrease of 26.5% from $10.0 million in 2007. Operating expenses for the second quarter of 2008 were $4.3 million, adecrease of 1.3% from the same period in 2007. Net loss for the three months ended April 30, 2008 was $373,000, or$0.09 per share, compared to net income of $453,000, or $0.11 per dilutedshare, for the same period in 2007.

 

Total revenue for the six months ended April 30, 2008 was $14.8million, a decrease of 28.0% from $20.6 million in 2007.  Operating expenses for the period were $8.7million, a decrease of 0.8% from the same period in 2007.  Net loss for the six months ended April 30,2008 was $1.0 million, or $0.26 per share, compared to net income of $942,000,or $0.22 per diluted share, for the same period in 2007.

 

At the end of the second quarter, the Company implemented actions tofurther reduce operating expenses in future quarters by eliminating nineemployees.  These reductions areincremental to the Reduction-In-Force implemented during the first quarter of2008.  As a result of both reductions,the Company expects, on an annualized basis, to save $1.5 million inpersonnel-related expenses.  Headcountfor the Company as of April 30, 2008 now stands at 122 employees comparedto 139 at the beginning of the fiscal year.

 

15

----

 

**Resultsof Operations**

 

Thefollowing table contains selected information from the Company’s consolidatedstatements of earnings, expressed as a percentage of revenues:

 

| ** **                  | ** ** | **Three Months Ended  April 30,** | ** ** | **Six Months Ended  April 30,** | ** ** |
|-----------------------------|------------|--------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                  | ** ** | **2008**                                         | ** ** | **2007**                                       | ** ** | **2008** | ** ** | **2007** | ** ** |
| Revenues                    |       | 100.0                                            | %          | 100.0                                          | %          | 100.0 | % | 100.0 | % |
| Cost of sales               |       | 47.6                                             |       | 49.5                                           |       | 48.6 |   | 49.8 |   |
| Gross margin                |       | 52.4                                             |       | 50.5                                           |       | 51.4 |   | 50.2 |   |
|                        |       |                                             |       |                                           |       |   |   |   |   |
| Operating expenses:         |       |                                             |       |                                           |       |   |   |   |   |
| Selling and marketing       |       | 31.6                                             |       | 25.5                                           |       | 31.6 |   | 24.4 |   |
| General and administrative  |       | 14.3                                             |       | 8.9                                            |       | 16.0 |   | 9.9 |   |
| Research and development    |       | 9.7                                              |       | 7.0                                            |       | 8.9 |   | 6.6 |   |
| Amortization of intangibles |       | 2.5                                              |       | 1.9                                            |       | 2.5 |   | 1.9 |   |
|                        |       | 58.1                                             |       | 43.3                                           |       | 59.0 |   | 42.8 |   |
| Operating income (loss)     |       | (5.7                                             | )          | 7.2                                            |       | (7.6 | ) | 7.4 |   |
| Interest income             |       | 0.6                                              |       | 0.5                                            |       | 0.7 |   | 0.4 |   |
| Income (loss) before taxes  |       | (5.1                                             | )          | 7.7                                            |       | (6.9 | ) | 7.8 |   |
| Provision for taxes         |       | 0.0                                              |       | 3.2                                            |       | 0.2 |   | 3.1 |   |
| Net income (loss)           |       | (5.1                                             | )%         | 4.5                                            | %          | (7.1 | )% | 4.7 | % |

 

Thefollowing paragraphs discuss the Company’s performance for the three and sixmonth periods ending April 30, 2008 and 2007:

 

**Revenue**

 

**Total revenue for the three and six monthsended April 30, 2008, decreased by 26.5% and 28.0%, respectively, comparedto the same period in 2007.  The decreasein revenue of $2.7 million for the three month period ended April 30, 2008was caused in part by a $1.9 million decrease in revenues from clinicalresearch customers due to the early conclusion of our large clinical researchcustomer’s trials.  Sales to thiscustomer accounted for only 2.7% of revenue in the three months ending April 30,2008 compared to 23.8% of revenue for the same period in 2007.**

 

**The decrease in revenue of $5.8 million forthe six month period ended April 30, 2008 was caused in part by a $4.2million decrease in revenues due to the early conclusion of our large clinicalresearch customer’s trials.  For the sixmonths ending April 30, 2008, sales to this customer accounted for 4.7% ofrevenue compared to 23.8% of revenue for the same period in 2007.**

 

Excluding sales to this customer, revenue for the three and six monthsended April 30, 2008 decreased by 6.2% and 9.9%, respectively, compared tothe same period in 2007.  The decrease inrevenue, exclusive of the clinical research project, is attributable to thedelay in the launch of the new Platinum Elite cardiorespiratory product untilthe latter half of the 2008 second quarter.

 

**Gross Margin**

 

**Gross margin percentage for the three and sixmonth period ended April 30, 2008 increased to 52.4% and 51.4% of revenue,respectively, compared to 50.5% and 50.2%, respectively, for the same**

 

**16**

----

 

**period in 2007.  Gross marginpercentage for the three and six month periods increased slightly as a resultof cost reductions implemented in the first and second quarters of 2008, highermargin service revenues as an increased percentage of total revenue and lessproduct sold to our large clinical research customer, which carried a lowerproduct margin.**

 

**Selling and Marketing**

 

Selling and marketing expenses decreased to $2.3 million and $4.7million, respectively, for the three and six month periods ended April 30,2008 from $2.5 million and $5.0 million for the same periods in 2007.

 

The $224,000, or 8.8%, decrease for the three month period ended April 30,2008 is primarily due to a drop in payroll, benefit and travel expenses.  On January 31, 2008, the Companyimplemented a Reduction-In-Force (RIF) that terminated the employment of eightemployees, mostly in sales and marketing, to allow better management ofoperating expenses.  Savings related tothe RIF were $153,000 for the second quarter. On April 30, 2008, the Company terminated an additional nineemployees.  As a result of this action,the Company accrued $65,000 of severance and medical benefits for thoseemployees related to the selling and marketing function.  In addition, travel expense decreased by$72,000 and commissions decreased by $32,000 as a result of the challenging salesenvironment.

 

The $328,000, or 6.6%, decrease for the six month period is primarilydue to a drop in payroll, benefit and travel expenses.  In addition to the RIF savings of $153,000,travel and customer support expenses also decreased by $149,000 and, as aresult of lower than expected sales, commissions dropped $221,000 for the sixmonths ended April 30, 2008 compared to the same period in 2007.  These expense savings were partially offsetby additional stock-based compensation of $55,000 incurred in 2008 compared toan immaterial expense in 2007.  Inaddition, severance expense for marketing personnel incurred in the fiscal 2008second quarter were $65,000.

 

**General and Administrative**

 

**For the three months ended April 30,2008, general and administrative expenses increased by $162,000, or 18.3%,compared to the same period in 2007.  Forthe six months ended April 30, 2008, general and administrative expensesincreased by $320,000, or 15.6%, compared to the same period in 2007.**

 

For the three months ended April 30, 2008, professional fees increased by $70,000compared to the same period in 2007.  Themajority of the expenses incurred were additional audit fees related to theCompany’s year-end audit with our predecessor audit firm.  Non-cash stock-based compensation expense of$60,000 was incurred during the three months ended April 30, 2008 comparedto an immaterial expense in the second quarter of 2007.  Directors’ fees also increased by $32,000 forthe second quarter of 2008 as the Company added an additional Board member andheld additional meetings.

 

For the six months ended April 30, 2008, non-cash stock-based compensation expense of$129,000 was incurred versus an immaterial expense for the same period in2007.  Personnel and recruiting expensesincreased by $92,000 versus 2007.  Inaddition, directors’ fees as well as higher depreciation expense from purchasesof information technology equipment caused an increase of $74,000 in generaland administrative costs compared to the prior year.

 

17

----

 

**Research and Development**

 

**Research and development expenses for thethree and six months ended April 30, 2008 were $708,000 and $1.3 million,respectively, compared to $693,000 and $1.4 million, respectively, for the sameperiod in 2007.**

 

**Project expenses associated with new productsdecreased by $49,000, or 19.7%, for the six months ended April 30, 2008compared to the same period in 2007 due to early completion of certain newproject testing.  All other related personnel,travel and consulting costs did not change materially as compared to theprior-year period.  The Company’s currentnew product development initiatives include products targeted for hospitalintensive care units, cardiology, dietary, asthma, allergy and primary carephysicians, health and fitness club professionals, as well as internationalmarkets.  These new products arecurrently completing clinical evaluation and are planned for release duringfiscal 2008.**

 

**Amortization of Intangibles**

 

Amortization of developed technology was $182,000 and $364,000,respectively, for the three and six months ended April 30, 2008 comparedto $190,000 and $385,000, respectively, for the same period in 2007.  The decrease is attributable to reductions inthe valuation of developed technology as the Company utilized its pre-emergencebankruptcy net operating loss (“NOL”) carry forwards in 2007, which lowered the2008 carrying values.

 

**Interest Income**

 

Interest income forthe three months ended April 30, 2008 decreased $5,000 from $47,000 to $42,000 versus 2007 as a drop in marketinterest rates during the second quarter more than offset higher cash balances.

 

For the six months ended April 30, 2008,interest income increased $22,000 to $105,000 compared to the same period in2007 due to higher cash balances held during the first half of 2008.

 

**Provisionfor Income Taxes**

 

UnderGenerally Accepted Accounting Principles, the Company is required to presentthe provision for taxes as if it were fully taxable in accordance with SOP90-7.  With respect to the actual paymentof taxes, however, the Company has utilized its pre-emergence bankruptcy NOLsin the calculation of its income taxes payable but is still required to payU.S. and State alternative minimum taxes (“AMT”) in certain jurisdictions, eventhough it has substantial federal and state NOL carry forwards.  During the quarter ended April 30, 2008,the Company did not use any tax benefits related to pre-emergence bankruptcyNOLs.  During 2007, the Company used taxbenefits of $318,000 related to pre-emergence bankruptcy NOLs.  These benefits have been recorded as areduction of intangible assets.    Seenote 9 to the consolidated financial statements, “Income Taxes,” in this Form 10-Qfor additional discussion of the accounting for income taxes and the use ofpre-emergence bankruptcy NOLs.

 

**Liquidityand Capital Resources**

 

TheCompany has financed its liquidity needs over the last several years throughrevenue generated by the operations of its wholly owned subsidiary, MedicalGraphics Corporation.

 

TheCompany had cash and cash equivalents of $7.1 million and working capital of$11.5 million as of April 30, 2008. During the first half of fiscal 2008, the Company reported a net loss of$1.0 million,

 

18

----

 

however,cash flow from operating activities improved by $283,000, primarily due to thecollections of accounts receivable for $2.1 million on the large sales volumesthat occurred in the fourth quarter of fiscal 2007.  In addition, the add-back of non-cashexpenses totaling $828,000 for depreciation, amortization and stock-basedcompensation improved the Company’s cash flow.

 

Partiallyoffsetting these cash inflows were an increase in inventory levels of $820,000,a decrease in accounts payable balances of $460,000 and a decrease in employeecompensation payables of $415,000. Inventory levels have steadily increased as the Company prepares for newproduct launches during fiscal 2008. Employee compensation accruals decreased due to a lower bonus accrualfor 2008 year to date performance compared to 2007 and because employee bonusesare paid out during the first quarter of the fiscal year.

 

Forthe six months ended April 30, 2008, the Company used $113,000 in cash forthe purchase of property and equipment. The Company has no material commitments for capital expenditures for theremainder of fiscal year 2008.

 

TheCompany believes that its liquidity and capital resource needs for fiscal year2008 will be met through its current cash and cash equivalents as well as cashflows resulting from operations.  As aresult of the termination of seventeen employees during the first six months of2008, the Company expects to save $1.5 million in salaries and other payrollexpenditures on an annualized basis going forward.

 

**Item 3. Quantitative and Qualitative Disclosures About Market Risk**

 

None.

 

**Item 4. 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 theeffectiveness of the design and operation of the disclosure controls andprocedures, as defined in Rules 13a-15(e) under the SecuritiesExchange Act of 1934, as of the end of the period covered by this report.  Management has concluded that the Company’sdisclosure controls and procedures are effective to ensure that informationrequired to be disclosed in the reports that the Company files under the ExchangeAct is recorded, processed, summarized and reported within the time periodsspecified in the rules and forms of the SEC and that the disclosurecontrols are also effective to ensure that information required to be disclosedin the Company’s Exchange Act reports is accumulated and communicated tomanagement, including the chief executive officer and principal accountingofficer, to allow timely decisions regarding required disclosure.

 

(b) Changes in InternalControls.

 

There havebeen no significant changes in internal control over financial reporting thatoccurred during the second fiscal quarter of 2008 that have materiallyaffected, or are reasonably likely to materially affect, the registrant’sinternal control over financial reporting.

 

**Item 4T. Controls and Procedures.**

 

None.

 

19

----

 

**PART II– OTHER INFORMATION**

 

**Item 1.  Legal Proceedings.**

 

**The Company is subject to certain claims and lawsuits that have beenfiled in the ordinary course of business. From time to time, the Company brings suit against others to enforcepatent rights or to collect debts in the ordinary course of business.  Management believes that the settlement ofall litigation would not have a material effect on the results of operations orliquidity of the Company.**

 

**Item 1A. RiskFactors**

 

**The most significant risk factors applicable to the Company aredescribed in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-Kfor the year ended October 31, 2007. There have been no material changes from the risk factors previouslydisclosed in our Annual Report on Form 10-K.**

 

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

 

**None.**

 

**Item 3.  Defaults Upon Senior Securities.**

 

**None.**

 

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

 

**Our Annual Meeting of Shareholders was held on May 20, 2008.  Of the 4,089,803 share of common stockoutstanding and entitled to vote at the meeting as of April 4, 2008,3,485,631 shares were present, either in person or by proxy.  The following describes the mattersconsidered by the shareholders at the Annual Meeting, as well as the results ofthe Votes cast at the meeting.**

 

**Proposal 1: **To elect seven directors of the Company toserve until the next Annual Meeting of Shareholders or until their respectivesuccessors have been elected and qualified.

 
| **Nominee**          | ** ** | **For**   | ** ** | **Withheld** | ** ** |
|----------------------|------------|-----------|------------|--------------|------------|
|                 |       |      |       |         |       |
| Arnold A. Angeloni   |       | 3,451,386 |       | 34,245       |       |
| John R. Baudhuin     |       | 3,463,884 |       | 21,747       |       |
| K. James Ehlen, M.D. |       | 3,444,839 |       | 40,792       |       |
| John C. Penn         |       | 3,459,785 |       | 25,846       |       |
| Paula R. Skjefte     |       | 3,409,784 |       | 75,847       |       |
| Philip I. Smith      |       | 3,450,994 |       | 34,637       |       |
| Rodney A. Young      |       | 3,460,884 |       | 24,747       |       |

 

**Proposal 2: **To approve an amendment to the AngeionCorporation 2007 Stock Incentive Plan to increase by 300,000 the sharesauthorized for issuance under the Plan.

 
| **FOR**   | ** ** | **AGAINST** | ** ** | **ABSTAIN** | ** ** | **BROKER NON-VOTE** | ** ** |
|-----------|------------|-------------|------------|-------------|------------|--------------------------|------------|
|      |       |        |       |        |       |                     |       |
| 1,350,659 |       | 388,964     |       | 54,598      |       | 1,691,410                |       |

 

20

----

 

**Item 5.  Other Information.**

 

**Change-in-Control Agreement with William J.Kullback**

 

**As described in Angeion’s Form 8-K dated March 17, 2008, the Companyand William J. Kullback have now entered into a Change-in-Control Agreementdated as of June 15, 2008, upon the successful completion of his initial 90 dayemployment period.  Under the Change inControl Agreement, if Mr. Kullback’s employment is terminated during a periodof eighteen months following a Change-in-Control of the Company (i) by theCompany other than for Cause or death, or (ii) by Mr. Kullback for Good Reason(as these terms are defined in the Agreement), then he will be entitled to alump-sum payment equal to 1.5 times his annual base salary.  In addition to this amount, Mr. Kullbackwould be entitled to a fee for out-placement services in an amount equal to 10%of his salary or $20,000 and the Company would continue to pay its portion ofhis health insurance for twelve months as if he were still employed.  If this termination without cause were tooccur, the amount payable to Mr. Kullback pursuant to his Change-in-ControlAgreement would be approximately $320,000.**

 

**Copies of the Employment Agreement dated March 17, 2008 and theChange-in-Control Agreement between the Company and Mr. Kullback are attachedas Exhibits 10.1 and 10.2.**

 

**Item6.  Exhibits.**

 
| 10.1   | Employment agreement dated as of March 17, 2008 between Angeion  Corporation and William J. Kullback.       |
|--------|------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                             |
| 10.2   | Change in control agreement dated as of June 15, 2008 between  Angeion Corporation and William J. Kullback. |
|   |                                                                                                             |
| 31.    | Certifications pursuant to Rules 13a-14 and 15d-14 of the  Exchange Act.                                    |
|   |                                                                                                             |
| 32.    | Certifications pursuant to 18 U.S.C. § 1350.                                                                |

 

21

----

 

**SIGNATURES**

 

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

 
|               | ANGEION CORPORATION                   |
|--------------------|---------------------------------------|
|               | (Registrant)                          |
|               |                                  |
|               |                                  |
| June 13, 2008 |                                  |
|               | By                                    | /s/  Rodney A. Young |
|               | Rodney A. Young                       |
|               | President and Chief Executive Officer |
|               |                                  |
| June 13, 2008 |                                  |
|               | By                                    | /s/  William J. Kullback |
|               | William J. Kullback                   |
|               | Chief Financial Officer               |

 

22

----