UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB/A

(Amended Quarterly Report)

x Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the quarterly period ended January 31, 2006

o Transition report under Section 13 or 15(d) of the Exchange Act.

For the transition period from to .

Commission file number 001-13543

Angeion Corporation

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

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

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

(651) 484-4874
(Issuer’s telephone number, including area code)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the issuer 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 shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act of 1934 after distribution of securities under a plan confirmed by a court.

Yes x No o

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

EXPLANATORY STATEMENT

This Form 10-QSB/A amends and restates the Company’s Form 10-QSB for the quarter ended January 31, 2006, initially filed with the Securities and Exchange Commission (the “SEC”) on March 6, 2006 (the “Original Filing”), and is being filed to reflect the restatement of the financial statements and other financial information of the Company for the first fiscal 2006 quarter ended January 31, 2006.

In connection with the audit of the Company’s consolidated financial statements as of and for the year ended October 31, 2006, the Company concluded that its consolidated financial statements for the first, second and third quarters of fiscal year 2006 should be restated as a result of a misapplication of an accounting principle regarding the accounting for income taxes in those financial statements. The restatement does not change income before taxes and will have no cash impact on the results of these three periods.

During the first, second and third quarters of fiscal 2006 the Company did not correctly apply Generally Accepted Accounting Principles (“GAAP”) relating to accounting for the utilization of pre-emergence bankruptcy net operating loss (“NOL”) carry forwards. The Company has determined that during the first three quarters of the fiscal year, it should have applied American Institute of Certified Public Accountants Statement of Position 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code (“SOP 90-7”) to the utilization of its pre-emergence bankruptcy NOL carry forwards. Angeion was in Chapter 11 Bankruptcy Reorganization from June 2002 to October 2002.

Under SOP 90-7, the benefits realized from pre-emergence bankruptcy NOLs should not have been reflected on the Company’s consolidated statements of operations as a reduction in the provision for taxes. Instead, the benefits should have been reflected in the consolidated financial statements first by reducing the specified intangible assets (including goodwill) resulting from the reorganization until exhausted and thereafter been reported as an increase to additional paid-in capital.

It is important to note that the application of this accounting principle changes only the financial reporting related to income taxes. The amount of income taxes payable is determined after utilizing the Company’s pre-emergence bankruptcy NOLs and does not change cash flows.

Therefore, the Company has:

· Increased the provision for tax from continuing operations by $94,000 for the three months ended January 31, 2006, and

· Decreased goodwill by $189,000, decreased other current liabilities and accrued expenses by $5,000 and decreased deferred income tax liabilities by $90,000 as of January 31, 2006.

See Note 11 to the Consolidated Financial Statements, “Restatement of Quarterly Financial Statements,” for further details.

In addition to the adjustments discussed above, this restatement includes adjustments for the reclassification of bonus expenses previously included in general and administrative expenses to other statement of operations expense captions to properly classify bonus expense to the salary of the employee who earned the bonus and the Company’s revisions of certain discontinued operating cash flows to a financing cash flow. We refer to these as Other Adjustments, which were immaterial, individually and in the aggregate, to the previously issued financial statements.

For the convenience of the reader, this Form 10-QSB/A sets forth the Original Filing in its entirety. However, this Form 10-QSB/A only amends and restates certain information in Items 1, 2 and 3 of Part I of the Original Filing, in each case solely as a result of and to reflect the restatement, and no other information in the Original Filing is amended. The foregoing items have not been updated to reflect other events occurring after the Original Filing or to modify or update those disclosures affected by subsequent events. Among other things, forward looking statements made in the Original Filing have not been revised to reflect events, results or developments that occurred or facts that became known to the Company after the date of the Original Filing (other than the restatement), and these forward looking statements should be read in their historical context. In addition, pursuant to the rules of the SEC, Item 6 of Part II of the Original Filing has been amended to include certifications re-executed as of the date of this Form 10-QSB/A from the Company’s Chief Executive Officer and Chief Financial Officer as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. The certifications of the Chief Executive Officer and Chief Financial Officer are attached to this Form 10-QSB/A as exhibits 31 and 32.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

ANGEION CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

January 31, 2006 and October 31, 2005

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

	Restated January 31, 2006			October 31, 2005
Assets

Current assets:
Cash and cash equivalents	$	1,160		$	1,072
Cash restricted for discontinued operations	200			400
Accounts receivable, net of allowance for doubtful accounts of $225 and $210, respectively	4,383			4,100
Inventories	3,846			3,455
Prepaid expenses and other current assets	113			280
Current assets of discontinued operations	696			700
Total current assets	10,398			10,007

Property and equipment, net of accumulated depreciation of $1,661 and $1,598, respectively	1,007			1,035
Intangible assets, net	5,295			5,498
Goodwill	139			328
Total Assets	$	16,839		$	16,868

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	1,359		$	1,184
Employee compensation	1,200			1,166
Deferred income	784			871
Warranty reserve	183			175
Other current liabilities and accrued expenses	344			366
Current liabilities of discontinued operations	213			517
Total current liabilities	4,083			4,279

Long-term liabilities:
Long-term deferred income	428			319
Deferred income taxes	248			337
Total long-term liabilities	676			656
Total Liabilities	4,759			4,935

Shareholders’ equity:
Common stock, $0.10 par value, authorized 25,000,000 shares, issued and outstanding, 3,613,352 shares in 2006 and 3,609,325 shares in 2005	361			361
Additional paid-in capital	17,752			17,589
Deferred compensation	(112		)	(14		)
Accumulated deficit	(5,921		)	(6,003		)
Total shareholders’ equity	12,080			11,933
Total Liabilities and Shareholders’ Equity	$	16,839		$	16,868

See accompanying notes to consolidated financial statements.

ANGEION CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations

(unaudited, in thousands except per share amounts)

	Three Months Ended January 31,
	Restated 2006			2005
Revenues
Equipment and supply sales	$	6,247		$	4,285
Service revenue	686			745
	6,933			5,030
Cost of goods sold
Cost of equipment and supplies	3,281			2,596
Cost of service revenue	123			101
	3,404			2,697

Gross margin	3,529			2,333

Operating expenses:
Selling and marketing	1,953			1,707
General and administrative	713			664
Research and development	483			478
Amortization of intangibles	203			203
	3,352			3,052

Operating income (loss)	177			(719		)

Interest income	9			8

Income (loss) before taxes	186			(711		)

Provision for taxes	100			—

Income (loss) from continuing operations	86			(711		)
Loss from discontinued operations, net of $0 taxes	(4		)	—
Net income (loss)	$	82		$	(711	)

Earnings (loss) per share - basic
Continuing operations	$	0.02		$	(0.20	)
Discontinued operations	—			—
Net income (loss)	$	0.02		$	(0.20	)

Earnings (loss) per share - diluted
Continuing operations	$	0.02		$	(0.20	)
Discontinued operations	—			—
Net income (loss)	$	0.02		$	(0.20	)

Weighted average common shares outstanding
Basic	3,611			3,603
Diluted	3,635			3,603

See accompanying notes to consolidated financial statements.

ANGEION CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(unaudited, in thousands)

	Three Months Ended January 31,
	Restated 2006			2005
Cash Flows From Operating Activities:
Net income (loss)	$	82		$	(711	)
Loss from discontinued operations	4			—
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	266			323
Stock-based compensation	56			—
Deferred income taxes	100			—
Changes in operating assets and liabilities:
Accounts receivable	(283		)	709
Inventories	(391		)	(44		)
Prepaid expenses and other current assets	167			90
Accounts payable	175			(415		)
Employee compensation	34			6
Deferred income	22			(93		)
Warranty reserve	8			2
Other current liabilities and accrued expenses	(22		)	76
Net cash provided by (used in) continuing operations	218			(57		)

Cash used in operating activities of discontinued operations	(104		)	(22		)
Net cash provided by (used in) operating activities	114			(79		)

Cash Flows From Investing Activities:
Purchase of property and equipment	(35		)	(49		)
Net cash used in investing activities	(35		)	(49		)

Cash Flows From Financing Activities:
Proceeds from issuance of common stock	9			7
Net cash provided by financing activities of continuing operations	9			7
Cash provided by (used in) financing activities of discontinued operations:
Promissory note payment	(200		)	—
Cash restricted for discontinued operations	200			—
Net cash provided by financing activities	9			7

Net increase (decrease) in cash and cash equivalents	88			(121		)

Cash and cash equivalents at beginning of period	1,072			2,390

Cash and cash equivalents at end of period	$	1,160		$	2,269

Supplemental disclosure of non-cash investing activities:

During the quarter ended January 31, 2006, the Company decreased goodwill and the deferred tax valuation allowance by $189,000 from the usage of pre-emergence bankruptcy net operating loss carry forwards.

See accompanying notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

January 31, 2006

(Unaudited)

1. Basis of Presentation

The accompanying consolidated balance sheet as of January 31, 2006 and the consolidated statements of operations and cash flows for the three months ended January 31, 2006 have been restated. The nature of the restatement and the effect on the financial statement line items are discussed in Note 11 to the Consolidated Financial Statements, “Restatement of Quarterly Financial Statements.”

The consolidated balance sheet as of January 31, 2006, the consolidated statements of operations and cash flows for the three months ended January 31, 2006 and 2005, 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-QSB 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, 2005 was derived from the audited consolidated financial statements as of that date. Operating results for the three months ended January 31, 2006 are not necessarily indicative of the results that may be expected for the year ending October 31, 2006. For further information, refer to the consolidated financial statements and notes thereto included in Angeion Corporation’s Annual Report on Form 10-KSB for the year ended October 31, 2005.

Comprehensive income is a measure of all non-owner changes in shareholders’ equity and includes items such as net income (loss), certain foreign currency translation items, minimum pension liability adjustments and changes in the value of available-for-sale securities. For the three months ended January 31, 2006 and 2005, comprehensive income (loss) for Angeion Corporation was equivalent to net income (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 collectibility is reasonably assured. The Company’s products are sold for cash or on 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.

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 for service contract revenue. The amount of deferred service contract revenue was $1,025,000 and $942,000 at January 31, 2006 and October 31, 2005, respectively. Revenue from installation and training services provided to domestic customers is deferred until the service has been performed. The amount of deferred installation and training revenue was $187,000 and $248,000 at January 31, 2006 and October 31, 2005, 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.

3. New Accounting Pronouncements

In November 2004, the FASB issued Statement of Financial Accounting Standards No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4,” (“SFAS No. 151”) which clarifies the types of costs that should be expensed rather than capitalized as inventory. This statement also clarifies the circumstances under which fixed overhead costs associated with operating facilities involved in inventory processing should be capitalized. The provisions of SFAS No. 151 are effective for fiscal years beginning after June 15, 2005 and the Company adopted this standard as of November 1, 2006. The adoption of this statement did not have a material impact on the Company’s consolidated financial position or results of operations.

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

In June 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections,” (“SFAS No. 154”) a replacement of APB Opinion No. 20 and FASB Statement No. 3. The statement applies to all voluntary changes in accounting principle, and changes the requirements of accounting for and reporting a change in accounting principle. SFAS No. 154 requires retrospective application to prior

periods’ financial statements of a voluntary change in accounting principle unless it is impractical. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. Earlier application is permitted for accounting changes and corrections of errors occurring in fiscal years beginning after June 1, 2005. The statement does not change the transition provisions of any existing accounting pronouncements, including those that are in a transition phase as of the effective date of the statement. The Company has adopted SFAS No. 154. See Note 11 to the Consolidated Financial Statements, “Restatement of Quarterly Financial Statements,” for further details.

4. Stock Based Compensation

The Company applies the intrinsic-value method prescribed under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” (“APB No. 25”) and related interpretations to account for the issuance of stock incentives to employees and directors. Accordingly, no compensation expense related to employees’ and directors’ stock incentives has been recognized in the consolidated financial statements. In accordance with the provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” the Company is required to present pro forma information reflecting compensation cost for such issuances. Had the Company determined compensation costs based on the fair value at the date of grant for options granted, the Company’s net income (loss) would have been increased to the pro forma amounts indicated in the following table:

	Three Months Ended January 31,
	Restated
(In thousands, except for per share amounts)	2006		2005
Net income (loss):
As reported	$ 82		$ (711	)
Add: Stock-based employee compensation expense included in reported net income (loss), net of related tax effects	35		—
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects	(3	)	(21	)
Pro forma	$ 114		$ (732	)
Net income (loss) per share – basic and diluted
As reported	$ 0.02		$ (0.20	)
Pro forma	$ 0.03		$ (0.20	)

Variable Stock Option Grants

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

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

Because the vesting for these grants is dependent on achieving these common stock price milestones, the Company has accounted for these option grants using variable accounting in accordance with APB No. 25. Accordingly, the Company estimates the value of variable option grants at each balance sheet date and records the changes in intrinsic value as deferred compensation. Although no options vest until October 1, 2009 or until the Company’s stock trades at $4.00 per share for 20 of 30 consecutive days, and then only 15% would vest, these outstanding options are nevertheless deemed to have intrinsic value because the closing price of the Company’s stock at January 31, 2006 was $4.23 per share. Stock based compensation associated with these variable options for the three months ended January 31, 2006 was $56,000. This amount is equal to the intrinsic value of the options at January 31, 2006 pro-rated from their grant date to the time-based vesting date of October 1, 2009. As of January 31, 2006, the Company has recorded deferred compensation of $112,000 relating to these variable stock options.

5. Inventories

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

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

6. Intangible Assets and Goodwill

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

(In thousands)	2006		2005
Intangible assets:
Developed technology	$ 6,900		$ 6,900
Trade name (unamortized)	1,000		1,000
	7,900		7,900

Amortization - developed technology	(2,605	)	(2,402	)
	$ 5,295		$ 5,498

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

Intangible assets are being amortized using the straight-line method over the estimated useful lives of the assets that range from three to ten years. If the Company utilizes pre-emergence bankruptcy net operating loss carryforwards (“NOLs”), the Company will sequentially reduce the cost of goodwill,

trade name and 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 the remainder of fiscal year 2006 and for each of the succeeding years based on the intangible assets as of January 31, 2006, which does not reflect the possible reduction discussed above, is as follows:

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

Goodwill consisted of the following at January 31, 2006 and October 31, 2005:

(In thousands)	Goodwill
Balance at October 31, 2005	$ 328
Reduction in balance due to utilization of pre-emergence bankruptcy NOLs (restated)	(189	)
Balance at January 31, 2006 (restated)	$ 139

7. Warranty Reserve

Sales of the Company’s equipment are subject to a warranty. 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 activity for the three months ended January 31, 2006 and 2005 was as follows:

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

8. Net Income (Loss) per Share

Basic income (loss) per share is computed by dividing net income (loss) by the weighted average shares outstanding during the reporting period. Diluted income (loss) per share is computed similarly to basic loss per share except that the weighted average shares outstanding are increased to include additional shares from the assumed exercise of stock options and 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. As a result of the net loss, there were no dilutive common shares outstanding for the three months ended January 31, 2005.

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

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

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

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

9. Discontinued Operations and Related Litigation

On June 30, 2005, the Company entered into settlement agreements with ELA Medical, Inc. and ELA Medical S.A.S. (together “ELA”) that ended the legal dispute and lawsuit by ELA against the Company and resolved all issues between the Company and ELA related to a recall of the Company’s implantable cardioverter defibrillators (“ICDs”) sold to ELA prior to March 2000. The Company accounts for the ICD business as a discontinued operation and amounts in the financial statements and related notes for all periods shown reflect discontinued operations accounting.

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

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

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

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

The Company entered into a second agreement on June 30, 2005 under which it paid an additional $40,000 for resolution of ICD issues not related to the lawsuit. The second settlement agreement resolved a matter with respect to Sentinel ICDs formerly manufactured by the Company and amended a 1999 withdrawal agreement under which the Company withdrew from a joint venture with ELA. In connection with the Sentinel settlement agreement, ELA agreed that it would be responsible for any warranty coverage, technical service and regulatory compliance service with respect to any “recalled”

ICDs in the future. Prior to entering this settlement agreement, ELA already was responsible for warranty coverage, technical service and regulatory compliance service for all ICDs except for all costs and expenses that were “recall costs.”

As previously disclosed in the Company’s Annual Report on Form 10-KSB for the year ended October 31, 2005, the Company is seeking recovery for the ELA settlement plus related professional fees from Medmarc Casualty Insurance Company. On January 20, 2006, the Company and Medmarc argued summary judgment motions in United States District Court on issues related to Medmarc’s responsibility to reimburse the Company for its $1.4 million settlement with ELA and its legal fees paid in defending the lawsuit. In an order dated February 17, 2006, the Court granted, in part, the Company’s motion for summary judgment.

In summary, the Court ruled:

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

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

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

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

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

During the first quarter of 2006, the Company determined that there were no changes in facts or circumstances that would require adjustment to the $696,000 of current assets of discontinued operations as of January 31, 2006.

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

See Note 11 to the Consolidated Financial Statements, “Restatement of Quarterly Financial Statements,” for revisions associated with the presentation of cash flows from discontinued operations.

10. Income Taxes (Restated)

The Company has recorded a provision for taxes from continuing operations of $100,000 for the three months ended January 31, 2006. The provision for taxes has been calculated and presented in the statement of operations as if the Company’s earnings were fully taxable. The amount of income taxes payable is determined after utilizing the Company’s 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 loss carry forwards must be recognized as a reduction of intangibles rather than a reduction of the provision for taxes in the statement of operations. See Note 11 to the Consolidated Financial Statements, “Restatement of Quarterly Financial Statements,” for further details.

The Company had a federal net operating loss carry forward at October 31, 2005 of approximately $130.6 million, which is available to reduce income taxes payable in future years. If not used, this carry forward will expire in years 2006 through 2025. Approximately $72.5 million of this carry forward will expire over the next five years. In addition, the Company has a general business tax credit carry forward of approximately $989,000 that is available to reduce future Federal income taxes, if any. If not used, these general business tax credits will expire in years 2006 through 2014. Approximately $515,000 of the general business tax carry forward will expire over the next five years. The Company also has $90,000 of alternative minimum tax credit carry forwards that do not have expiration dates. Under the Tax Reform Act of 1986, the utilization of these tax loss and tax credit carry forwards may be limited as a result of significant changes in ownership. Even though the Company has substantial federal net operating loss carry forwards, any income is still subject to U.S. and State Alternative Minimum Taxes.

The Company has recorded a full valuation allowance against its net deferred tax asset, excluding the effect of deferred tax liability which is unable to be used as a source of income against these deferred tax assets, based on its belief that it is more likely than not that the asset will not be realized in the future. This determination was made in a prior fiscal year and is still applicable for the first quarter of 2006. The Company will continue to assess the need for a full valuation allowance in future quarters. The Company has recognized a deferred tax liability of $248,000 as of January 31, 2006 related to an indefinite lived intangible that is being amortized for tax purposes. 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.

11. Restatement of Quarterly Financial Statements

During the first, second and third quarters of fiscal 2006 the Company did not correctly apply Generally Accepted Accounting Principles (“GAAP”) relating to accounting for the utilization of pre-emergence bankruptcy net operating loss (“NOL”) carry forwards. The Company has determined that during the first three quarters of the fiscal year, it should have applied SOP 90-7 to the utilization of its pre-emergence bankruptcy NOL carry forwards. Angeion was in Chapter 11 Bankruptcy Reorganization from June 2002 to October 2002.

reducing the specified intangible assets (including goodwill) resulting from the reorganization until exhausted and thereafter been reported as an increase to additional paid-in capital.

The following adjustments have been recorded to the previously issued financial statements:

(1) The Company has increased the provision for taxes from continuing operations by $94,000 for the three months ended January 31, 2006, decreased goodwill by $189,000, decreased other current liabilities and accrued expenses by $5,000 and decreased deferred income tax liabilities by $90,000 as of January 31, 2006 to properly account for income taxes.

(2) The Company has reclassified $60,000 for the three months ended January 31, 2006 of bonus expenses previously included in general and administrative expenses to other statement of operations expense captions to properly classify bonus expense to the salary of the employee who earned the bonus.

(3) The Company revised the presentation of operating and financing cash flows attributable to discontinued operations for the three months ended January 31, 2006. The revision reflects the restriction of $200,000 of cash and the fiscal 2006 payment on the promissory note to ELA Medical as financing activities, rather than operating activities as previously reported.

The Company has restated its balance sheet as of January 31, 2006 and its statements of operations and cash flows for the three months ended January 31, 2006 for the impact of the above items as follows (adjustment number corresponds with the adjustments noted above):

	As of January 31, 2006
	As
	Previously		Adjustments			As
(In thousands)	Reported		Amount		No.	Restated
*Balance Sheet Data:*
Goodwill	328		(189	)	1	139
Total Assets	17,028		(189	)		16,839

Other current liabilities and accrued expenses	349		(5	)	1	344
Total current liabilities	4,088		(5	)		4,083
Deferred income taxes	338		(90	)	1	248
Total long-term liabilities	766		(90	)		676
Total Liabilities	4,854		(95	)		4,759
Accumulated deficit	(5,827	)	(94	)	1	(5,921	)
Total shareholders’ equity	12,174		(94	)		12,080
Total Liabilities and Shareholders’ Equity	$ 17,028		$ (189	)		$ 16,839

	Three Months Ended January 31, 2006
	As
	Previously		Adjustments			As
(In thousands)	Reported		Amount		No.	Restated
*Statement of Operations Data:*
Revenues:
Equipment and supply sales	$ 6,247		$ —			$ 6,247
Service revenue	686		—			686
	6,933		—			6,933
Cost of goods sold:
Cost of equipment and supply sales	3,262		19		2	3,281
Cost of service revenue	123		—			123
	3,385		19			3,404
Gross margin	3,548		(19	)		3,529
Operating expenses:
Selling and marketing	1,923		30		2	1,953
General and administrative	773		(60	)	2	713
Research and development	472		11		2	483
Amortization of intangibles	203		—			203
	3,371		(19	)		3,352
Operating income	177		—			177
Interest income	9		—			9
Income before taxes	186		—			186
Provision for taxes	6		94		1	100

Income from continuing operations	180		(94	)		86
(Loss) from discontinued operations, net of $0 taxes	(4	)	—			(4	)
Net income	$ 176		$ (94	)		$ 82

Earnings per share – basic	$ 0.05		$ (0.03	)		$ 0.02
Earnings per share - diluted	$ 0.05		$ (0.03	)		$ 0.02

	Three Months Ended January 31, 2006
	As
	Previously		Adjustments			As
(In thousands)	Reported		Amount		No.	Restated
*Statement of Cash Flows Data:*
Cash Flows From Operating Activities:
Net income	$ 176		$ (94	)	1	$ 82
Deferred income taxes	1		99		1	100

Other current liabilities and accrued expenses	(17	)	(5	)	1	(22	)
Net cash provided by continuing operations	218		—			218
Restricted cash released for discontinued operations	200		(200	)	3	—
Cash used in operating activities of discontinued operations	(304	)	200		3	(104	)
Net cash provided by operating activities	$ 114		$ —			$ 114
Cash Flows From Financing Activities:
Proceeds from issuance of commons stock	9		—			9
Promissory note payment	—		(200	)	3	(200	)
Cash restricted for discontinued operations	—		200		3	200
Net cash provided by financing activities	$ 9		$ —			$ 9

Item 2. Management’s Discussion and Analysis or Plan of Operation.

Forward-Looking Statements and Risk Factors

The discussion above contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements by their nature involve substantial risks and uncertainties. Our actual results may differ materially depending on a variety of factors, including:

· Our ability to successfully operate our business including our ability to develop, improve, and update our cardiorespiratory diagnostic products,

· Our ability to effectively manufacture and ship products in required quantities to meet customer demands,

· Our ability to successfully defend the Company from product liability claims related to our cardiorespiratory diagnostic products and claims associated with our prior cardiac stimulation products,

· Our ability to protect our intellectual property,

· Our ability to develop and maintain an effective system of internal controls and procedures and disclosure controls and procedures, and

· Our dependence on third-party vendors.

Additional information with respect to the risks and uncertainties faced by the Company may be found in, and the following 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 but not limited to the Annual Report on Form 10-KSB for the year ended October 31, 2005, and subsequently filed reports.

Overview

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

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

Total revenue for the first quarter of 2006 was $6.9 million, an increase of 37.8% from $5.0 million in 2005. Net income for the three months ended January 31, 2006 was $82,000, or $0.02 per share, compared to a net loss of $711,000, or $0.20 per share, for the same period in 2005. Net income for the three months ended January 31, 2006 included a $4,000 loss from discontinued operations.

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

· A drive toward achieving and sustaining profitability;

· A fourth consecutive year of double-digit year-over-year revenue growth;

· The introduction of new cardiorespiratory diagnostic products;

· Continuation of the expansion of our domestic and international sites offering New Leaf Active Metabolic Assessments;

· Further expansion of the New Leaf products for weight management, exercise and athletic performance; and

· The continuation of efforts to recover the ELA Medical settlement costs and related expenses from the insurance carrier.

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

The first quarter saw progress made in the research and development of several new products intended for potential growth opportunities identified with both our domestic and international cardiorespiratory markets. The first quarter of 2006 also resulted in the addition of new sites offering New Leaf Active Metabolic Assessments. On February 6, 2006, we announced the release of EnergySmart, the newest addition to our growing list of New Leaf branded health and fitness products. EnergySmart is an online meal planning and tracking program sold through New Leaf health and fitness partners for their clients and members. The program provides a “dietary roadmap™” to energize and train an individual’s metabolism and create a healthier lifestyle.

Finally, on January 20, 2006, the Company and Medmarc argued summary judgment motions in United States District Court on issues of confirming Medmarc’s responsibility to reimburse the Company for its $1.4 million settlement with ELA and its legal fees paid in defending the lawsuit. In an order dated February 17, 2006, the Court granted, in large part, the Company’s motion for summary judgment. The Court determined that the Company was entitled to recover from Medmarc the $1.4 million paid to settle the claim of ELA, subject to potential exclusion of certain costs, and that the Company is entitled to recover from Medmarc costs and fees in the amount of $49,000 incurred in defending ELA’s claim. See Note 9 to the Consolidated Financial Statements, “Discontinued Operations and Related Litigation,” in this Form 10-QSB for additional discussion of the settlement with ELA and Medmarc litigation.

Restatement of Financial Statements

Under SOP 90-7, the benefits realized from pre-emergence bankruptcy NOLs should not have been reflected on the Company’s consolidated statements of operations as a reduction inthe provision for taxes. Instead, the benefits should have been reflected in the consolidated financial statements first by reducing the specified intangible assets (including goodwill) resulting from the reorganization until exhausted and thereafter been reported as an increase to additional paid-in capital.

Therefore, the Company has:

· Increased the provision for taxes by $94,000 for the three months ended January 31, 2006, and

· Decreased goodwill by $189,000, decreased other current liabilities and accrued expenses by $5,000 and decreased deferred income tax liabilities by $90,000 as of January 31, 2006.

In addition to the adjustments discussed above, this restatement includes adjustments for the reclassification of bonus expenses previously included in general and administrative expenses to other statement of operations expense captions to properly classify bonus expense to the salary of the employee who earned the bonus and the Company’s revision of certain discontinued operating cash flows to a financing cash flow. We refer to these as Other Adjustments, which were immaterial, individually and in the aggregate, to the previously issued financial statements.

See Note 11 to the Consolidated Financial Statements, “Restatement of Quarterly Financial Statements,” in this Form 10-QSB/A for additional discussion of the accounting for income taxes and the use of pre-emergence bankruptcy NOLs.

Results of Operations

The Company recorded net income of $82,000 for the three months ended January 31, 2006 compared to a net loss of $711,000 for the same period in 2005. Net income for the three months ended January 31, 2006 included a $4,000 loss from discontinued operations.

Revenue

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

Demand for cardiorespiratory product systems and New Leaf products has remained strong during the first quarter of 2006. Sales of the Company’s Elite Series systems have remained strong as customers continue to replace their older 1085 Series equipment. Sales of the new Ultima PF and Ultima PFX cardiorespiratory systems also contributed to both domestic and international revenue growth. The Company is pleased with customer acceptance of these new products that began shipping during April 2005. The Company’s New Leaf health and fitness products also contributed to domestic growth during the first quarter due to broadening consumer acceptance. The addition of sites from both chain and independent health clubs contributed to growth during the quarter. Customer orders for cardiorespiratory product systems continue to be strong with no near term signs suggesting that order rates will decline.

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

Service revenue decreased $59,000 or 7.9% during the first quarter of 2006 compared to the same quarter in 2005 due to the relatively aggressive pace that customers are replacing older equipment with the Company’s new models, thereby reducing revenue from extended service contracts and non-warranty service visits on older equipment.

Gross Margin

Gross margin percentage for the three months ended January 31, 2006 increased to 50.9% of revenue compared to 46.4% for the same period in 2005. The overall improvement in gross margin percentages is due to improved manufacturing efficiencies associated with increased volume together with improved gross margins on the Company’s new products.

Selling and Marketing

Selling and marketing expenses for the three months ended January 31, 2006 increased by 14.4% to $2.0 million compared to $1.7 million for the same period in 2005. The 41.9% increase in domestic sales for the first three months of 2006 resulted in a $137,000 or 57% increase in commission expenses. In addition, $68,000 of the increase was planned incremental trade show spending for the first quarter of 2006 compared to the first quarter of 2005.

General and Administrative

General and administrative expenses for the three months ended January 31, 2006 increased by 7.4% to $713,000 compared to $664,000 for the same period in 2005. General and administrative expenses for the first quarter of 2006 included $56,000 for stock-based compensation associated with variable options compared to no expense in this area for 2005. In addition, there was a $50,000 increase in general and administrative expenses due to a $15,000 increase in the provision for doubtful accounts for 2006 compared to a $35,000 decrease in the provision for doubtful accounts for 2005. See Note 4 to the Consolidated Financial Statements, “Stock-Based Compensation,” in this Form 10-QSB/A for additional discussion of variable options.

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

Research and Development

Research and development expenses for the three months ended January 31, 2006 increased by 1.0% to $483,000 from $478,000 for the same period in 2005. The Company is currently working on new products intended for use by international markets, asthma, allergy and primary care physicians that are planned for release late in 2006 or early 2007. In addition, the Company is also implementing new designs and new components for use in its existing systems that have lower costs and are more efficient in the manufacturing process.

Amortization of Intangibles

Amortization of developed technology was $203,000 for each of the three month periods ended January 31, 2006 and 2005. As further described in Note 6 above, as the Company utilizes pre-emergence bankruptcy net operating loss carryforwards, the Company will sequentially reduce the cost of trade names and developed technology until the net carrying cost is zero. To the extent that utilization of these NOLs reduces the cost of developed technology, future amortization expense will be reduced.

Provision for Taxes

The Company is required to present the provision for taxes for 2006 as if it were fully taxable in accordance with SOP 90-7. The Company has utilized its pre-emergence bankruptcy NOLs in the calculation of its income taxes payable but is required to pay only U.S. and State Alternative Minimum Taxes (“AMT”) because it has substantial federal net operating loss carry forwards. The tax benefit for using pre-emergence bankruptcy NOLs has been recorded as a reduction of goodwill in the first quarter of 2006. See Note 11 to the Consolidated Financial Statements, “Restatement of Financial Statements,” in this Form 10-QSB/A for additional discussion of the accounting for income taxes and the use of pre-emergence bankruptcy NOLs.

Discontinued Operations

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

Liquidity and Capital Resources

The Company has financed its liquidity needs over the past several years through revenue generated by the operations of its wholly owned subsidiary, Medical Graphics Corporation, through revenue from license agreements for patented ICD technology and through the use of cash balances.

The Company had cash and cash equivalents of $1.4 million, including $200,000 of cash restricted for discontinued operations, and working capital of $6.3 million as of January 31, 2006. During the three months ended January 31, 2006, the Company generated $218,000 in cash from continuing operations primarily because its net income of $82,000 included non-cash expenses of $266,000 for depreciation and amortization, $56,000 for stock-based compensation and $100,000 of deferred income taxes. Cash was generated by a decrease of $167,000 in prepaid expenses and other current assets and an increase of $175,000 in accounts payable. Cash was used for increases of $391,000 and $283,000 in inventories and accounts receivable, respectively. The increase in both accounts receivable and inventory is necessary to support the Company’s growth in revenue.

The Company used $104,000 in cash for operating activities of discontinued operations, which included legal fees and consulting expenses and other expenses related to the ELA Medical settlement and Medmarc litigation.

During the three months ended January 31, 2006, the Company used $35,000 in cash for the purchase of property and equipment. The Company has no material commitments for capital expenditures for fiscal year 2006.

In connection with the $1.4 million settlement agreement with ELA Medical, the Company executed a $400,000 promissory note that required a payment of $200,000 that was made on December 31, 2005 and another $200,000 payment due on June 30, 2006. This payment is reflected in the Consolidated Statement of Cash Flows for the quarter ended January 31, 2006 as a promissory note payment within Cash Flows from Financing Activities. The promissory note is backed up with an irrevocable bank letter of credit. The Company is required to collateralize the irrevocable bank letter of credit with $200,000 of cash that is classified as cash restricted for discontinued operations at January 31, 2006.

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

Item 3. 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, Dale H. Johnson, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934, as of January 31, 2006. In this evaluation, the Company originally concluded that its disclosure controls and procedures were effective as of January 31, 2006, as disclosed in the Company’s Form 10-QSB filed on March 6, 2006.

In connection with the restatement, management, under the direction of its chief executive officer and chief financial officer, reevaluated the disclosure controls and procedures and due to the identification of a material weakness in internal control over financial reporting related to the Company’s accounting for income taxes, as described below, concluded that the Company’s disclosure controls and procedures were not effective as of January 31, 2006.

The material weakness in internal control over financial reporting related to the Company’s accounting for income taxes. Specifically, the Company did not have, and through its engagement of third party outside advisers did not acquire, adequate technical expertise to effectively oversee and review the Company’s accounting for the utilization of pre-emergence bankruptcy NOL carry forwards in accordance with AICPA Statement of Position 90-7, Financial Reporting by Entities in Reorganization under the Bankruptcy Code. As a result, the Company restated the financial information included in the first three quarters of the year ended October 31, 2006, including the quarter ended January 31, 2006, as included herein, to correct a material error in accounting for income taxes.

Due to this material weakness in internal control over financial reporting, the Company performed other procedures related to the presentation of income taxes and the use of pre-emergence bankruptcy NOL carry forwards in preparing its restated consolidated financial statements as of and for the quarter ended January 31, 2006 to ensure that these consolidated financial statements were presented fairly, in all material respects, in accordance with U.S. generally accepted accounting principles.

(b) Changes in Internal Control over Financial Reporting

There was no change in the Company’s internal control over financial reporting during the quarter ended January 31, 2006 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

As of the date of the filing of this Quarterly Report on Form 10-QSB/A for the first fiscal quarter of 2006, the material weakness described above has not been remediated. The Company is taking steps to ensure that it remediates the material weakness by implementing enhanced control procedures over accounting for income taxes. These steps include education and training of Company management and staff to improve technical expertise with respect to income tax accounting. The Company is also evaluating whether to replace or augment its current third party tax consulting resources to assist with the Company’s evaluation of complex issues concerning tax accounting to assist management in developing its judgments with respect to these issues.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

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

As disclosed in Item 3 of the Form 10-KSB for the year ended October 31, 2005, the Company is involved in a lawsuit brought by Medmarc Insurance Company in United States District Court for the District of Minnesota involving a claim for indemnification by ELA Medical and the Company’s claim for insurance coverage from Medmarc in the matter Medmarc Casualty Insurance Company v. Angeion Corporation, ELA Medical, Inc. and ELA Medical SA.

The following material developments in that matter have occurred:

On January 20, 2006, the Company and Medmarc argued summary judgment motions in United States District Court on issues of confirming Medmarc’s responsibility to reimburse the Company for its $1.4 million settlement with ELA and its legal fees paid in defending the lawsuit.

In an Order dated February 17, 2006, the Court granted, in large part, Angeion’s motion for summary judgment in the pending lawsuit.

In summary, the Court ruled:

1.	The June 2005 settlement between Angeion and ELA under which Angeion agreed to pay ELA $1.4 million to settle the claims of ELA arising out of the recall of Angeion’s ICDs was reasonable, non-collusive and made in good faith;
2.	Medmarc has a duty to indemnify Angeion for the $1.4 million settlement, plus interest from June 30, 2005;
3.	A total of 32 of the 160 ICDs that were explanted did not meet specified voltage levels to warrant recall and therefore the “device costs” and “ELA expenses” associated with these 32 ICDs were not covered by the policy. The Court stated it could not make a specific determination with respect to that portion, if any, of the $1.4 million settlement that pertains to device costs and ELA expenses with respect to these 32 ICDs. This matter, therefore, remains subject to future determination by the Court or resolution by Angeion and Medmarc.
4.	Angeion is entitled to recover from Medmarc costs and fees in the amount of $49,353 incurred in defending ELA’s claims.

Although the Court’s Order has left a few matters unresolved, Angeion believes that issuance of this Order validates Angeion’s actions. In connection with the matter, Angeion also intends to ask the Court to require Medmarc to reimburse Angeion for its legal expenses incurred in connection with defending the action brought by Medmarc and establishing the duty to defend and the duty to indemnify.

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

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

Recent Sales of Unregistered Securities

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

Small Business Issuer Purchases of Equity Securities

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

Item 3. Defaults Upon Senior Securities.

None

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

None

Item 5. Other Information.

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

Compensation of Officers

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

Item 6. Exhibits.

(a)	The following exhibits are included herein:

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

SIGNATURES

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

		Angeion Corporation
		(Registrant)



Date:	January 29, 2007	/s/ Rodney A. Young
		Rodney A. Young
		President and Chief Executive Officer
		(Principal Executive Officer)



Date:	January 29, 2007	/s/ Dale H. Johnson
		Dale H. Johnson
		Chief Financial Officer
		(Chief Accounting Officer)